With big lenders requiring co-signers, international students are finding that money is tight. For many, B-school dreams may be over before they start
Ankur Sahni was ecstatic when he received an acceptance letter from the Johnson School at Cornell University in December, informing him that he had received an admissions offer for the class of 2011. But the Indian engineer, who had dreamed of attending a top U.S. business school for years, barely had time to celebrate before reality sank in.
A quick phone call to the Johnson School confirmed what Sahni had been dreading—the popular CitiAssist loan program that many international students depend on to fund their business school education had been pulled. Making matters worse, the school told him they had not yet announced a replacement loan provider. A spokeswoman for the school said last week that the school was working on finding a new program, but hadn't yet finalized a deal.
"I was banking on using the CitiAssist loan program," says Sahni, who is now exploring alternative ways to pay for business school. "I worked hard to get into business school, got in, and now, just because of some stupid operational reason, I may not be able to go. That is hard to digest."
Credit Crunch Casualty
A number of leading business schools and graduate programs were dealt a serious blow this fall when big private lenders including CitiAssist and Sallie Mae (SLM) suddenly terminated their popular "no co-signer" student loan programs. The canceled loan programs, which typically allowed applicants to obtain up to $150,000 without a co-signer to assume stewardship of the loan should the borrower default, were a financial lifeline for many international students, many of whom have no other way to finance their MBA educations. They were yet another victim of the credit crunch, which has decimated many private lenders and made those still in business more cautious than ever.
Replacing the loan programs has not proved easy. In the last two months, business schools from the University of Pennsylvania's Wharton School to Cornell's Johnson School have been scrambling to find alternatives for students, most with limited success so far. Of the schools that used to have the CitiAssist loan program—including Harvard Business School, the Wharton School, University of Michigan's Ross School of Business, the Chicago Booth School of Business, Columbia Business School and other leading schools—only MIT's Sloan School of Management has announced a replacement lender. A number of schools said they are hoping to work out new programs by the spring, but did not disclose any further details. Most schools require students to put down a deposit by early April or May, leaving schools with just a few months to find a solution.
For now, the fate of two different groups of students remains up in the air. The withdrawal of the CitiAssist program, run by the Student Loan Corporation (STU), impacts admitted applicants who have not yet enrolled and current first-year students who might have to cut their business school career short next year if they can't find an alternate source of financing. Some schools, like the Ross School of Business, are doing their best to reassure current students that they will be able to come back to school next year. "We've promised the current students that there will be a program in place for them to fund their second year," says Robert Dolan, dean of the Ross School. Others are telling current students to sit tight and wait for an announcement about a new deal with a lender, while also encouraging them to look into alternative funding sources.
Business schools are having a hard time securing no-co-signer loans for international students because skittish lenders are reluctant to issue new ones until the economy picks up, says Dan Thibeault, co-founder of Graduate Leverage, a Waltham (Mass.)-based student loan consolidation and debt management company. In recent years, lenders like CitiAssist were happy to issue no-co-signer loans to international students because, under the deals negotiated, they were able to gain access to the entire pool of domestic and international borrowers at the school, a lucrative group. In a healthier credit market, the cost of funding the loan was still relatively low, and the lender could still be make a profit even if a few borrowers defaulted, Thibeault says. Now, lenders are curtailing these loans because they want to minimize their risk as much as possible and reduce defaults. International student defaults, which leave lenders few collection options, are particularly troublesome. And with just a handful of private lenders left in the market, those students could end up being a "very much neglected group," Thibeault says.
"Anything regular students are feeling, international students will be feeling five times worse," Thibeault says.
Turning to GMAC
Indeed, the problem has gotten so bad that the Graduate Management Admissions Council (GMAC), an international association of business schools and sponsor of the GMAT, has had to step in and offer assistance. The organization is reaching out to schools that have been impacted and will be discussing the loan issue with MBA directors at GMAC's MBA Leadership Conference in San Francisco on Jan. 28.
Some schools have called GMAC, desperate, because lenders had stopped disbursements for students for this semester, says Dave Wilson, president and CEO of GMAC. Others are worrying about what to tell admitted applicants and current students who don't have loans lined up for next year, he says.
"It is a real challenge working with the schools to come up with a solution," Wilson says. "So far it has not been easy, but we're going to continue to work as hard as we can to find a way around it."
At risk are the strides many business schools have made in increasing the diversity of their MBA programs. The CitiAssist no-co-signer loan programs, and others like them, have made it possible in the past decade for students from countries like India and China to attend business school in the U.S. without having to worry about financing their education up front, says Kevin Walker, CEO of SimpleTuition, a startup that runs a comparison-shopping Web site for student borrowers.
"I think the result will be that you will see a decrease in international student enrollment in MBA programs or, you might see a chance that the international component at schools will be coming from students who are, frankly, more wealthy," Walker says.
Commiserating on Social Networks
As the pressure mounts, a growing number of international students accepted to business schools that used to have the no-co-signer loan programs are starting to panic. They are banding together on Facebook and other business school forums, trying to subtly put pressure on business schools to come up with a solution—and fast.
Already, some admits have lost hope and are deciding to attend business schools in their home countries, says Vishal Chopra, an Indian working for an electrical company in California who started a Facebook group for 30 international students admitted to Duke University's Fuqua School of Business this December. One student in the group recently turned down Fuqua to attend the India School of Business, he said.
"We have communicated with Duke once and they said they are working really hard, but right now they don't have any solution," says Chopra, who is worried that he might have to defer business school for a year if the school doesn't come up with a plan. "So we are just waiting. It is very frustrating."
The waiting game is likely to continue, at least for the foreseeable future. The outlook for students is looking increasingly grim at places like Fuqua, where financial aid administrators say they are having a hard time locating a loan provider willing to provide the school with a no-co-signer loan program. About 30% of international students at Fuqua took advantage of the CitiAssist program this year, says Lamar Richardson, director of financial aid at Fuqua, and having the program has helped the school become more diverse. International students make up 40% of Fuqua's first-year MBA class this year.
"We don't have our hopes up that high that something will break though," Richardson says. "We don't have the same negotiating power we had in the past and we don't want these students to be under the impression that something is going to come up and we can guarantee that they will have an international loan program going into next year."
Some schools are feeling slightly more optimistic that they can broker a deal for students by next fall. Linda Meehan, admissions director at Columbia Business School, says the university is in some "very promising negotiations now" with lenders, but that nothing had been signed yet. Likewise, officials at Wharton, Chicago Booth, and Harvard also say they are in the midst of talks with various lenders and are hoping to have a program in place by late winter or early spring.
"It is an absolute priority for the school," says Susan Gilbert, director of MBA financial aid at Harvard. "We are aware that it is an impossible expectation to assume that all our applicants who are international will have a co-signer, and we do not expect them to have one."
Still, the only school so far that has managed to land a new no-co-signer loan program for its international students is MIT's Sloan School of Management. After CitiAssist pulled the plug on the international loan program back in the fall, it was "very clear we knew we had to find a solution," says Daniel Barkowitz, MIT Sloan's director of student financial aid. The school turned to the MIT Federal Credit Union, an independent financial institution that works with the university, and signed an agreement at the end of December.
The new plan doesn't require students to have a domestic co-signer, offers a competitive interest rate, and allows students to take out a line of credit with the MIT Federal Credit Union. The most attractive part of the agreement is that students won't be required to reapply for the loan program every academic year, as they used to have to do under the CitiAssist program, Barkowitz says. "It is a very different model and one that I think serves the student very well," he says.
MIT Sloan is not the first school to strike a deal with a credit union for a loan program, a model that perhaps more schools may turn to in the future, financial aid experts say. Stanford Business School has run a similar program with the Stanford Federal Credit Union for more than a decade and "will continue to have the availability of loans for international students without a U.S. co-signer," says Jack Edwards, Stanford's director of financial aid.
In the meantime, schools that haven't yet found replacements for CitiAssist are trying to come up with creative solutions. At the University of California-Berkeley's Haas School of Business—which until recently had the CitiAssist program—the financial aid office is ramping up the institutional financial aid they are giving to students. The school has doled out an additional $600,000 to students this year, and plans to give another $600,000 next year, "in part in response to the no-co-signer-loan situation," says Peter Johnson, director of admissions at Haas.
Other schools are encouraging students to look for alternative funding sources. For example, Columbia Business School has compiled a list of different loan programs that exist around the world, and has put students in touch with alumni at banks in their home countries who may be able to help students find loans.
"Little by little, we are piecing things together," says Marilena Botoulas, head of financial aid at Columbia Business School. "This has at least given students some information so that they know that there are other resources out there."
One thing nearly all the schools are doing is recommending that students try their best to find a domestic co-signer, a person who would be responsible for the balance of the loan if the borrower defaults.
Pavel Konin, a Russian business school student from Moscow who started at Columbia Business School this January, managed to do just that. After finding out that the no-co-signer loan program had been canceled at Columbia this fall, he immediately started calling senior colleages of his who were U.S. citizens, asking if they would back his loan application. After three days, he managed to find a co-signer and was able to get a private loan application approved. "I was very surprised of how supportive they were about the idea of going to Columbia in the current market situation, and how little doubt they had in my future ability to repay," he said in an e-mail.
But that's a path most MBA applicants would like to avoid, if at all possible. With the economy in a recession and unemployment on the rise, applicants like Stephane So, a research scientist from Mauritius, an island in the Indian Ocean off the coast of Madagascar, say they feel uncomfortable asking acquaintances or work colleagues to take on any additional financial burdens.
"It is a real dilemma to find a U.S. co-signer," says So, who is working in New York and awaiting admissions decisions from MIT, Haas, Duke, and the University of Virginia's Darden School of Business. "I don't know anybody who would want to risk their assets to co-sign for me. At least nobody has offered so far."