Credit Worthy

Many management graduates from leading business schools begin their careers burdened by debt, owing to the high fees they had to pay. What is the way out?

Life after the evanescent time within the B-school campus can be tough if there is a huge student loan to clear. Sadly, this is the case with quite a few students graduating from elite business schools of India.

One can argue that a premier education would not be easy on the purse. But then, not all who graduate take off equally. For example, the median salary at IIM-Ahmedabad in 2018 was Rs 18 lakh (fixed yearly cash component). It means half the class got compensation packages less than this amount. The fee at the institute is currently Rs 22 lakh (up by a couple of lakhs in the last couple of years). About 60 per cent of the students take loans of over Rs 22 lakh.

One of the students who took such a loan says it is usually a 15-year loan but students prefer to pay it in 3-10 years as there isn't any pre-payment charge. The interest rates are at MCLR (Marginal Cost of Funds Based Lending Rate), which is the lowest available rate in the market.

There's also a six-month moratorium on repayment after the completion of the course. So, for a loan of Rs 22 lakh, the EMI is around Rs 26,000 per month, but for those who want to repay in less than 10 years, the EMI can be Rs 36,000 or more. This can prove to be a burden if the monthly salary level (median level) is around Rs 1.5 lakh.

The borrower also has to pay on time as any delay will affect the credit score, and thus the future credit-taking capacity. However, as one of the students, who did not wish to be identified, said, the concern was not really regarding the repayment ability but that the risk-taking ability gets curtailed.

"We tend to become risk-averse (if there is a loan to repay), which is one reason why we don't want to experiment. This is also the reason why despite increase in student intake, almost nobody goes into academics or takes up a doctoral programme or opts to become an artist or venture deeply into the social sector or go on an entrepreneurial journey, which may be a bigger loss," the student says.

What is the way out? One option could be a complete re-think on the fees and its structure. Another way could be to open up other areas of resource mobilisation for the schools. The institute itself can also intervene, which is what Amit Karna, Chairperson-placements, at IIM-Ahmedabad says his institute has done over the past couple of years.

"There is a system wherein for students who are not able to afford the fees, the institute pays the interest on the bank loan until the completion of the programme," says Karna. That apart, he says, in this same time period, the institute has "introduced an admission deferment policy for freshers (a small percentage of them) to gain industry experience for up to two years before joining the programme. Some students have also opted for this." The institute may underline work experience but to some students, it could well be a chance to build a financial kitty before heading to the classroom.


Published on: Nov 14, 2018, 9:17 AM IST
Posted by: Jatin Kumar, Nov 14, 2018, 9:17 AM IST