The Common Admission Test or the popular CAT exam is the ticket to the dreams of lakhs of students to get admission into the prestigious Indian Institutes of Management (IIMs). From the past several years, this exam’s popularity and the hype surrounding it has intensified. This can be seen from the fact that the number of applications has been increasing constantly. Huge numbers of students who appear for this examination compete for the 2,000-odd seats that are on offer at the IIMs. This year, around 2.41 lakh students applied for CAT. This exam has acquired the reputation of being the toughest entrance test for business schools throughout the world.
Last year, The Indian Institute of Management, Ahmedabad (IIM-A) has received applications from 2,38,665 candidates. It short-listed only 817 candidates for personal interview for a two-year postgraduate programme in management. The admission barrier at IIMs is a rigorous process that involves a written test, interview and group discussions.
The Reality of Financial Soundness Required to Pursue IIM education
Apart from hard work, you should have a strong financial foothold in order to get into the IIMs. Many students spend thousands of rupees on coaching and a considerable amount of time to crack CAT exam, but most of them fail to get a seat in the IIMs. Even if you get selected, you may not get enough time to celebrate as you have to arrange fees for this expensive education. The fee for a two-year management of business administration program at IIM Ahmedabad is around Rs.14 lakhs, while it costs around Rs.13.5 lakhs at IIM Calcutta and Rs.13 lakhs at IIM Bangalore. Only a few students qualify for breaks in fees at these IIMs.
This huge amount of fee can be very tough for middle and lower middle class families to afford. The only way they can arrange their fee is through educational loans. Though the government considers education loans under the list of “priority-sector” loans, many students struggle to get loans as banks are still reluctant to lend to students whose parents are not prosperous or influential. Leave a loan, most banks will make it difficult even to open an account.
Educational loan is the only option
You can get an unsecured educational loan up to Rs.4 lakhs only from banks, that too with high interest rates. But for loans of more than Rs.4 lakhs, you need to put some assets such as property owned by you or your parent or fixed deposits in the bank as 100% collateral to cover your loan. Your asset will be blocked till the time you repay the whole amount. You cannot add another floor to your house, you cannot take loan on it for other emergencies, your siblings may not get enough financial support.
Even then if you opt for a loan, banks typically give educational loans of up to Rs.10 lakhs only. You need to adjust the remaining Rs.3 to 4 lakhs with your own resources. The per capita income of a person in Hyderabad is about 8k. Even for a family making Rs.25k per month, arranging this amount is difficult. Chit funds will give around Rs.4 lakhs for a Rs.5 lakhs chit if you need money immediately. The chit amount for Rs.5 lakhs will be around Rs.15k per month. Remember your parents should be able to pay this amount every month till you finish your course.
Huge interest rates on educational loans
Interest rates on educational loans vary from 11.25% to 12.75% depending on the amount of loan. Let us assume that you got a loan at 11.75% interest and you plan to repay in the next 15 years. You will have to pay almost Rs.22 lakhs for the educational loan with interest. Don’t forget the fee (Rs.3 to 4 lakhs) that you need to pay upfront. You would end up paying more than Rs.25 lakhs on fees only.
You may need to move out of your small town or city or non-metro to study at IIMs. You should be aware of the other expenses while studying in a different city. Finally after doing all this you have to live like a beggar. You should live very very modestly. You cannot match expenses of other students. Studying at IIMs is not a problem for prosperous or influential people but it may not worth it for regular middle class people.