Paying for an American MBA: Issues for international students
Funding your MBA program in the U.S. is tougher than ever before. However, there are options as a business school finance expert explains.
Michael Katz is a nationally known professional and expert in the field of financing student higher education in the U.S., particularly at the graduate and professional level. He has held positions at universities as well as in the corporate sector. He has served on numerous university, state, regional, national, corporate and Congressional committees.
The MBA-financing story in the U.S. is quite different for U.S. citizens and international students. Citizens and permanent residents of the United States can access federal student loan programs that will mostly satisfy the total cost of an MBA at federally eligible participating schools. The federal Stafford Student Loan Program and the Federal Graduate PLUS Program in combination can provide funds up to the total cost of attendance. However, international students in need of loan funds will have to consider application to private education loan programs as they are ineligible for federal funds through the U.S. Department of Education.
Prior to the recent financial crisis there were a number of student loan providers that had programs designed for international students studying in the U.S. There were a sizeable number of these competitive programs. Some even made these loans available to international students without an eligible U.S. co-signer while others required one. A credit worthy U.S. co-signer is a U.S. citizen or permanent resident who has passed all the financial tests required of the issuing bank and is willing to sign the promissory along with the student borrower. They are legally responsible for repaying the loan if the primary borrower, the student, does not do so.
The impact of global financial issues and particularly those in the U.S., where the credit markets have tightened significantly, has resulted in many of these programs terminating. Unfortunately, most insist on international students applying with credit-worthy U.S. co-signers. This has created quite a predicament and urgency for admissions directors at business schools that at the height of the admissions process in fall 2008 were left without any financing options for their international students.
Talk to the business school
The first and most important source of information for all students regarding the options for financing their MBA is the business school itself. The process of researching information on available sources of financial assistance usually starts during the admissions process, when student financial assistance programs offered by the school are described. After that, the student financial aid office will be key in discussing the fine details of program options and the process. In the current environment it is certain that emphasis will be placed on the importance of securing an eligible U.S. co-signer as this will be a requirement for most programs. This is usually a close relationship in the U.S. who is a family member, close friend, colleague or even a prospective employer.
A recent article in Business Week (January 4, 2010) entitled, A Financial Lifeline for Foreign MBA Students, mentioned a new student loan program in which some U.S. business school are participating. The Affiliated Loan Program for Students (ALPS) is financed by Deutsche Bank. Business schools must be deemed eligible to participate in the ALPS program by the financial institutions supporting the program and schools must agree to certain responsibilities. This appears to be a unique option for international MBA students since they are not required to have an eligible U.S. co-signer. This is a very unusual scenario at a time when loan programs have either become defunct or have made eligibility criteria far more stringent than in the past. First signs are that schools and students who are participating in ALPS hail the program as being extremely efficient and user-friendly.
The widely read Student Lending Analytics Blog (September 18, 2009) the article entitled, What’s the Average Rate On A Private Loan Today? talks about average interest rates on private student loans. Although a difficult number to quantify given varying terms and conditions and dynamic economic times, it states that, “current LIBOR (London InterBank Offered Rate) rates and margin information on the largest lenders leads to a new estimate that the average interest on a private student loan is 9.5% - 10.0%.”
Keep in mind that the interest rate is only one of a number of factors that must be assessed when considering different loan options. These other factors include, but are not limited to, the frequency of capitalization - that is the accumulation of interest on interest – interest-rate ceilings and repayment provisions such as forbearance and deferment, which are options during the repayment cycle that permits borrowers to suspend making payments. Student financial aid staff at business schools as well as those partners involved in the individual loan programs are well equipped to guide and counsel you on your terms, conditions, rights and responsibilities in all programs.
Other avenues – MBA scholarships and grants
So far I haven’t mentioned other avenues of funding, primarily because students who require external funding usually secure that funding with student loans. Although scholarship and grant assistance are available they make up for a very small percentage of funds used to pay for MBA programs by both domestic and international students. However, it is worthwhile exploring scholarship and grant programs by initially asking admissions staff and then continuing your effort with the student financial aid office.
Given the power of the Internet, it certainly is worth looking at the availability of scholarship and grant sources using computer generated searches. Focus attention on programs available through your home country, local community, religious organizations, social organizations or current or prospective employers. No stone should be left unturned. However be wary when considering any organization that charges a fee or mentions guarantees regarding securing scholarships or grants. The best sources are those that are free to the consumer such as fastweb.com. Remember, if an offer looks too good to be true, it probably is.
In summary, the message to all students contemplating attending business school is that funds are available. If you are a domestic student, funds are plentiful assuming your overall financial well-being is healthy and you plan to attend a school authorized to participate in the federal student loan programs. If you are an international student your options are far fewer with private educational loan programs your only realistic student loan option. There are fewer of these programs available today than there were in the past and the vast majority requires an eligible, credit-worthy U.S. co-signer. Your primary source for the latest information on funding options is the student financial aid office at the schools you are most seriously considering.
