When Gabriela Rodrigues was accepted to the MBA program at ESMT in Berlin, she knew she would have to get a bit creative with funding her education.
To pay for her first installment confirming her enrollment, Rodrigues, who is from São Paulo, started looking at her options with banks in Brazil. But her choices were far too expensive.
“I asked my bank in Brazil to provide me a figure for how much it would cost me for doing the transfer, and it turned out to be far too much with all the taxes, rates, and fees, especially given the real to euro exchange,” she said. “So I had to be really clever about how would I proceed with this.”
Since ESMT accepted bitcoin as a form of payment, Rodrigues ended up contacting a bitcoin-savvy friend to talk about her options. She ended up financing that initial payment with a combination of bitcoin and personal savings—which saved her a significant amount in fees.
“When I bought it, the value was increasing a lot—I was a little afraid of losing time, but the whole process was so fast,” Rodrigues says, adding that she saved mostly on fees. “That way I could protect myself a little from the risk. But I was really fortunate to have a friend who already knew how to navigate the bitcoin world—otherwise I probably would have given up and gone with the bank.”
MBA costs are on the rise, making financial planning for your degree even more critical. The tuition rates for one-year MBA degrees in the UK regularly exceed £10,000 ,with top programs like London Business School costing up to £78,500 for tuition alone. Top two-year programs in the US can be even higher, some surpassing the $100,000 mark.
In the US, the student loan industry is a multi-trillion dollar industry, and hyper-competitive; traditionally, banks have provided these loans directly to students. However, there are also federal loans issued by the U.S. Department of Education, including subsidized loans for students with financial need, and unsubsidized loans, which do not require applicants to demonstrate financial need. Federal student loans have flat interest rates set by Congress, while private student loan rates depend on your credit score. However, loans are generally not available to international students, at least without a cosigner who’s a US resident.
The UK government also offers similar schemes; UK or EU students who meet certain criteria are eligible to apply for the Postgraduate Loan for Master’s Study from the government, which provides a loan of up to £10,000 per student for postgraduate master’s study. However, for many MBA students, this still isn’t enough to cover most tuition costs. Eligibility for student loans from the UK government can also be tricky; loans are essentially only available to students who have lived in the UK for at least three years before the start of their course.
Emerging MBA loan options
It gets fairly complicated for international students. These cost challenges can be even higher depending on the banking situation in their home country, as well as currency concerns.
“In developing nations, options are even more limited,” says Ricardo Fernandez, Chief Marketing and Sales Officer at Prodigy Finance, a provider of student loans to MBA students and other postgrads. “India is the only country that has established a student loan industry over the past 10 years—there are several banks and new financial companies that lend to students studying in-country and outside, but amounts are limited. Other developing countries have very few options for students studying abroad, which is historically why they have focused on savings or scholarships.”
Many international students turn to Prodigy, which originally launched as a peer-to-peer funding program for INSEAD students but now works with a roster of 85 schools. Roughly 83 percent of Prodigy-funded students had no alternative source of educational financing.
For Rodrigues, currency fluctuation was a significant factor in her decision to take a Prodigy loan to finance her MBA.
“I was really concerned about the exchange rates,” she says. “So I decided to take out a loan on the euro with Prodigy; I figured I’d be here after graduation. In Brazil I’d have to pay there, and that would be much messier. Plus the rates with Prodigy were really good—and I could pay six months after graduation.”
Financial technology companies are also disrupting the industry in recent years, with relative newcomers like SoFi, CommonBond and Earnest also providing MBA loans.
Then there’s always the self-financing option; Bharti Syal, an MBA student at Lancaster University, says that she was already planning on doing an MBA two years before she applied, so she began saving early. Syal did her undergraduate in Chennai, India, and worked in digital transformation for six years, spending one of those years in London.
“I didn’t want to take a loan; it becomes a headache when you’re trying to focus on your studies,” she says. “My father also helped out, and I was saving most of the money I was earning in India and London as I was already in the mindset of preparing for an MBA. It’s always good to save money where you can.”
Syal also received a scholarship from Lancaster, which provided £9,000 of the £29,000 cost of tuition. She says that anecdotally, roughly a third of her peers took out loans to finance their MBA. Rodrigues notes that most of her classmates finance their MBA with a mix of scholarships, savings, and a loan.
Some financial planning advice
There are myriad roads to financing an MBA program, and at times it can seem overwhelming, particularly after counting in other ballooning expenses like living costs. But experts say that there are more options than students may think.
“The biggest misconception we see from students that come from emerging economies is that they don’t think they can get financing,” says Prodigy’s Fernandez. “Their current salary or lack of salary doesn’t justify a loan, and that is why companies like Prodigy Finance were created—to look at the future earnings potential of students.”
Another common misconception is that they can only access small loans for tuition, Fernandez adds—but students can borrow for both tuition and living expenses.
Syal says to do plenty of thorough research—to self-fund when you can, in order to avoid paying fees and interest. But even if that’s not possible, don’t give up.
“Don’t get disheartened if you’re just thinking about how to finance an MBA,” she says. “Look up all your options; go look on different websites, get people’s opinions, and find out which on is better for you. Only then decide—clear your doubts before taking a loan, but don’t give up because you don’t have money to fund it.”
Rodrigues gives the most business-school appropriate advice when it comes to financial planning: have a plan B.
“Don’t take all of your cost out on a loan, because you do have to repay it after all,” she says. “But maybe you’ll graduate, and you won’t get that job that was supposed to pay off all those loans. Have a plan B, because it’s not as magical as it sounds. Try to make good mix of your savings and loans, and be prepared with a backup—you might not find your dream job right away.”
Photo: CC BY-SA 3.0 Cropped/Student Loan/Nick Youngson