How to pay for an MBA

Studying for an MBA is a long-term personal commitment and one that comes with a significant price tag. With tuition fees for the top 10 programmes in the FT Global MBA rankings averaging almost $70,000, funding a course is likely to be among the biggest expenses MBA students will incur during their lifetime.

Tuition fees, though, are just one factor to consider when budgeting for an MBA. Living costs, course materials and exam fees should also be taken into account.

Unless prospective students have substantial savings tucked away, they will need to call on multiple sources of funding to cover the cost of their studies, particularly in the absence of income from full-time employment. According to Harvard Business School, 65 per cent of students rely on financial assistance during their MBA studies, while at HEC Paris this figure is just over 55 per cent.

MBA students are advised to begin researching their funding options early. “Every year we see candidates who are unable to start the MBA when they planned, due to allowing insufficient time to arrange funding,” says Sarah Finch, senior MBA admissions officer at Cass Business School in London. “It is very important to have funding arranged for the duration of the MBA before starting the course, and for students not to overstretch themselves financially.”

Scholarships
Top business schools do not want to risk losing the best MBA talent to rival programmes, so many will offer a range of scholarships to attract stellar candidates. “We realise an MBA is a big financial commitment and we want the best calibre of candidates. That requires a good range of scholarships,” says Sotirios Paroutis, assistant dean of Warwick Business School.

Chen Shimin, MBA director at Ceibs in Shanghai, says in the past year the school has offered $2m worth of scholarships to about 180 students. “Providing access to financial resources is very important in attracting top talent from around the world. MBA programmes are becoming extremely competitive,” he says.

Most business schools will list details of scholarships on the finance section of their website, including those supported by companies and foundations.

In addition to many of the merit-based awards, MBA students may find their backgrounds or previous careers make them eligible for some of the more diverse scholarships on offer. Columbia Business School in the US, for example, which provides financial aid for 46 per cent of its MBA students, offers a dedicated scholarship for those joining its programme from a military background.

In a drive to encourage more women into top business roles, some institutions, such as London Business School, offer scholarships specifically for female MBA students.

Scholarships are also available for students who choose to study abroad. Many business schools, including Harvard, give Fulbright scholarships to non-US students studying in the US and US students studying overseas.

Loans
Large banks have retreated from the MBA market in recent years, meaning students have become reliant on other sources for loans. But banks still play an important role in funding MBA studies.

In the UK, career development loans from the Co-operative Bank, Royal Bank of Scotland and Barclays are available to students who intend to stay in the UK or European Economic Area after their MBA programme. The loans are for up to £10,000 and the UK government pays the interest until the student graduates.

Santander has loan agreements with a number of business schools, including Cass and Oxford’s Saïd, for up to £20,000. The interest rate is 10 per cent for amounts from £7,500.

It is very important to have funding arranged for the MBA before starting the course and not to overstretch yourself financially

MBA students resident in the US can opt for a Federal Stafford loan, allowing them to borrow up to $20,500. The interest rate for the 2014-15 academic year is 6.21 per cent. To supplement these loans, US students can also apply for a Graduate Plus loan, which has an interest rate currently fixed at 7.21 per cent.

Non-US students are not eligible for Stafford loans, but can borrow from banks, although they will need a US resident to co-sign any loan to guarantee repayment.

In addition, several US business schools, including NYU Stern and Wharton, have formed partnerships with credit unions to give international students access to loans without the need for a US co-signer.

Ceibs also offers loans with China Merchants Bank for all MBA students at an interest rate of 6.15 per cent.

Crowdfunding
An alternative to bank loans is to source funding from peer-to-peer lenders, giving students access to funding that is often backed by business school alumni. Cameron Stevens, chief executive of Prodigy Finance, a peer-to-peer lending platform, says the company is trying to fill a gap left by traditional banks that have exited MBA funding.

Prodigy provides loans to MBA students at 20 leading business schools in the US and Europe, including Insead and Cass. Loans are based on future earnings potential rather than an applicant’s credit history. “We get thousands of data points from universities on exit earnings and on entry profiles,” says Stevens. “We can see correlations between certain factors and can make an intelligent assessment of someone’s earnings potential.”

Interest rates on loans for MBA students at Insead, London Business School or Saïd start at 6.5 per cent.

CommonBond, which was founded by Wharton MBA alumni, also connects students with alumni investors at 20 top US business schools and has funded more than $100m in loans. Interest rates are 5.99 per cent fixed for a 10-year loan, rising to 6.49 per cent for 15 years.

SoFi is another peer-to-peer platform that provides loans to MBA students at a number of leading US universities.

Employer sponsorship
MBA students may find their existing employer is willing to contribute towards the cost of their studies, but this often comes with a condition that they return to the company after graduating.

Sponsorship is not the most common option. Ceibs, for example, says about 7 per cent of its students are sponsored by their employer and normally return to their company on graduation, while 12 per cent of MBA students at Insead receive employer sponsorship.

However, those who want to secure the backing of their employer should consider pitching their MBA dissertation to senior management, suggests Warwick Business School’s Paroutis. “Some people do not realise the power of using the dissertation project as a pitch to their organisation,” he says.