Last week, there was a news item in this publication about higher education fees and how they're straining the finances of people who are trying to educate their kids (or themselves) in our country. The article mentioned that the fee at the IIMs was now Rs 13 lakh a year and that of the International School of Business (ISB) was Rs 24 lakh a year. It also gives examples of people whose career and life decisions are dominated by having the large overhang of the EMIs of an education loan.
Over the last few years, educational expenses have become a major factor in people's personal finance calculations. Parents and students tend to raise large loans, not just for specialised postgraduate education that has a clear career imperative, but even for undergraduate education. For any other kind of loan, one could straightaway say that a clear return-on-capital calculation should be done. However, this is impossible to do for education. Much of the returns are in the form of lifelong intangible benefits, and have so much potential hidden upside that it's hard to make a financial calculation.
And yet, some kind of a financial trade-off has to be done. The simplest is to not to get into evaluating lifelong benefits but simply take a hard look at the ability to repay. However, this must be done with the assumption that in today's economic climate, the financial return from education may or may not come immediately, and may not match up to optimistic projections. Of course, this is much easier said than done. Optimism is what carries people forward in life, and it's probably pointless to ask them to project their life in a pessimistic manner because that fits the principles of personal finance better.
Unfortunately, the real solution lies somewhere else. Education is not just a personal benefit, but one to the entire society. In principle, no private education should be needed since we have low-cost government schools and colleges. Education and healthcare are the two newest--and huge--personal finance challenges for Indians. In both, there is no real solution unless the government miraculously starts doing its job.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
