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How to finance your MBA

Posted: September 8th, 2014, 11:09 pm
by MBACrystalBall
[This is an article that we wrote for Pagalguy]

Most Indian applicants think that the GMAT registration fee of $250 is high. Then they realise that each MBA application needs an additional application fee.

Depending on the number of applications, this can burn a bigger hole in their pocket. But the one that takes the cake (and in fact the entire bakery) is the main MBA tuition fee. And the constantly fluctuating USD:INR exchange rate isn’t helping either.

A small change in the rate can mean a few lakhs up or down in the overall MBA budget. So it’s important to size up the potential damages first and then plan for it.

This post covers basic questions that can help you start the process. We’ll use one applicant's question to set the tone.

Q1. abhi2911 asked: Can you throw more light on how to finance your MBA?

Before addressing that question, you’d need to find out how much financing you’d need. There are two categories of expenses.

In the application phase, you’ll need to shell out a considerable amount of money – some categories are optional (e.g. GMAT coaching, admissions consulting), while the others aren’t (e.g. GMAT fee, Bschool application fee, visa fee, airline tickets).

For all of this you are dipping into your personal savings.

For the main MBA program, apart from the tuition fee, you should also factor in the cost of living, books, laptop, local expenses (commuting, socialising, emergency fund). Once you’ve got an estimated list of expense categories in your Excel worksheet – fill up the individual amount cells with what YOU think the expense would be.

Don’t strictly go by the numbers mentioned on the school website as these can vary quite a bit for Indians. If your spouse is accompanying you, the cost will be higher. If your personality and track-record predispose you to spouse-hunting in foreign land, the expenses (for dates, expensive gifts) go up further.

Financing this has to be combination:

- Personal savings: The wealth you’ve accumulated from your salary (also a good time to discover long-lost, rich uncles).

- Domestic loans: You can borrow from Indian banks (they’ll ask for some collateral)

- International loans: Many schools have tie-ups with local banks to offer educational loans at interest rates that are better than Indian banks.

- School specific funding options: Tuition waivers, scholarships, part-time work on the campus.

Most of our clients place a greater emphasis on the last option as it's a great way to get some 'free money' (we're talking about several lakhs of rupees in savings). Read this article - GMAT Scholarships for Indian students.

Till a few years back the proportion of each of these used to be different. Banks were more than happy to hand out thousands of dollars in education loan purely on the basis of a top Bschool admit, without worrying too much about the repayment risk.

Now they’ve become tight-fisted. They expect students to manage a major part of the financing on their own (savings, local loans). In schools, where the workload isn’t too heavy, students are allowed to work part-time (for up to 20 hours a week) in return for a modest stipend.

Q2. abhi2911 went on: What about those who do not want to do odd jobs to finance their living costs?

In that case, either you should be in a position to pay a higher proportion of the fee from your own pocket or apply to schools where the fee is still within your reach or target schools where your chances of getting scholarships are higher.

Several Indian applicants manage to get MBA scholarships that cover their expenses partially or fully.

Of course, do keep in mind that your primary yardstick to prepare a shortlist of schools should be ‘FIT’.

Ask yourself if you really need a Harvard or a Stanford to reach your goals? Or will a lower ranked, but good school get you there?

Q3. abhi2911 continued: What is the scenario like, in scholarships and financial aid field?

All bschools offer scholarships in some form or the other. In the top schools, the really mouth-watering scholarships are also the ones that attract the most brutal competition.

Most of these are merit based, some are need-based. A few might be linked to specific ethnic backgrounds. Some Indians try to play the ‘I’m a minority applicant because my ethnic background constitutes less than 10% of the Indian population’ card.

Bad idea, unless you have a genuine reason to make that claim. As an Indian MBA applicant, you belong to an over-represented applicant pool. Try to differentiate yourself on the basis of talent and merit.

Q3. abhi2911 opens the floodgates: What precautions must one take, while taking an education loan? And what should I do if my family lives in a rented accommodation…is there a way I can get collateral free loan?

Many top schools used to offer collateral-free loans, but these have become more difficult to come by now. Most banks don’t want to take the risk with international applicants. But you could check the financing section of each MBA program.

They list out the various ways you can fund your MBA. For US based Bschools, a popular option is to go for co-signor backed loans i.e. someone you know out there who can provide the guarantee for your education loan.

Which means if you can’t pay the loan back, the bank still has someone locally to pay on your behalf.

The most basic precaution is – Don’t borrow any amount that’ll give you sleepless nights. Don’t burn all your resources (and your personal bridges) just to fund your education.

If you are struggling with finances, work for a few years more, get some more disposable income and then re-consider investing in an MBA.

Decide what’s import in your list of priorities – food, clothing, shelter first…mental, physical & financial well-being later…and then somewhere down the road comes higher education.