Even though you can get into debt and you need to pay an additional cost for the loan, this is the second most popular way to finance MBA studies. The 2014 Prospective Students Survey conducted by the Graduate Management Admission Council (GMAC) reports that 24% of MBA prospects declare that they will apply for a loan, compared to 42% of respondents who will rely of personal funding, 18% who will apply for scholarships and grants and 14% who will rely on employer support.
Types of loans
Student loans
are provided by banks to cover costs strictly related to your studies such as tuition and fees, room and board, and textbooks. Most banks charge a low interest rate on student loans, but more expensive loans are available as well. In most cases, the student loan interest rate is between 2.5% and 8%. Another favourable aspect of student loans is that they provide a grace period. This means that students are not expected to start repaying the loan before they graduate. Student loans in some countries are secured by the government. There are also student loans guaranteed by universities.
University loans
Some business schools work directly with financial institutions and provide loans to their admitted students. Phillipa, who graduated from an MBA programme in San Francisco in 2013, received such a loan from the business school she attended.
The loan could cover up to 40% of the expenses. The interest rate was 5% and there was a grace period of 6 months after graduation before repaying the loan over a period of up to 8 years.
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Consumer loans
are a popular type of bank loan, provided to cover a broad range of expenses such as personal, family or household purposes. They are not meant to cover education costs, but usually there is no limitation. Although the interest rate is higher than that of student loans, in some countries consumer loans may be the only option available to cover education related costs. Some MBA applicants who have no access to other types of bank loan are also reported to have mortgaged their property to ensure funding for their MBA studies.
Pros and Cons
Here are some aspects of loans which you should be aware of before you start planning how to finance your MBA:
Loans have to be paid back under a strict schedule and with interest. This means that you pay back to banks more than you received. Also, you have to stick to your repayment schedule to avoid additional fees and fines.
Student loans may have age limits. MBA programmes are open to a large age group of between 28 and 45. So if you are already in your 30s you should carefully check out any age limitations on MBA student loans.
Loan applications should usually be made after admission to the MBA programme. However, research of the loan options should be done before you start applying for admission to the business schools of your choice.
Loans which cover tuition fees are usually paid by the bank directly to the business school, so you do not have access to the money and cannot use them for other expenses.
Application for a loan requires supporting documentation about your financial situation. Documentation about your parents’ or spouse’s financial situation may also be required in some cases.
In many countries the interest rate for student loans is really low, but in other countries interest rates may be higher and even close to those of consumer loans. So you should always research all options in your home country and in the country where you want to study for your MBA degree.
Most student loans have a grace period which allows you to start repaying your debt some time after you graduate.So you do not have to worry about it during your studies.
Loans make you independent of employer sponsorship and do not burden the family budget.
That is why a considerable portion (24%) of MBA students use this source of financing for their studies. For comparison, only 18% of Master’s degree applicants consider taking loans and the majority rely on personal/family support (43%).
An MBA degree usually ensures an increase in the holder's earnings and this helps MBA graduates repay their loans easily after graduation. Learn more about the different sources of funding for your MBA studies in the other articles of the Debate of the Month:
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