The Many Ways of Paying Your B-School Bill

Most students use a combination of personal savings, scholarships, and federal and private loans. Here's what you need to know

Financing your business-school education is expensive, with student budgets at full-time MBA programs running as high as $60,000 a year, especially for top schools such as Wharton, Stanford, Harvard, and Columbia.

If past is prologue, moreover, that figure is bound to increase in coming years. With costs so staggering, it isn't surprising that more than 70% of B-school students receive financing, says Nicole Chestang, executive vice-president and secretary of the Graduate Management Admission Council (GMAC), a not-for-profit organization of graduate business schools worldwide and the administrator of the GMAT, a test that applicants must take to get into B-school.

So if you plan to attend a top school, be prepared to spend a lot, forego two years of salary, and take on debt: Stanford MBAs, for instance, graduate an average $45,000 in the hole. This figure doesn't include two years of foregone salary, which may total $75,000 or more. If you add it all up, the cost of an MBA could be $175,000 or more, arguably one of the biggest investments of your life short of buying a house.


 The good news for students is the abundance of financing options available. Typically, most students finance B-school with a combination of personal savings, institutional scholarships, federal loans, and private loans.

All B-schools offer institutional scholarships, which include fellowships, grants, or teaching assistantships awarded to students by the school. These funds are disbursed from the school's scholarship budget to lure top students from diverse backgrounds. And it's free money, in the sense that you don't have to pay it back. Schools make these awards based either on merit or need, taking into account the financial information the applicant submits to the school.

Schools award merit-based grants depending on the applicant's GMAT scores, academic achievement, and proven skills such as leadership. All students, including international students, are eligible for merit awards. Schools also award need-based scholarships based on the student's background (nationality, ethnicity, gender). B-schools also provide minority scholarships, and several offer teaching assistantships, where B-school students assist a professor in an undergraduate class for a stipend. Scholarship awards at B-schools vary widely, from $1,500 a year to full tuition.

The most popular form of student financing is low-interest federal loans, such as Stafford and Perkins loans. These are unsecured loans, requiring no collateral, but students can only get up to $18,500 of federal funding per year. If you are still short of money, you can borrow from an array of private lenders, though school loans offered by banks and credit unions carry higher interest rates than federal loans. [Editor's note: Most private banks require schools to approve such alternative loans before they lend any money to a student. Schools don't want to see their students borrow more money than they need, and at times won't sign off on such loans. Ask a B-school's director of financial aid, or MBA representative how likely it is that the school would support a student's pursuit of alternative loans.] Most B-school students avail themselves of one of these options to finance their MBA.


 Most often, students use a combination of scholarships and federal and private loans to pay their way -- starting, logically, at the school itself. Start early, so that you don't miss deadlines, and be sure to ask the school's financial aid officer for the lowdown, as the aid process at each B-school is different. Also, international students should note that some schools have earlier aid deadlines for them than domestic students. Remember: There is no harm in applying for financial aid, as you aren't obligated to accept an offer of money.

Before anything, though, be sure to take care of your old bills. "The best advice I give prospective students is to plan ahead and pay off your bills to make sure your credit history is good," says Julia Min, director of financial aid at New York University's Stern School of Business. That's because bad credit will increase your interest rates on private loans by at least couple of percentage points.

You can get a copy of your credit report from a major credit reporting agency such as Experian, Equifax, Trans Union or ConsumerInfo to be certain that your credit is in good standing. A one-time credit report on the Web costs about $8, and sites sometimes offer it free of charge.


 A good first step in planning for your MBA, in fact, is to save a lot -- and only borrow as a last resort. Next, inquire whether your company (sorry, entrepreneurs -- you're out of luck on this one) will pick up your tuition. These days, more companies are doing that, according to Ursula Kaiser, director of financial aid at Stanford's Graduate School of Business.

"I'd say that 5% to 10% of our students have forgivable loans from their companies," she adds. Companies that sponsor employees for an MBA may require a commitment to work for a certain number of years (three to five) after completing the degree. In such cases, employees can negotiate to pay back the cost of the program over a period of time if they choose not to return to their sponsor.

Even if your employer isn't willing to foot your MBA bill, don't despair. Top schools often spend big bucks to attract bright students. At New York University, for example, 20 students a year are chosen purely on merit and awarded full tuition. "We consider the whole class, domestic and international students, for the Dean's Scholarships," says NYU's Min.

In the fall of 2000, some 36% of NYU's class received merit-based scholarships, ranging from $5,000 to full tuition. Another merit-based scholarship program is the Park Fellowship at Cornell University's Johnson School, where 30 entering students (U.S. citizens only) each year are given full tuition grants and a stipend. Similar full-tuition merit scholarship programs exist at many B-schools.


 Some schools, such as Stanford, offer only need-based aid awards, where a student's financial need is defined as the cost of attendance minus his or her resources (money available from savings, parents, and employers). "Our endowment stands at $2.5 million this year and is open to all students," says Stanford's Kaiser. At some schools, the school itself decides which type of award to give you: The University of Michigan Business School, for example, decides whether to offer you a merit-based award or a need-based award from its $5 million annual scholarship budget.

Don't rule out trying to round up more money even after you've started school. Second-year students, for example, can avail themselves of graduate or teaching assistantship positions under the Federal Work Study program. Although a large majority of B-schools discourage their students from working, assistantships pay between $2,500 and $4,000 a semester. The payment varies by instructor and how much help the assistant provides. In the fall of 2000, 29% of the second-year class at the University of California at Berkeley's Haas School assisted professors with grading and research as GSIs, or graduate student instructors.

In your search for financing, beware of companies and Web sites that promise you tons of money. "Students should stay away from sites that charge you a fee and guarantee you free money," says Mark Kantrowitz, publisher of, a popular financial resource on the Web, who has testified against fraudulent companies at federal hearings. In most such cases, companies charge an application fee for scholarships that don't even exist. Others charge a fee to match student information against a database of probable scholarships -- with no guarantees of producing any funding.


 With most B-schools trying to increase the diversity of their classes, minority students stand a good chance of getting assistance. At Wharton, for example, where 7% of the class of 2001 is an underrepresented minority, students can apply for the Henry E. Mitchell Fellowships, merit awards for minority applicants in need of financial aid. Another good deal is offered by the Consortium of Graduate Studies in Management (CGSM), a 12-school alliance that offers full-tuition scholarships to African Americans, Hispanics, and Native Americans. Schools also offer minorities scholarships based on financial need once the applicant is admitted to the program.

Financial aid is a somewhat harder to come by for students from outside of the U.S., however. In many instances, foreign students aren't eligible for need-based scholarships and have to rely on private loans. Some schools offer scholarships especially for international students, though. Wharton, for instance, has several international scholarships based on need and merit that are sponsored by corporations and alumni. The number of these scholarships is small, however, compared with the amount of students who compete for them.

A vast majority of domestic students who have no other option take out federal loans called Stafford Loans (international students don't qualify for U.S. federal aid). Stafford loans, which are the cheapest of all federal loans, allow domestic students to borrow up to $18,500 at low interest rates. For most MBAers, however, federal loans are not sufficient to cover skyrocketing B-school costs. Although the average student budget at


Top 30 B-schools is $38,600 a year, most top schools, including Harvard, Kellogg, Chicago, Columbia, MIT, and Wharton cost close to $50,000.

A small army of private lenders is waiting to help you close the gap. Most of them, such as Access Group, CitiAssist, and Sallie Mae have several pricing tiers based on the student's credit history. Lenders either use the prime rate or the 91-day T-bill rate as their base index to calculate finance charges.

Most private lenders now offer a one-stop shopping approach to federal and private loans. The MBA Loans program, a collaborative effort between GMAC and Sallie Mae, ties federal and private loans into one consolidated package. The benefit: one combined statement and better debt management.


 Applying for federal loans is pretty straightforward. You need to request a Free Application for Federal Student Aid (FAFSA) form from your B-school, or by visiting the FAFSA Web site. The FAFSA forms should be submitted to most schools after Jan. 1 and before Mar. 1 for the student to be considered for federal loans. But the ultimate FAFSA deadline for applications submitted on the Web isn't until June 30. After June 30, applicants can only change information on their forms, they can't file new ones.

In addition to the FAFSA, some schools, such as Stanford and the University of California at Los Angeles, require that you submit a Need Access application to determine your financial-aid award. The Need Access application provides the school additional financial information (data on parents' income, previous home equity loans, etc.) of the student. Schools will also ask you for your most recent income-tax returns.

Once your FAFSA is processed (about five and a half days from when forms are filed online), FAFSA sends applicants and the B-schools the student has selected a Student Aid Report, which shows what the government figures you can contribute to your education. The school will then determine your financial need -- and your award. After that, all you have to do is calculate the difference between your federal grant and the total funding you'll need to complete your schooling. Then, choose the private lender whose terms are most favorable to you.

Jayant Mathew in New York

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