This is the plan of action I received after talking to lawyers and some others who went through this mess
1. Secure I-20 from business school by arranging for funding
2. Withdraw I-140 by requesting the employer. They should send a letter to immigrations.
3. Take a copy of this letter, and create documents that support your intent to go back to your country after MBA...real estate in your name, family ties, a job offer from your country etc and apply for Change of Status from H1b to F1 while being in USA.
4. Change of status takes 2.5 months on average
5. You need not go to your country to stamp, instead you could just change to F1 status while being in USA and start MBA. You need to stamp F1 only when you leave USA (in order to return). So you can go while in school and get it stamped in order to have ability to freely travel in and out of USA during your F1.
6. You needn't apply for change of status while being in USA instead once you withdraw I-140 you can just resign and go to your country and apply for F1 from there. From what I have heard, change of status seems to be less risky than applying through consulate.
Since you withdraw I-140 this means, you lose your priority date. So if/when you apply for GC again post MBA, you will start from scratch. Everyone I talked to recommended withdrawing I-140 first before trying to apply for F1.
If you wish to discuss further, PM me.
Awesome details...Thanks man! Really appreciate it.
I am not sure how willing my company will be to withdraw I-140...It's going to be a bit painful