Every year, TopMBA surveys nearly4000 aspiring MBAs around the world to establish whether finance is likely to prove a barrier to study. The latest survey found that most had already looked seriously into how they would fund business school. A wide variety of methods were cited, from scholarships to personal loans. Table1 depicts the results of the survey conducted amongst international MBA aspirants. A remarkable86% of those surveyed reported that one of the sources of funding they expect to obtain is a loan, although many candidates look for a scholarship as their primary source of funding.
The following table presents the primary source of funding sought by MBA applicants in major regions. Scholarships remain the first choice, but most candidates will be disappointed and will have to revert to loan financing anyway.
| Company Sponsor | Loan | Own Savings | Parents/Family | Scholarships | Other | |
| North America | 4.31% | 42.11% | 16.93% | 7.41% | 28.30% | 0.94% |
| Latin America | 3.17% | 21.50% | 14.45% | 8.49% | 51.04% | 1.35% |
| Europe | 5.14% | 21.13% | 14.78% | 10.01% | 47.43% | 1.51% |
| Asia (incl India) | 3.52% | 22.27% | 10.61% | 10.73% | 51.56% | 1.31% |
Source: QS TopMBA Applicant Survey2007
Many students don't know where to start when it comes to obtaining financial aid, or loans in particular. Today MBA applicants in most countries have access to a wide range of educational loans geared to fund MBA studies. The table opposite provides an overview of loan and financing options in various countries around the world.
The numbers of banks willing to offer loans for MBA studies have increased significantly in recent years. In most cases, candidates will already need to have secured a place at a recognized institution and may need to supply a guarantor, such as a parent or close relative with sufficient funds to cover the loan.
In most cases, loans will pay tuition costs and housing, in addition to library fees, book purchases, travel expenses, and often the purchase of computers you may need to complete your course work. Exact loan amounts and interest rates vary so do your research and contact a variety of financial institutions before making your choice.
Loan repayment periods depend on the type of loan and the institution from which it is obtained. For example, NatWest Bank in the UK and the Industrial Development Bank of India hold a two-year moratorium period, with loan repayment due within the following three years; that is, three years post MBA graduation. While many public banks do not charge a penalty fee for repaying the loan early, some private institutions do, so it's important to clarify repayment details before signing off. Also, make sure to evaluate all your choices when it comes to choosing your payment options. For some, monthly payments will be easier to maintain, while for others annual payments are the way to go.
Interest rates fluctuate, and whether this will be in your favour cannot be predicted. A wide range of fixed interest rate loans are available and are often a better option for students. Meeting with a financial advisor is a good first step to gaining all the information needed for choosing t he right option for you.
Interest rates vary by country. For example, the State Bank of Mysore in India charges12.50 % p.a. for MBA loans. This compares to Prime plus0.5% charged by Citibank in the USA (approx.6%) for candidates accepted by certain schools. Applicants must consider whether to take a loan in their home currency at local rates, or in the country in which they will study. In general applicants prefer an overseas currency loan if they intend to stay and work in the destination country and a local currency loan if they plan to return to work in their home market. Taking a local currency loan involves an exchange rate risk on the overseas course fees, which can sometimes be hedged for a small additional fee.
A current student at Tuck, in the US, has a bit of advice for MBA applicants requiring loans: "The loan I received was part of the admissions package for international students, and the amount was based on the estimated self-funding ability at the time of admission. It was a relatively straightforward process that required me to declare my self-funding capacity. The loan approved covered the first year's tuition and living expenses. The second year's loan was arranged by the school, also with minimum paperwork. I would advise that you keep your salary and income tax records handy in case it is required."
Many other factors should be taken into account before applying for a loan to cover your MBA studies. For example, you should first establish your eligibility for a scholarship, or be in a position to accept funding from an employer. Do your research and consider combining a few types of funding to maximize your MBA experience.
Source: topmba.com
