Filling the International MBA Financing Gap

One of the first things you’ll see on Harvard Business School’s cost summary page is a statistic in bold on the right-hand side of the screen. It reads, “65% of MBA students receive some form of financial assistance.”

The important part of this figure is that it represents a majority of MBA candidates. The surprising part is that the amount of MBA financing can seem so very meager.

It’s true; you’ll pay a lot less for a (still fantastic) regionally-prominent business school than you would for Wharton, INSEAD, or London Business School. But, the price tag attached to most business schools will sting most candidates. And that’s just the tuition. You still need to factor in the cost of living, a year or two without employment, and all the costs associated with the application process when you are calculating financing an MBA.

More options for students studying in their home countries?

Excluding scholarships and bursaries, you would think that international MBA students would have more MBAfinancing options, simply because the pool of availability has doubled. But, that’s just not the case. Students studying in their home countries have more viable options for financing an MBA, while international candidates have very few real options. Even banks, the traditional port of call for most MBA loans, are often a no-go zone. 

There are many, many reasons that lenders are hesitant to loan money for international MBA students.

• Many banks simply cannot price the risk involved with financing an MBA. More than that, individual banks (even prominent ones) don’t have the resources necessary to track and collect money across international borders.
• No institution wants to lend money to someone without a history. And, let’s face it, even if you provide an American bank with French financial documents – they’re not going to understand the context of those documents, even if they’ve been translated, verified, or certified. They need a local financial history.
• In some countries, such as India, where international MBA study is almost a cultural norm, banks are willing to lend – but the conditions associated with these MBA loans are often beyond the comfort limit of applicants.
• Developing countries may have prohibitive fiscal policies in an attempt to ensure citizens return to reinvest their skills at home.

As much as you may want to kick something, spewing angry words about the unfairness of the international MBA financing gap, it’s difficult to argue with the logic of these policies. It may not be good for individual MBA candidates, but these are the policies that maintain sound financial institutions and economies.

The hidden problems behind bank promises 

That’s not to say that MBA candidates haven’t or can’t access MBA loans – domestically or internationally. They have, and they will continue to do so. Some American business schools, for example, have stepped into the role of cosigner, enabling international students to secure US MBA loans. And, you’ll find banks in home countries willing to lend to international MBA candidates because of their track record or investment into local communities. 

But, banks have limitations when they do lend to students, even to MBA candidates studying in their home countries. They cannot assess the investment of graduate-level education and probably post-MBA salary; they can only look at the current salaries and past ability to save.

However, MBA candidates know their pre-MBA salaries will be improved on – even if they accept government, public service, or small startup jobs. The value of a graduate-level business degree is incredible. MBA salaries can sometimes double what a candidate was making before – even if that’s not their reason for studying (though an increased MBA salary almost always factors into any decision requiring such a high level of financial investment).

But, while MBA applicants know about this hike in MBA salary, banks don’t have the means to allocate loans based on future increases; they must look at the past. The worst case is when a bank is willing to lend based on the past, but it doesn’t provide the student with enough financing to complete their education.

Just considering the difficulties, policies (even when logically valid), and problems with financing an MBA are sufficient to make just about anyone a little crazy – especially considering that no one only considers MBA loans to pay for their education. Everyone strives for scholarships and bursaries; they dip into their savings and humbly accept gifts from family members.

In 2007, Prodigy Finance (nb. the author of this piece is an employee of Prodigy Finance) was founded by MBA students at INSEAD to solve exactly these issues. Having experienced incredible difficulties obtaining funding after acceptance into such a prestigious institution, they set out to change international educational financing.

Prodigy Finance’s predictive model considers the future earnings of applicants to enable a more complete picture of each applicant’s financial situation. More than that, the model is virtually borderless with the ability to lend to students from over 150 countries to study at top graduate-level business institutions. As far as possible, loans are issued directly to schools in the currency of the program. 

More importantly, over 80% of Prodigy Finance-funded students report that they had no alternative source of financing. That’s a lot considering that more than 4000 students have been funded by Prodigy Finance and over US$140 million in loans have been disbursed. 

MBA loans are available to qualifying international students up to the amount of tuition and, as with any financial loan, you’ll need to demonstrate a stable financial history in your home country. And remember, like any other loan, it has to be repaid in a timely fashion. But just the possibility may be enough to take some of the sting out of paying for an MBA, regardless of the price tag, the program, and the demographics you fall into. 

Of course, Prodigy is just one alternative. Other options exist so if you’re considering an MBA but despair of finding the money, explore your options. Perhaps you will find a more suitable model for you. Always speak to the schools to which you have applied and listen to their counsel before taking any decisions.