Editor’s note: Each season we help many Indian (and a few international) applicants crack into the best universities in the world. But not everyone is able to attend those programs. This year we saw 2 such cases where the international applicants (from the UK and Africa) got into good programs, but lost the opportunity to join due to funding issues.
Two years back, we had an impressive Indian applicant settled abroad who got into INSEAD. She had very little time to arrange for the funding, and couldn’t attend. She applied argain this year and got in (here’s the story of how she got into INSEAD twice). She graduated this year and joined one of the top top management consulting firms. All ends well for her.
However, the fact remains – studying abroad comes with a lot of challenges. After getting an admit from a top university, the next big hurdle is getting a student loan. Most Indian and international students underestimate the complexity involved and assume things will fall in place automatically.
Our INSEAD friend had mentioned about Prodigy Finance. They offered an interesting alternative to the education loans given by Indian banks. Prodigy’s USP is that they offer education loans to Indian applicants for postgraduate study abroad, without any collateral requirements.
After hearing about them from some other folks as well, we thought apart from the Admission committees that we’ve featured on our site, it might be helpful to invite another team that’s equally important in the international student’s journey.
– Sameer Kamat | Founder, MBA Crystal Ball
In this Q&A post with Chloë Foden, Chief of Staff at Prodigy Finance, we’ll find out more about what they do, how they do it and what Indian and international students can do to get their loans approved in time.
The Prodigy Finance FAQ page on the official site has answered many student questions. For the sake of completeness and convenience, we include some of those and add a few more relevant ones.
MBA Crystal Ball: Compared to traditional loans by banks, Prodigy’s community finance model is pretty innovative and seems to have overlaps with the microfinance lending model (i.e relying on social pressure to avoid default). Can you please explain how that works?
Chloë Foden: Prodigy Finance is not a bank and we don’t want to be. We offer community-funded loans to international postgraduate students attending top business schools (as well as STEM, law, and public policy programmes). The loans are funded by a combination of alumni investors, high net worth individuals, universities, and institutional investors who have an interest in higher education. In many cases (83 percent), Prodigy Finance provides funding to students who would otherwise not afford their postgraduate degree.
The funds are disbursed directly to universities. After the study and grace periods (dependent on the specific school and course), students begin repayment and students’ repayment status becomes visible to investors.
Why does this work?
Banks cannot price foreign risk nor enforce repayment across borders. Traditional lending models only assess historical indicators (e.g. past salary or current assets), ignoring likely salary increases after business school. It’s a win-win for the parties involved:
MBA Crystal Ball: Indian banks have limits on student loans that generally fall short of the financing requirements for studying abroad. Does Prodigy finance have such limits?
Chloë: The amount that a student can borrow varies depending on the cost of tuition for the programme he or she attends. In some cases, loan maximums are set at the cost of tuition (living and related expenses aren’t covered). At many American business schools, loans can reach up to 80 percent of the Cost of Attendance (CoA). A few of the STEM/business crossover programmes have a maximum that reaches the university-provided CoA.
Of course, the final amount also depends on the profile of individual applicants.
MBA Crystal Ball: What kind of programs do you cover and exclude? Apart from the MBA loan, does the loan cover the cost of living as well?
Chloë: The largest segment of Prodigy Finance’s lending portfolio consists of MBA and Executive MBA (EMBA) students. While this is where the company started, it soon expanded to include additional post-graduate business programmes, such as Masters in Finance and Masters in Management degrees.
Over the years, the business model expanded to include engineering, law, and public policy programmes. Recently, a number of STEM courses have been added to our portfolio which enables funding for business and engineering crossover programmes, such as information systems and operations research.
The loan amounts Prodigy Finance can extend vary between schools and programmes. Though some universities (most commonly found with the European business schools) have caps at 100 percent of tuition, the funds are disbursed directly to the school and can be used according to the arrangements made between students and the university.
Some schools allow Prodigy Finance loans that cover as much as 80 percent or 90 percent of the CoA provided by the universities. As every school has specific terms, it’s important to check the Prodigy Finance loan page for programme a student wants to consider.
We currently support well over 200 schools and are constantly adding new ones to the list, so it’s worth checking again – even if a student recently viewed the complete list. And, if student is interested in a specific programme, he or she should send an email to email@example.com to inquire about the possibilities for loan products in the near future.
In addition, we’ve recently launched a refinancing option for international students who previously accepted an educational loan from an American credit provider to attend one of our supported programmes in the US. For graduates, this not only reduces the interest rate on existing loans, but also allows them to release their American co-signer.
MBA Crystal Ball: The interest rate in India for education loans is quite high. How does it work with Prodigy loans for Indian (and international) students?
Chloë: Prodigy Finance will always try to provide as competitive a rate as possible and should be lower than rates available in India for international postgraduate study.
Various factors are considered in calculating the interest rate; these relate to both the applicant and the quality of bureau information as well as, the course and school of choice, affordability, and other market rates.
Prodigy Finance applicants receive interest rates above a variable base rate. The variable base (Euribor, Libor or US Libor, which are the interbank lending rates in Europe, UK, and the US) is dependent on the currency (Euro, Pound Sterling or US Dollar) of the school loan.
Representative example of how this could look for a €40,000 loan for a MBA at INSEAD:
MBA Crystal Ball: This is unusual for Indian students who are more accustomed to fixed rate student loans from Indian banks. Doesn’t the fluctuation add uncertainty?
Chloë: While this may be unusual in India, it’s actually a standard in other parts of the world – and the model offers a number of benefits for borrowers. One of the most important occurs when base (LIBOR) rates drop; borrowers immediately gain from lowered monthly payments during this time. In addition, transparency of the standard measurement such as Euribor, US and UK Libor rates are easily communicated.
There is another benefit which is especially useful for international students that hope to spend a few additional years in their host country to gain work experience and repay their loan. Because Prodigy Finance doesn’t work with fixed monthly instalments – and there is no penalty for early repayment – borrowers have an opportunity to repay their loan faster than the initially-agreed terms which can significantly reduce the total amount paid.
MBA Crystal Ball: Are there any key similarities or differences in the modus operandi between how Prodigy’s credit committee evaluates student applications vis-a-vis Admission Committees of universities?
Chloë: The focus of the loan application to Prodigy Finance is affordability and credit worthiness; there are a number of factors used in this assessment, such as employment, salary, GMAT (or GRE) score and more. We also require a credit bureau report to check for any significant payment or default issues.
Conversely, universities tend to focus on a larger scope when assessing a candidate, ranging from test scores and industry experience to demographics.
MBA Crystal Ball: Prodigy’s predictive model relies on the future earning potential of the student. Most applicants (specially MBA students) are hoping to change careers after graduating. Keeping that uncertainty in mind, what specific parameters does your credit committee take into consideration while making a decision?
Chloë: We consider a number of factors within our credit risk assessment model, which develops future earning potential overlayed with a firm, but supportive credit policy to determine affordability.
In order to manage the risk, we constantly update and refine the parameters and weighting of our criteria.This is done by using real data and then measured against a host of statistical tests As our list of supported universities grows alongside the rapidly increasing number of borrowers across fields, we gain more of the data we need to fine-tune our risk assessments.
MBA Crystal Ball: What’s the percentage of borrowers, in the client pie chart, from emerging markets? What are the typical reasons for rejecting applications?
Chloë: Emerging market borrowers make up 80% percent of our portfolio. The number of borrowers from these economies is steadily growing, along with the diversity of countries we’ve accommodated over the years. At the moment, we’ve provided loans to more 131 nationalities. We don’t subscribe to generalist thinking though – even within countries there is an amazing diversity of issues to consider beginning with age, residence, education, mobility, and moving forward into loans.
We decline applications in a relatively low number of cases – after all, they’ve already done a lot of the hard work by getting into a top global university. When it happens, the issue tends to fall into one of two categories: an applicant is over-leveraged (they have too much debt already), or affordability (a significant budget shortfall has been identified). In a very small number of cases, a credit report indicates a poor repayment history in which case we investigate further.
MBA Crystal Ball: With your impressive repayment track record, it appears that you’ve been able to evaluate the candidate’s placement potential better than many Bschools. Any tips that you might want to share with Admission Committees across the world and with international applicants to maximize their chances of getting a good, high-paying job after graduation?
Chloë: To date, we’ve not written off a loan; our repayments are as good as they are because the right candidates attend the right universities and business schools. Admissions committees do an outstanding job of selecting great candidates for their programmes. We’re lucky to be able to leverage their work, using their expectations as our first filter. It’s part of the dynamic relationship we aim for; their success in candidate selection makes it easier to be successful ourselves.
We value communication and strive to work with each school, and their individual candidates, to find a way forward whilst adhering to our responsible lending criteria as agreed with our investment community.
Communication and constructive feedback are two important elements for any applicant (and, for that matter, anyone)to consider and incorporate when planning for the future. Learn from your experience and apply and share that knowledge through every step of the application, education, and career-selection process.
Learn more about education loans from Prodigy Finance: Edu Loan FAQs | Blog | Get a Loan
Bio: Chloë Foden is the Chief of Staff at Prodigy Finance and joined the company in September 2014. Chloë is particularly interested in driving social value and community building, and looks to grow Prodigy Finance into the leading global option for international student loans.
Apart from the general reviews about Prodigy Finance that are available on the internet, the team to shared this review by an Indian student who has taken education loans from Prodigy Finance.
Also, get in touch with folks that you might know (friends of friends who can share their real experience) who’ve gone through the loan approval process to find out whether this option will work for you.
If you have questions for the Prodigy Finance team, post them in the comments section below.
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