Financing Your MBA

That's a ridiculously high rate, prashok. You should probably try get a quote with another lender too if your FICO is 800+.

I don't know if a lot of lenders don't like offering private loans to finance an MBA at a non-US school but at my school CitiAssist and SallieMae have been advertising rates of Prime+100bps and 1mLIBOR+450bps for students with "top" credit (and a FICO of 800+ would almost certainly qualify as "top" credit IMO). In fact SallieMae claims it's highest rate on private MBA loans is 1mLIBOR+1075bps, presumably for students with lower credit scores and no co-signers. According to my school's financial aid page, SunTrust has MBA loans that range from 1mLIBOR+300bps to 1mLIBOR+775bps even. So 1mLIBOR+975bps is a shockingly bad deal.

Are you sure the credit score you were talking about was your FICO and not your VantageScore obtained through a credit reporting agency such as Experian, Equifax or TransUnion? There's no way you should be considered as having "mediocre" credit. I'm assuming since you're eligible for Federal Stafford loans, you're a US citizen?

Thanks for the input, solaris1. I was a bit surprised myself as well, since Sallie Mae is advertising private loan rates as low as 5-6% on its website. I would have figured I'd at least get something close to 7-8%, if not the best rate.

I had thought my score from a few months ago was FICO (it was the optional score offered through the free reports with annualcreditreport.com), but it may have been a VantageScore. However, I just checked my FICO through myfico.com (from Equifax), and it's reading 810 now. So I'll definitely check with other lenders as well (I am a US citizen). In addition to Sallie Mae, LBS has relationships with AMSA, so I'll check with them perhaps.

Thanks for the update, prashok. That doesn't bode well for those of us who'd been anticipating turning to private education loans and avoid GradPLUS loans to make up for expenses not covered by savings and Stafford loans.

810 is a fantastic FICO score, and it's very disturbing that the best rate you've been offered so far is in excess of 10% APR!

Hopefully "shopping around" will bring that rate down a bit, but you probably don't want to do too much of it since every credit inquiry for an education loan will affect your credit score negatively (unlike multiple inquiries within a short period of time for other loans).

Let us know how it goes. I'm sure there are a lot of people here who'd find that sort of information useful.

Thanks solaris1, will do!

So how do you go about actually talking to these various lenders (both gov't/stafford and private)? Does a school provide info on how to apply for the federal loans after you've been applied or is up to you to figure that out? I'm yet to be accepted anywhere, so I don't know if there are things I can do now in advance (I've already submitted FAFSA) or if it's okay to wait to see what info/programs the schools have.

Depends on the type of loan, but this is how it worked for me. For Stafford (and I assume other federally-supported loans like GradPLUS), you first file the FAFSA and forward the information to your school. Then you find a lender to administer the loan (generally, schools have preferred lenders -- for LBS, it's Sallie Mae and AMSA), who will create the Master Promissory Note, which you forward to the school. The school then certifies the subsidized/unsubsidized loan amount (based on your FAFSA Student Aid Report and Expected Family Contribution amount), and it's disbursed later in the year.

The private loan process is similar (minus the FAFSA) for school-certified loans, where the school has to approve the amount and is paid directly from the lender. You can also get direct-to-student private loans, though the amounts for those are typically much lower. Overseas schools are a bit tougher (as LBS only works with Sallie Mae or JPMorganChase), but for US schools, I think you can probably approach most lenders for rate quotes/approvals.

Plus the school's financial aid office should be able to help you make sure you are completing all the paperwork you need, especially if you use one of their preferred lenders.

Thanks for the follow-up input guys. One other question - any idea how long this process takes if you go through your school's financial aid office? I ask because right now the Kellogg 1Y program is my target. I won't hear if I get in until as late as 3/30 but school starts in June! Do you think two months is sufficient time?

That's a short timeframe, but I think the FAFSA is the most significant step, as most schools recommend that you start that sometime in February for the term beginning in the autumn. Once the SAR is complete, the process for Stafford loans was pretty straightforward, IMO. I would check with your program's Financial Aid Office for recommended timeframes, though.

Also, a quick update on my loan application process as well -- it doesn't look like JPMorganChase offers private loans for LBS anymore, so that doesn't leave much for the private option (CitiAssist, Discover, etc. are not available for London). On the plus side however, LBS is now certified for the federal GradPLUS loans. At 8.5% fixed, it's a better deal than my private loan quote, so I just called Sallie Mae to cancel their private loan offer and start a GradPLUS loan disbursement instead. It'll have to do for the first year, and then I'll see in '10 what the private loan environment looks like for the second year.

I'm sure the Kellogg financial aid office is used to R2 admits into the 1Y program, so it shouldn't be a problem to get financial aid in place in time. One point the financial aid office made at DAK (and I'm sure this is consistent for all schools) is that student loans are not disbursed until the first day of classes (not at the start of orientation, KWEST trips, etc), so no matter how you're financing school make sure you have a plan in place to cover expenses up until the first official day of school.

Good thing to keep in mind, thanks Jerz.

Not sure if 1 year 0% APR offers still exist, but assuming I can find one, would it be a smart idea to finance a part of my tuition (let's say $10k) using this method? I would collect probably 1% cash back in rewards points and save 1 year of interest (take out a loan after 1 year to pay this back).

The only 2 potential downsides I see to this would be 1) having to make payments on the credit card advance during school (probably not a huge deal since credit card minimum payments are lower than other loan payments), and 2) your maximum student loan borrowing in year 2 would be limited to cost of attendance for year 2, so assuming you need the full amount of student loans to pay for your second year, you'd have to find non-student personal loans to pay off the credit card debt (or get stuck paying 16% interest or so on the balance).

If neither of these are a problem for you, I can't think of any other reason not to do it. Free money is always a nice thing to have.

Yes I fully intend to fully pay off the credit card debt as soon as the 0% APR (for 1 year hopefully) is over. Perhaps through the internship or I can liquidate my 401 next year (gives time for it to hopefully recover a little plus I'd pay less taxes taking it out next year vs. this year since I'm still getting paid at work).

I will be attending an international MBA in the fall (I'm a US citizen). I'm working hard to be laid off from my current position. I should be eligible for 6 months of pay. Would anyone know if I applied for unemployment checks once I'm in school? I figured if I don't apply for any federal aid, it'd be easy for me to slip under the radar and collect unemployment for 12 months. Will this work?

Do you know that is called cheating?

Actually it's called fraud