How to pay for an MBA

Candidates applying for an MBA are likely to have plenty of motivation and big ideas about their careers, but not necessarily a large bank balance to fund them. One of the most common barriers to study is a lack of finance.

The cost of degrees at top schools can be in six figures. At Stanford Graduate School of Business in the US, for example, tuition fees for its two-year programme are $128,100.

If the “bank of mum and dad” is not an option for you, what funding choices are there?

Scholarships and fellowships

The good news is that there is a diverse range of scholarships available based on need and merit that are used to attract the best and brightest students. Some 45 per cent of the class of 2012 graduates who took part in the 2016 FT MBA ranking survey received a grant or scholarship.

At Stanford, half of the MBA students in the 2015-16 academic year have received awards based on financial need, paying for an average 59 per cent of their tuition. For this year, the school has given out $16m worth of fellowships. Students from around the world are welcome to apply.

Loans

It is possible to get loans from banks. For those applying to Ceibs in Shanghai, for instance, the China Merchants Bank offers loans of up to 80 per cent of tuition at an interest rate of about 5.8 per cent.

Some schools have joined forces with credit unions (not-for-profit financial co-operatives) to fund student loans. For example, in the US the University of Rochester’s Simon school launched loans that do not require a co-signer for international MBA students starting in the autumn of 2016.

In partnership with Elements Financial and Credit Union Student Choice, the school offers loans ranging from $1,000 to the entire cost of tuition. Rebekah Lewin, assistant dean of admissions and financial aid at Simon, says priority will be based upon financial need as well as merit.

Crowdfunding

As it is uncommon to get a bank study loan from the high street, crowdfunding is becoming an attractive option.

A pioneering lending scheme, Prodigy Finance, offers alumni-funded loans to students from about 150 countries. Students accepted on a full-time MBA are eligible to apply and no co-signer is required.

Many schools give students access to this loan including France’s HEC Paris, Insead and the UK’s Oxford Saïd Business School.

There is no repayment during the grace period — the study time plus six months from graduation — and the loan is then paid back over seven years.

There are options for US citizens or permanent residents. One is CommonBond, which offers loans to students studying at 20 US schools including Wharton and Kellogg. Interest rates are currently 5.59 per cent fixed for a 10-year loan and 5.95 per cent for 15 years. The minimum amount that can be borrowed per year is $2,000 and the maximum is $110,000 or the cost of attendance (which generally refers to expenses such as tuition and room and board), whichever is lower.

Another option is SoFi, which provides loans at some US schools including Columbia and Yale. The minimum loan amount is $10,000 and the maximum is the school’s cost of attendance.

Sponsorship

It is worth talking to your employer about whether they will invest in your business education.

About 10 per cent of students who took part in the 2016 FT MBA ranking said their employers offered partial or full sponsorship. But be aware of any conditions. There may be a lock-in period during which you will be required to stay with your employer. If you decide to leave, you might have to pay back some of the tuition fees.

Earn while you learn

Despite the intensive nature of an MBA degree, some students resort to part-time work during their studies. But look out for restrictions.

First-year MBA students at London Business School are advised not to take a part-time job because of the study workload and extra-curricular activities, says David Simpson, MBA admissions director.

It pays to research ways you can save money. If you apply early, it is possible to secure on-campus accommodation, which is generally cheaper

For two-year programmes, it is feasible to undertake a paid internship during the summer break. At the University of Toronto’s Rotman school of management, some 80 to 90 per cent of full-time MBA students work during the summer. Average pay is about C$5,000 ($3,540) a month.

One benefit is that work experience can boost your bank balance as well as enhance your CV.

Budget and cuts

It is usual for students to use multiple sources of funding, as well as learning to cut back on their spending.

Ceibs MBA student Jongwook John Hong, a lawyer from Germany, says he had to change his lifestyle, travel less and go to fewer parties.

“Personal savings made the biggest portion of my funding — about 50 per cent,” he says.

“Fortunately, I received support from my parents, about 30 per cent. Since the euro was decreasing rapidly and I still needed to cover 20 per cent of my costs, I decided to take a loan from Prodigy Finance.”

It pays to research ways you can save money. For example, if you apply early, it is possible to secure on-campus accommodation, which is generally cheaper than in the private sector. Check with the school about other potential costs you may have not factored in, such as international study trips.

Participants may study financial forecasting during their MBA but it is also essential they apply it to their own budget from the start.

Nicole Tee, director of graduate studies at Singapore’s Nanyang Business School, notes that if graduates successfully complete their MBA but do not fulfil their financial obligations then they will not graduate.