Thursday, August 28, 2014




Education Loan Cost Benefit Analysis.




A few years back, a petty shop keeper came to a mentor and expressed his inability to get his 3 daughters educated due to financial problem.


Shop Keeper: Sir, I am unable to pay the fee and college expenses of my eldest daughter who is studying in B.Sc. (Non-Medicatl)


Mentor:    Get your daughter well educated and she will support you financially.


Shop Keeper: But this is not possible sir because the cost of education is very high.


Mentor:     How much do you earn per month?


Shop Keeper:    Rs. 10000 to Rs. 15000 approximately and have to feed a family of 5 and pay the fee and expenses of 3 daughters. Two are in school and the 3rd is in the college.


Mentor:  Do you file income tax returns?


Shop Keeper:  No sir.


Mentor: Start filing income tax returns.


Shop Keeper: My income is below taxable limit sir.


Mentor:  Even then file your returns.   (Shop keeper looks suspicious.)

However he agreed to file the returns.


After 3 years, the shop keeper came to the mentor and broke the news that her daughter has passed B.Sc. (Non-Medical) in first division. He brought sweets too.


Shop Keeper: Sir, I wish  she should do P.G.


Mentor: Which P.G?


Shop Keeper:  Any P.G.


Mentor: No any P.G. Ask her to go for MBA.


Shop Keeper: But sir for MBA, I don’t have money.


Mentor: How much can you spare for MBA?


Shop Keeper : (Thinking for a while)  About 1 lac, sir.


Mentor:  Right.  Now tell, ask your daughter to clear MAT (Management Aptitude Test)


She passed the MAT with very high rank and many institutions offered her admissions.


But the fee was a problem. Mentor searched for a good college for her. Efforts of the mentor bought one good college in South was having a fee below Rs. 3.00 lacs including hostel fee. The MBS course was residential. The college readily offered the admission to the brilliant student. Provisional letter of admission was sent through email on receipt of 5% of the amount.


Showing the receipt and admission letter to the bank, educational loan of Rs. 4.00 lacs was offered to the student.


After 2 years, she was MBA and was selected by a bank through campus interview. She joined the bank and is now working in the bank.


CBA (Cost-Benefit-Analyis)


Alone Graduation   -  job opening and promotion limited.

After MBA – job through campus interview.


Father’s investment     : Just Rs. 20000/-

Education Loan :           Rs. 4,00,000/-  ( No guarantor  or security required Only Income Tax returns required)

Rate of interest    :         10% approximately.

Repayment period :       7 years

Repayment starts:          6 months if the loanee is employed otherwise from the date of passing the final exam.


The daughter earns Rs. 20000/- (estimate) and pays back Rs. 5000/- per month

Balance Rs. 15000/- is retained by the family. Full support to father. Father is now having a Departmental Support.


After 7 years entire educational loan is repaid and full salary for the next 25 years is the students earning that comes to about Rs. 80 to 90 lacs during working period directly plus indirect income i.e. earning from the investment and re-investment.


Got loan of Rs. 4.00 lacs and earned Rs. 80.00 to Rs. 90.00 plus the best social prestige of carrying degree of MBA. Can any other investment pay this much?



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