Loan Payment Affordability - Update

This post is an update to my blog entry dated December 9, 2009.  Now that the placement season at ISB is truly underway, I thought this was an apt time to reevaluate the monthly loan payments as a percentage of the total salary.

During the past few months I have been constantly interacting with my future classmates, current ISB students and recent alums. Several facts have come to my notice, because of which, I am modifying the assumptions I used as part of my previous analysis.  

Based on my discussions with current students, a salary of Rs 14,00,000 is considered a "good" package on campus. Also, thanks to several people of google groups, I learned that many offers were made in the Rs. 10-12,00,000 range. These figures are substantially lower than the Rs. 19,00,000 I had assumed in my previous analysis.  Therefore, as part of this analysis, I looked at three (3) different scenarios which are presented below. 

Common Assumptions (left unchanged)

Loan Amount = Rs. 18,00,000 (assuming the deposit was paid out of pocket)

Interest Rate - 10.5% (Source: UBI - ISB website)

Term - 7 Years

Therefore, Installment = Rs 30,500/month or Rs 3,66,000/year

Interest Paid during 1st yr = 15,000/month or Rs 1,80,000/year

Tax Bracket = 30%

Deduction = Rs 4,500/month or Rs. 54,000/year

Net installment = Rs 30,350 - Rs 4,500 = Rs 26,000/month or Rs 3,12,000/year

Take home salary = 62% of CTC

Salary Assumptions:

Scenario 1 - Great (in most cases)

Average Salary - Rs 19,00,000 (CTC)

Take-Home = Rs 95,000/month or Rs 11,40,000/year

In-Hand (after loan payment) = Rs 95,000 - Rs 26,000 = Rs 69,000/month or Rs 8,28,000/year

Scenario 2 - Reasonable (in most cases)

Average Salary - Rs 14,00,000 (CTC)

Take-Home = Rs 72,000/month or Rs 8,68,000/year

In-Hand (after loan payment) = Rs 72,000 - Rs 26,000 = Rs 46,000/month or Rs 5,52,000/year

Scenario 3 - (no comments)

Average Salary - Rs 11,00,000 (CTC)

Take-Home = Rs 57,000/month or Rs 6,82,000/year

In-Hand (after loan payment) = Rs 57,000 - Rs 25,850 = Rs 31,000/month or Rs 3,72,000/year

Of course, these numbers change drastically if the loan amount was low. For example, a person making Rs 14,00,000 with a Rs 10,00,000 loan would have approximately Rs 58,000 left after paying the monthly installment. These numbers are personally disappointing to me. However, I console myself by reading Sanjeev's post and reminding myself that I am doing this for the long term.

With apologies to Mr. Arindam Chaudhuri

I was reading Mr. Arindam Chaudhuri's editorial, dated December 1, 2009, presenting a comparison of IIM, IIPM and the ISB. He does a stupendous job of converting an article titled 'Arindam Chaudhuri on why ISB is better than the IIMs' into a pro IIPM banter. As much as I might not agree with his point of view, I would be remiss not to applaud his marketing style. We should give props where props are due.

In this blog post, I would like to concentrate on one aspect of his article - importance of international placements to determine the caliber of an institute. Comparing placements at IIMs and ISB, he states that ISB is better than IIMs because a higher percentage of the class accepts international offers. Applying the same logic, he concludes that IIPM Delhi is the best B-school in the country (at least as far as placements are concerned) because it had the highest number of international offers during the last two years.

This argument sounds absurd to me. It has more to do with the fascination Indians (in general) have about relocating to a foreign country and less to do with the quality of placements. I am as guilty as anyone else out there in having that mindset. During my engineering in India, my career goal was to relocate to USA. Just thinking about my naivety makes me sad. Dont get me wrong, I love the USA and have had a great time for the past 6 years, but that should not have been my career goal.

Although international exposure is great, I believe that the reputation of the school is better reflected by the quality of domestic companies that recruit on campus and the roles offered. A professor of mine at the University of Texas at Austin used to say that the quality of a University can be determined by looking at the number of domestic students it attracts as opposed to its international student enrollment. Anyone who has completed their masters in the US will know what he meant, but for the benefit of others, let me explain. At most medium tier to low tier US universities, the engineering colleges are comprised of students primarily from India, China and southeast Asian countries. As an example, at the University of Texas at Arlington, the electrical engineering graduate classes consist of 95% international students. A friend who studied there told me that his classmates called their American classmates as "foreigners". Unless studying part-time, domestic students always select reputable universities for their masters.

In my opinion, the number of international offers by itself in no way represents the reputation of an institute. Placements can be better assessed by comparing how successful the institute was in placing students in their desired fields and roles. As an example, many of you want to change careers and switch to consulting. Assuming that your preference does not change during your time at ISB, the percentage of students who successfully transition into consulting would be a better metric than the number of international offers.

(Mr Chaudhuri's editorial - http://www.merinews.com/article/arindam-chaudhuri-on-why-isb-is-better-than-the-iims/15789721.shtml)