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“Should I let my son gofor an MBA overseas?”This innocuous little question on Apnapaisa.com’s “Ask the expert” section caught my attention. Why this question? After all, I asked myself, which father would not want to let his son do an MBA overseas?
Let me share the dilemmaDinesh faced and the solution I advised him:
The reader, Dinesh Sehgal (name changed), was in his early 50s and working as a mid-level officer in a public sector undertaking (PSU) in Delhi. He had married off his two daughters and his only son was an engineer and working with a Delhi-based software company.

The expenses incurred on bringing up his children and their education and marriage and his own modest income (Rs 7 lakh per annum net of taxes) meant that he had no significant investments/ savings. He had his own house (worth around Rs 55 lakh) though with a home loan of Rs 18 lakh was still outstanding on it.

His son wanted to do an MBA in Australia, which would cost him around Rs 20 lakh. His son had savings of around Rs 5 lakh and was looking for an education loan of around Rs 15 lakh. A PSU bank had also agreed to provide this loan, but required Dinesh to be a guarantor as well as to provide the house as security for the education loan. The PSU bank was prepared to take over the existing home loan as well from the existing lender.

So, if everything was set, what was the problem? Clearly, Dinesh was having second thoughts. His onlyserious asset was the house and he was worried about loosing his house in case the son was not able to repay the loan for any reason.

At the same time, he wanted his son to get the additional qualifications so that he could progress in his career. A real dilemma, this!This left me perplexed as well. What advice do I give him? As a fellow Indian, I understood Dinesh’s desire to do the best for his son. At the same time, as a financial planning professional, it was clearly notadvisable to expose your onlyfinancial asset to the risk in such a manner.

I must confess, I was a bit confused. After lot of discussions with our financial planning team (all of whom are much younger — with only one of them having a child, that too, aged 7 — and hence not really in a position to empathise with Dinesh) I worked out a typical Indian-style compromise.

My first question to Dinesh was, are you prepared to borrow money against the security of your house to lend to your son for the purpose of his higher education?His reply was, “If I could be reasonably sure that my son would pay it back.”My next question — under what circumstances did youexpect your son not to repaythe loan?

He mentioned the following reasons:
He will fail in the course — given his brilliant academic record so far, this was unlikely l He will fall sick or have an accident preventing him from completing the course — this is an insurable risk and should be covered by insurance
He will complete the course but not be able to get a job — given his background, this position at worst can only be temporary
He will get a job but due to other responsibilities (marriage, job overseas, etc…) neglect to repay this liability

The last point was the real concern area. Normally, I told Dinesh, we depend on our culture and traditions to make sure that the son will pay for the father’s debts. (Read Sukhilala is alive and kicking! in this paper on November 21).

Analysing his state of mind, I advised him that in his case, the debt was really taken by his son and only guaranteed by Dinesh. A good compromise option would be to draw up a legal document between father and son making it clear that whilst both are joint borrowers on the bank’s records, the loan has been taken for the purpose of the son and between themselves, he is fully liable to repay the loan.

This document, along with the normal social pressure that exists in our society, should be a reasonable safeguard against the son neglecting to pay back the education loan even though he may be capable of doing so.

Dinesh has not got back to me on this and I am not aware whether he followed my advice. Could I have advised better? I invite readers to send their views.

The writer is CEO, Apna Paisa, a search comparison engine for loans, insurance and investments.