After the application waiting time is over, it is time to think how to foot the $80K+ tuition bill. Though some schools offer scholarship money or other help for their students, it is usually not very common in the Top 20 to get a full scholarship, but even with a full scholarship, you are still looking into $30-50K in living expenses for two years.
With a few exception, almost every MBA student ends up relying on some form of Financial Aid – to help in this confusing process, GMAT Club assembled a down to earth no-frills Guide to Financial Aid in Business School (FAFSA, Scholarships, Assistantships) and Strategies for Financial Aid:
Step 1: Understand the financial options available to you to finance your education:
- Personal funds – whatever you and your family have to help with the cost of education and living expenses
- Scholarships/Fellowships and Assistantships - books have been written about these subjects. See Step 4 below for more information on how to get extra income while at school
- Loans - all allow to defer payments until 6 months after graduation
- Subsidized Stafford Loans (best option if you qualify) – subsidized (interest does not accrue until graduation), low fixed interest rate of 6.8%, max loan amount for 2009 is $8,500. Few MBA students qualify for the subsidized Stafford loans. Up to 1% origination and 1% default fees apply. Lifetime limits apply – see more details here
- Unsubsidized Stafford Loans – unsubsidized (interest accrues during school), low fixed interest rate of 6.8%, max loan amount for 2009 is $20,500. Up to 1% origination and 1% default fees apply. Lifetime limits apply – see more details here
- Federal Grad PLUS Loans – higher interest rate (8.5% as of 2/17/09, plus 3% government origination fee and 1% federal default fee) but one can borrow up to the full cost of education minus other financial aid received (Stafford Loans, scholarships, etc). Visit Sallie Mae for details
- School-Specific Loans – many top 20 schools offer special loans from lending partners that many students can qualify for, even without any credit history, or residence in the US – which is a great option for international students
- Private Loans - a multitude of loans offered by Citibank, and other lenders. Depending on the loan terms and credit history, a very competitive rate can be secured, such as 4% or 5%, but the rate is variable, so as soon as the economy starts doing better, you are probably better off with a Stafford or Federal Grad Plus loan
Step 2:Visit FAFSA website and explore how much you can borrow from the government and on what terms.
Go to http://www.fafsa4caster.ed.gov/ and work through a few scenarios and see what your Financial Aid will be in the best/worst/most likely case – it is a very user-friendly tool. However, note that this tool was created for 4-year colleges and not Graduate programs, so some tweaking will be required. Visit this source for more information about Expected Family Contribution Calculation. See page 21 if no dependents.
Step 3: Use Strategies to optimize your finances and eligibility for Financial Aid
- Pay down existing undergraduate education loans and “lose” some cash – it will lower your cash balance when reported to the FAFSA and as Mbamatric points out, the benefits of tax breaks interest on educational loans provide, will be non-existent during the 2 years in the MBA program, so no use keeping those loans anyway
- Maximize contributions to Regular or Roth IRA accounts – they don’t count as assets under FAFSA but can be used without penalty to pay down educational expenses. Moreover, when money is withdrawn next year or in 2 years, your tax rate will be lower. More details are available in this thread
- Don’t do anything unethical such as moving assets to your relatives. It is probably not worth the hassle. If you are going to cross the eithics line or committ a tax fraud, go for the big bucks at least. Plenty of CEO’s have provided good examples and well mapped roads.
Step 4: Check with the school to see if they offer private school loans, assistantships, scholarships, or other in-house Financial Aid
As a rule, the school will notify applicants about admission and scholarship or other money offered at the same time, but not assistantships. Many schools offer student assistantship opportunities where one may work with a Finance or Economics professor and get paid $500/week to spend a few hours in discussions, research, or other admin duties. These jobs are usually scarse, but you can secure one early if you check with admissions. Tell them that it is really important for you to have another source of income to make it through both years and you never know what may turn up. You can also call them and ask for other opportunities that may be available – now that you have been admitted (don’t call before then), they should be very open. Not all schools have these opportunities, but the ones that do, often give preference to students with high GMAT score or extensive work experience.
Step 5: Apply for FAFSA before the deadline – June 30th, 2009
If you have any questions or suggestions how to improve this guide, post them in the discussion forum.
Special thanks for contributions to this article go to: mbamatric, bostonsparky, ryguy904, GoBruins, solaris1, maverick2011, bball, rca215, Jerz, and many many others.
Updated on 2/23 – thanks to Maverick 2011 for a link to EFC calculation.