Admissions Tip: How to Finance Your MBA
In this admissions tip, we provide a broad overview of the various costs a typical MBA student faces and the types of funding opportunities currently available. We also take a closer look at the financial aid processes at a diverse range of leading business schools, giving you the tools you need to assess MBA programs in light of both your own goals and available financing options.
If you’re just beginning to think about an MBA, this page can help map out the landscape, outlining the financial aid process and resources available at various programs. You can extend your research by consulting the schools’ own websites, as well as through conversations with current students.
First Things First: What’s an MBA Going to Cost?
The first step in financing the MBA is getting a handle on how much it will cost. The primary expense of an MBA program is tuition. Having said that, there are a variety of other costs—including living expenses, course materials and additional fees—that can increase the total amount a student pays by a half again. Most business schools provide a breakdown of the expenses, which are posted under the financial aid or admissions section of their websites in order to help prospective students seriously consider the cost of completing a particular MBA program. Schools typically take the total cost of attendance into account when calculating the financial aid package students receive.
Tuition at the top business programs has risen steadily for decades, often at a rate above inflation. Students can now expect to pay between $50,000 and $75,000 for a single year’s tuition at a top school, with an average total price tag of $140,000 for tuition alone. Public universities, which discount tuition for state residents, can sometimes be more affordable. For instance, in-state residents attending schools such as UNC’s Kenan-Flagler pay about $15,000 less in tuition each year than do out-of-state residents. But in-state tuition can range significantly from school to school due to differences in the amount of subsidies received by public universities according to individual state economies.
The cost of living also forms a substantial part of a student’s expenses while at business school. These costs typically cover housing, food, utilities and other personal expenses, and they can vary widely by geographic region. For example, the Fuqua School of Business, located in the college town of Durham, North Carolina, estimates that students will pay $18,702 in living expenses in their first year. Meanwhile, at NYU Stern, located in the center of Manhattan in New York City, the estimated cost for room and board for the school year 2018-2019 was $26,024.
Living costs are usually based on surveys of the student population or estimates of local rental costs. Students should keep in mind that the figures posted by most schools are for single students with no dependents; those with partners or children should take into account the additional expenses of balancing family life with full-time studies. Harvard Business School, for instance, estimates that students with a spouse or partner should set aside an additional $18,162 in yearly expenses for a spouse or partner, another $15,768 for one child and an additional $10,140 for a second child. Meanwhile, Tuck, with its rural New Hampshire campus, calculates that $7,500 should be set aside for each additional family member. Prospective students with further questions may contact their target programs’ financial aid offices in order to request information about expected family expenses.
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Additional Expenses and Fees
Course materials, healthcare insurance, transportation costs and other mandatory university fees can add several thousand dollars to a student’s expenses each year. For example, Wharton’s pre-term fee is $2,000. Furthermore, extracurricular activities, particularly international trips that are often a highlight of an MBA experience, can substantially increase costs; for example, the Kellogg Worldwide Experience and Service Trips (KWEST) run into the thousands, and that’s without taking into account a number of additional out-of-pocket expenses. To help cover these expenses, some schools allow students to apply for an increase to their cost of attendance and thereby take on more loans. Other schools offer scholarships. For example, the University of Virginia’s Darden School of Business launched a $30 million scholarship program to make it possible for every student in the full-time MBA program starting in August 2018 to take part in a Darden Worldwide Course at no incremental cost.
Because recent legislature has rendered federally subsidized loans unavailable for U.S. citizens or permanent residents in graduate school, students relying on loans to fund their studies will see their interest accumulate while in business school. For the most part, students do not have to start paying that interest, or the principle, until several months after they graduate. Federal loans and some private loans also include an ordination fee that is tacked on to each loan disbursement. We’ll go into greater detail on loans further down the page.
Now, with a better handle on how much money you’ll need, let’s start looking at where that funding will come from.
School-Based Financial Aid
Schools often offer a variety of options to help students pay for their education. These options can include merit- or need-based business school scholarships or fellowships, university-wide scholarships, work-based opportunities such as research assistant or teaching assistant positions, and lists of outside resources. To find out more about a particular school’s offerings, students should refer to the financial aid or cost of attendance section of a school’s website or contact the school’s financial aid office directly.
Merit- and Diversity-Based Fellowships and Scholarships
Most scholarships provided by schools are awarded based on merit, meaning they are offered to students who have demonstrated qualities such as academic excellence, professional aptitude or outstanding leadership. Merit-based scholarships are usually awarded at the admissions committee’s discretion in order to attract the highest caliber students and can cover the full cost of tuition.
To enhance the diversity of a class, private donors, alumni and corporations also can endow a variety of scholarships or fellowships targeted towards applicants with a particular career interest, educational background, nationality, racial or ethnic identity, or gender. In addition, some schools offer financial awards to students who are already enrolled and have demonstrated leadership on campus or exceptional academic ability.
The process of applying for scholarships and fellowships varies by school. In some cases, students are automatically considered for these awards when they submit their applications to an MBA program, with no additional work required. Alternatively, some scholarships and fellowships require an additional essay, submitted either at the time of application to the program or after acceptance. A large majority of merit- and diversity-based awards are time-sensitive or based on a first-come, first-served process, so students are encouraged to apply early in the MBA admissions cycle.
Scholarships provided directly by a school are typically offered on a consistent basis year to year. However, endowed fellowships or private scholarships may not always have funds available. Students applying separately to these scholarships and fellowships should check with the head of each program to ensure they are being offered that year.
Though not as widely available, schools may offer financial aid based on students’ demonstrated financial needs. Certain leading schools, such as Harvard, are notable exceptions to this trend in that all of the fellowships they offer are based on financial need. Need-based aid may come in the form of a grant, which does not need to be paid back, or a low-interest loan.
When deciding whether to offer a student need-based aid, the financial aid office typically weighs the student’s income from previous years; his or her spouse’s financial situation; any assets such as stocks, trust funds or home equity; and other outside funding such as employer assistance. Schools compile this information by either asking students to fill out school-specific forms or, in the case of U.S. citizens and permanent residents, using information found in the Free Application for Federal Student Aid, more commonly known as the FAFSA.
School-Based Work Opportunities
MBA programs typically discourage full-time students from working during their studies. However, some business schools, like Stern, do offer work-based financial assistance, in which students apply to work with professors on research projects or help teach classes in exchange for tuition reimbursements. These opportunities may pay up to $20,000 a year and are usually available after a student has been enrolled for at least a semester.
Loan Repayment Assistance Programs
Loan Repayment Assistance Programs (LRAPs) are designed to encourage students to pursue careers in the public and nonprofit sectors, which generally offer lower salaries than those in the private sector, by offering assistance on loan repayments. While the individual requirements of each program vary by school, LRAPs typically require that a graduate work full-time, receive an income below a certain threshold and demonstrate they required financial aid during their MBA studies. Financial support from these programs varies from covering a certain percentage of a student’s loan to assuming the full cost of a loan payment.
Students typically rely on a mixture of savings, fellowships and scholarships, employer or outside assistance, and loans to meet the cost of an MBA program. According to the GMAC 2017 Prospective Student Survey, the surveyed group of prospective students expected to finance almost half their education through a combination of grants, fellowships and scholarships (27 percent) and loans (20 percent). Other sources of funding include personal savings (accounting for 22 percent of anticipated resources), parental support, employer support, and spousal or partner earnings.
Meanwhile, estimates from several top programs suggest that between 30 and 50 percent of students receive some form of fellowship or scholarship. For instance, the Stanford Graduate School of Business calculates that 50 percent of its students receive fellowships funds and half borrow through loans to finance their degree. Fellowships are gifts from the Stanford GSB community that do not have to be repaid. According the Stanford GBS website, the average fellowship is approximately $35,000 per year, or $70,000 in total awards.
New York University’s Stern School of Business, for its part, states that between 20 and 25 percent of its full-time MBA students receive merit-based scholarships. And Harvard Business School, one of the few schools to solely offer need-based aid, reports that 50 percent of students are eligible for need-based fellowships. About half of all HBS students receive approximately $40,000 each year through need-based fellowships, or $80,000 total, the school states.
The best place to find information about a particular program’s financial aid offerings is the business school’s financial aid office, which may be run by the parent university. Along with providing substantial information about school-based fellowships or scholarships, financial aid officers can also help students navigate the loan application process and secure alternative sources of funding. In addition, free online resources such as finaid.org, scholarships.com or Peterson’s Scholarship Database can provide students with further guidance in financing their degrees.
Loans for U.S. MBA Students
For the purposes of this section, we will focus primarily on U.S. MBA student loan programs. International students, scroll down for greater detail about loan programs tailored for your needs.
Of course, because loans must ultimately be repaid—unlike scholarship or fellowship aid—deciding how much you should borrow is as important as understanding how much you can borrow. To make an informed decision about the amount of student loan debt you can take on and reasonably expect to repay, you’ll need to consider your current finances and any loans or other debt you may already have, program costs, other potential sources of funding (scholarships, savings, etc.), and your anticipated salary increase upon graduation. You’ll also need to think about estimated loan repayments and interest and fees. (The Department of Education’s website for repayment plans features a Repayment Estimator, which can help you see the plans you might be eligible for and the monthly costs of loans.)
Federal Loan Programs
For U.S. citizens and permanent residents, the most widely used loan programs are those provided through the U.S. government. These include the Direct Loan Program and the Direct PLUS Loan Program. Through these programs, students can borrow the cost of attendance, as determined by the school, minus any financial aid packages they receive. In order to remain eligible for government loans, students must ensure that their total debt from subsidized and unsubsidized loans, including federal undergraduate loans, remains under $138,500.
The Direct Loan Program offers graduate students unsubsidized loans of up to $20,500 at an interest rate of 5.05 percent. There is an ordination fee of 1.069 percent of the loan deducted from each loan disbursement, and interest accrues throughout a student’s time in school and during deferment and grace periods. While graduate students were previously able to borrow up to $8,500 with interest delayed until after graduation, the Budget Control Act of 2011 eliminated Graduate Direct Subsidized Loans in July 2012.
Students with good credit histories may also consider applying for a Federal PLUS loan. The interest rate on these loans is fixed at 7.6 percent for the life of the loan. There is also a 4.248 percent ordination fee that is deducted from each loan disbursement.
How to Apply for Federal Loans
The Free Application for Federal Student Aid (FAFSA) is an online form that determines the loan eligibility of U.S. citizens and permanent residents. Available on January 1st each year, the FAFSA can be submitted online or mailed in by downloading the PDF. The U.S. Department of Education recommends submitting the form online to prevent any delays in processing the application.
While deadlines for submitting the FAFSA vary, most schools recommend completing the form as soon as possible in order to ensure applicants do not lose out on available funds. The FAFSA does require information about income from that year’s tax return—for example, the 2019 FAFSA asks for information from the 2018 tax return—but applicants can use the previous year’s tax return to approximate their income or use the FAFSA Income Estimator tool. After filing their taxes, applicants can then use the IRS Data Retrieval Tool to update their FAFSA.
Processing takes three to five days for electronically filed FAFSAs. Schools have access to a student’s completed FAFSA one day after it is finished processing.
To cover the rest of their expenses, students may wish to explore private loan options through a bank or other lender. Schools generally encourage students to exhaust all possible scholarship, fellowship, and federal loan options before turning to alternative private loans given the typically higher interest rates these parties offer. However, applicants with excellent credit scores may be able to secure private loans that offer a better interest rate or lower ordination fee than federal loans.
Private loans have much stricter eligibility requirements than federal loans. Lenders can decline to issue a loan, require a co-signer, or set higher interest rates for a number of different reasons, including a credit score. This score, which typically ranges from a “poor” 300 to a “strong” 850, is based on factors such as an applicant’s payment history, debt ratio, types of credit, and length of credit history. Those with a history of late payments on credit cards or other loans, or who owe a significant amount of money compared to their credit limit, tend to have low credit scores. These individuals may face higher interest rates on private loans as a result. In addition, applicants with little to no credit history or who are from outside the United States may need a co-signer—someone who agrees to take on full financial responsibility for a loan should a borrower fail to pay it off.
While schools generally do not endorse a preferred lender, citing conflict of interest, they do sometimes list reputable lenders their students have used in the past on their financial aid websites. Students can also reach out to their local banks or other lenders, or research national programs such as PNC, Wells Fargo, Sallie Mae, or Discover Card’s MBA loans.
International MBA Student Loans
International students, who face some different restrictions but who are also eligible for special programs tailored to their unique requirements.
By law, federal loans can only be distributed to U.S. citizens or permanent residents. This means that international students must put extra work into finding financial aid and loan programs to support their education if they choose to pursue a U.S. MBA program.
International students should research their own countries’ options for financing studies abroad, and schools’ financial aid offices are also useful resources in this regard. For instance, MIT Sloan lists 16 scholarships or fellowships geared towards international students.
Private Lenders for International Students
International students can also consider U.S.-based private loans, but they should recognize that many of these loan programs require a U.S. co-signer. Understanding that this can prove a hardship for those without a U.S. connection, some schools offer internal options for international students. For instance, Harvard Business School has partnered with the Harvard University Employees Credit Union to offer private educational loans that do not require a U.S. co-signer. NYU Stern also features a list on its website of loan providers that don’t require international students to have a U.S. co-signer. Consulting with your target schools’ financial aid offices is a great way to learn about available loan options.
International students should keep in mind that U.S. lenders are typically not allowed to issue loans to students from countries on the United States Treasury Department’s Office of Foreign Assets Control (OFAC) Sanctions list. The Treasury Department encourages prospective students to check this list with some regularity, as it is frequently updated.
Also addressing the need for non-co-signer loans, companies like Prodigy Finance have entered the market in recent years. Founded by INSEAD alumni who faced funding challenges themselves as international MBA students, Prodigy offers loans using an innovative community-financed model in which alumni, institutional investors, and qualified private investors fund the next generation of MBA students.