Till debt do us part

While the oil mafia tried to entice him with bribes to turn a blind eye on fuel aduletaration, murderd IOC sales manager S Manjunath refused to waver in the line of duty, despite his own financial constraints.

So reads the poignant story in today's Indian Express.

Details printed by the paper reveal that of his modest monthly salary of Rs 25,000, Manjunath was paying Rs 10,100 as EMIs towards two education loans (of Rs 3.5 lakhs) taken to finance his studies at IIM Lucknow. In addition, 3 months ago, he had availed of a car loan from his employer (EMI: Rs 1300)

It feels odd and a little sacrilegous to read about the private details of a deceased person's life. But in this case, the details are being published to make a point - that Manjunath could easily have taken the bribes offered and made his life easier.

He had apparently defaulted on the previous month's EMI for the PNB loan, prompting his father to write a stern letter to the son. A letter the son did not live to read...

Feeling Loansome?
In the last 5 years, education loans loans have become a way of life. Fees at professional schools - whether medical, engineering or management - have shot up. If and when students complain, they are offered a quick and ready solution: "take a loan".

And yes, getting a loan is not difficult. Loans upto Rs 4 lakhs don't even require margin. But repaying the loan is not all that easy. The interest rates charged by banks like SBI and Bank of Baroda is 10.5%.

This is linked to the BPLR (Bank Prime Lending Rate). Compared to housing loans which are available at 8-8.5%, education loans are pricier. But here's the surprise -BOB will even give you a car loan at 2% below the prime rate (ie at 8.5%).

I am not a banking expert so I can only conjecture that educational loans (below Rs 4 lakhs) are unsecured and hence the 2% additional interest rate charged is to cover the risk of default. In case of both cars and houses, the bank can attach the asset in case the borrower fails to repay.

Student loans have long been a millstone around the neck of college goers in the US. Interest rates (linked to their BPLR) are lower than in India, but the sheer number of people who take loans (practically every college-goer!) means the overall student loan market is huge.

The happy news for them however is that interest rates on federal student loans dropped to an all-time low - at 4.06% in July 2005.

This is a political decision. "The Bush administration is committed to helping students and their families finance college and career training," declared Secretary of Education Rod Paige while announcing the rate cut.

Student loan-seekers are not yet a big enough interest group in India but in years to come they will be. Future PMs, please take note!

Soon enough there may be a market for loan consolidators as well.

Think before you...
The point is 'how to finance your studies' is the easy part. But before joining a particular institute, make sure you have an idea of the kind of salary you will earn on passing out. Most banks offer a 6 month grace period after which EMIs begin.

The average salary from the average b school is about Rs 15-20,000 p.m. Ditto for engineers getting into IT jobs. Can you afford to live in Mumbai, Delhi or Bangalore on Rs 10,000 a month (rent, transport, food, bijli et al) and repay Rs 10,000 as EMI?

Of course, you'll eventually earn more but not right away! A cousin who graduated from ICFAI Business School and got a 'decent' job found the going tough. The first 6 months, she was happy enough. Then the EMI payments started and suddenly every small indulgence became a major issue.

Inevitably, she ended up defaulting on the EMI. And then hopping jobs twice, lured by a couple of thousand more. I'm not saying this would happen to everyone - but it's a very real danger!

But the worst off would be medical students. Given that they earn paltry sums until they complete their MDs, it makes sense to take a loan only if your dad owns a nursing home or is willing to shoulder your EMI burden for several years to come!

Loans for studies abroad (which require collateral, and attract higher interest rates) are another case in point. You can take a loan - even upto Rs 50 lakhs. But will you be able to earn in dollars or pounds after finishing the degree - at least to recover your tuition costs?

If not, are your parents wealthy enough to start forking out the rather large EMIs that will follow??

So be a 'loan ranger' but make doubly sure the country you choose to study in has work permit possibilities. And that the institute you join has genuine campus placements. In case of bschools, a posting on www.pagalguy.com should get you an honest answer.

And even then, be prepared for some amount of struggle in the initial years. The best education adds long-term value - and you have to be willing to pay the price.

The problem is, not all degrees, diplomas and quasi-degrees/ diplomas are really a value-add. But we live in a culture where people think an 'additional qualification' is definitely an asset. At least it looks good on paper...

Unfortuntely, sometimes it's better to keep that kaagaaz kora. Save on those EMIs. And write your own destiny.