Higher Education Always comes at a cost

Arranging adequate funds is often the most crucial factor for students looking to go abroad to study. And although it is still considered more affordable, when compared to some of the other popular destinations, the cost of higher education in India is rising as well. This is especially true for those who want to pursue professional courses like management, medicine, engineering and law, where the tuition fee alone can amount to lakhs of rupees. 

So far, most students found comfort in knowing that, in the absence of ‘deeper’ pockets, they could always make use of one of many education loans on offer. However, the recent economic slowdown has left them speculating on the viability of such loans. Earlier, hopes of getting a ‘decent’ placement after the said course enabling the repayment of the education loan was assurance enough for most students. But now, with the issue of placements itself coming under question, they may no longer be the best option. 

As Revant Bhate, second year student, Indian Institute of Management-Kohzikode (IIM), points out, “While most of us, at this stage, are mainly concerned about the kind of placement and salary package we will get, the education loans we have taken are no doubt at the back of our minds.” He further adds that unlike those studying at the IIMs, it is the students studying at private institutions - with higher fee structures --- who will bear the brunt of the credit crunch. Ravi Sardana, senior merchant banker, ICSI Securities, elaborates, “Although the flow of education loans will be undeterred, banks are likely to be a little more concerned as far as retrieving these loans are concerned. Hence, banks may become more stringent in carrying out background checks in terms of a student’s financial credentials.” 

Ironically, not only has the economic slowdown made it more difficult for students to gain access to higher education, it has also made it more important. Earlier, a bachelor’s degree probably would have sufficed to gain employment; today students must leverage themselves on the basis of higher qualifications. But, with rising costs and increasing speculation about education loans, what are the options available?

PLAN IN ADVANCE

Most experts maintain that students, and parents alike, need to plan in advance. Though higher education always entailed planning one’s finances, there is now a heightened sense of urgency with respect to the same, given the current economic scenario. Elaborating further, Ajay Relan, managing partner, CX Partners, says, “With the threat of liquidity looming intermittently in the banking sector, cash and credit flows are subject to uncertainties for some time. While educational loans would not be denied to the beneficiaries there might be some delays and changes in existing loan schemes. Hence, it is imperative for students to have a pragmatic financial plan, which allows for backup options in times of crunch.”On a more positive note, for those willing to plan in advance, there is a wide range of schemes available.

OPTIONS FOR PARENTS

“Investing in post office schemes, insurance, fixed deposits and mutual funds are the options available for those wanting to collect, say, between Rs 10 to Rs 15 lakh for their children,” informs Vikram Kakad, a life insurance agent from Delhi. But, given the current scenario, will people risk their money in investments? Anil Chopra, director and group CEO, Bajaj Capital, believes they will. “Investment in education is for a lifetime. And more and more people are becoming aware of the need to plan finances towards this end,” he reasons. According to Chopra, financial planning is the best option for funding education and loans should be the last option. “Although there can always be a gap between the required amount and what you planned in advance, it can be covered with a loan of a small amount. Funding the entire amount is never a viable option,” he says. Besides, there are many other clauses attached to taking an education loan. For example, many public sector banks offer loans only if you go for a high-profile course. “So, investing in Unit Link Investment Plans (ULIPs) or mutual funds are perhaps better options for parents,” opines Chopra. 

According to Relan, applicants who possess strong collaterals in the form of properties and liquid securities, such as LIC policies, are also in a better position as far as higher education is concerned. “In fact, this is also one favourable criterion as far as assessment for loan eligibility is concerned,” adds Relan. 

Investing in a systematic investment plan (SIP) is another option available to parents. And as to what the minimum amount invested should be, Chopra says, “It depends on the spending capacity of the person. One can even start with as small an amount as Rs 500 per month, which can be increased with time.” And as the investment is considerably small, even students who are studying or earn part-time can think of investing in SIPs. Shubhra Talukdar, a management graduate currently employed by a Mumbai-based consultancy company, is a case in point. He faced no problems when it came to funding his higher education. “My father had invested in SIPs at a public sector bank. I never had to take any loan and was never worried about loan repayment, unlike my other friends,” he says. Talukdar agrees that it is logical to invest in advance but, “it is also safe to go for mixed planning based on investment in equity market or the debt market.”

OPTIONS FOR STUDENTS

“Although it may be a little difficult to arrange for an amount such as Rs 30 lakhs, students, too, can invest in their education. They can plan their funds four to five years in advance, work for a while and take up some professional course later,” says Chopra. Education loan can also be an option, notwithstanding the fact that tighter planning is required in terms of loan applications for higher education. “Students should realise that if they invest judiciously now, they are likely to reap benefits in the long run,” assures a senior manager with a public sector bank. Speaking about some of the measures and precautions that can be taken by applicants for higher education loans, Relan says, “Applicants can consider identifying a credible guarantor and then making a joint application. This will reassure banks in terms of the repayment.”