How to answer this question- how will you finance your MBA

Question

For HEC Paris application, we are required to state how we will finance the MBA.

I can mention that i will dip into my savings, but i dont want to lose the oppurtunity of a free ride. Do our answers affect the chances of our scholarship?

Thanks !!!

riverripper · Answer

No clue what the finance options are over in euroland. But over here I am taking straight up loans for everything. Even if my wife is working, I probably will take some loans for living expenses. The interest rates arent that bad and its tax deductible (well until you make over a certain limit). I am sure my money will make more than the 6% interest rate if I leave it invested.

I know a former banker who has a huge bankroll and he took loans out for the whole thing. He was of the mind that he could make far more with his money invested than paying school outright. Plus some companies will pay off student loans after they hire you.

Strategery · Answer

Same here. I figure loans for an MBA are a better investment than a house. :lol:

solaris1 · Answer

Virtually every newly-minted MBA will make more than the income limit for the student loan interest tax deduction. And it's pretty hard to get a sure shot 6% return with minimal risk on investments these days.

I'll concede that it does make some sense to take on loans if you're going to go into an industry where one of the perks include the company paying off your loans.

pelihu · Answer

Just a note on firms paying off your loans - it doesn't really matter if you have loans per-se. Firms generally have a tuition reimbursement program, where they give you a certain amount of money based on how much your tuition was. I think this is most common at consulting firms, and those that get it typically get the cost of their tuition paid out to them over the course of two years or something like that. It's not really loan repayment.

solaris1 · Answer

pelihu - just wanted to know more about this. are you saying even if you didn't have loans, consulting firms would still offer to compensate you for up to a certain percentage of your b-school tuition?

know of any other employers that do this?

btw, can i pm you with a couple of questions on Darden?

know of any other employers that do this?

btw, can i pm you with a couple of questions on Darden?

MiamiMBA · Answer

This is what I am debating right now. I have a good amount of cash saved up right now (at least enough to pay for the first two semesters of tuition, books and fees), but probably not enough for my share of the living expenses. My wife will be working while I'm in school. I'm not sure if I should take out a loan for some of the costs during the first year, or just take one out for the 2nd year when some of my funds are depleted. Also, we are thinking that we'll want some cash in savings for a down payment on a house after I graduate.... Too many decisions!

riverripper · Answer

As someone pointed out your salary post grad will probably be above the write off limit for student loans. But if you are planning on buying a house and can put enough down and build up equity quickly...you can pay your student loans off using a home equity loan. The interest rate will still be reasonable and you can right off the interest you pay.

Student loan debt is actually a good debt to have, its not like a credit card or anything.

Student loan debt is actually a good debt to have, its not like a credit card or anything.

TimeSquareDesi · Answer

Since we are on the subject...

How might someone in Adcoms take it if you were to say that you will self finanance your MBA ( at an Ivy)? How will they take it if you say that you self-financed your entire undergrad degree + living expenses by working like a madman?

I ask because this can be looked at in two ways: 1) this person is hard working and did something very good for himself or 2) this person did not focus on his/her education / this person doesn't need school if they are already doing so good for themselves / etc etc.

I appreciate any arguments... This has been floating around in my head for a while so I was just wondering what others might think. Should you or should you not include the fact that you self-financed your entire academic life on your resume / application / essay for a school, etc?

kryzak · Answer

I'm debating whether we should continue this discussion here or move it to the financial aid thread.

But anyway, I'm in the similar situation where I will have money to cover expenses when I sell my place (river, your place should have appreciated a bit?), and am debating whether to get loans or not. The safest investment is the bank/CDs, and that's around 4.5-5% right now. The lowest loans are probably all above 5-6%. It makes more sense to just pay the school expenses using your savings than getting a loan in that case, especially since we get no interest deduction benefits while in school (no income) and after school we'll earn too much (unless we do the home equity line thing).

Of course, one can go for riskier investments for the 6+% returns, but unless you know stocks and the market really well, or were a trader, I don't know if I want to take time out of the crazy first year schedule to worry about that...

pelihu · Answer

Yes, that's correct. Typically, tuition reimbursement offers have nothing to do with the amount that you actually borrowed (or owe). They are kind of a combination signing bonus / retention bonus.

Consulting firms will offer tuition reimbursement to summer associates who decide to join the firm full-time; sort of an additional inducement to sign on the dotted line. The offers I have seen are generally reimbursement of 2Y tuition over 2 or 3 years for people who join. Some firms offer it to all people who return, others offer it only to certain folks. Other than consulting firms, I think a few general management employers offer something similar.

If you have any questions about Darden, feel free to PM me.

trader1 · Answer

in my opinion, loans are probably the best way to go, so long as you can get one with interest rates below 6-8% and with no penalty fees for pre-paying it down before expiration. if anyone knows any loans that don't begin accruing interest until after graduation, then those would be the absolute no brainer. there is a risk with loans, b/c there's always the chance you could have no job for 6 months to a year following graduation. hopefully, you have a partner who will be able to not only cover daily living expenses, but such loan payments.

i have a decent amount of equity in my trading account and i want to use only a little bit of it to finance the actual tuition costs. my wife will continue working and help support living costs to a degree, but i want to maximize the loans as much as possible. i'm just confident in my ability to trade for profit, that i'm comfortable doing this. not everyone will, so only you can decide how much risk is too much for you. if i can pull some nice gains over the next year before b-school, then i will set these profits aside in a simple interest bearing account or 1 or 2-year CD that i won't be tempted to touch. or, i'll just buy some gold bullion coins to hold. this would then be a back-up savings in case i find myself in w/o employment the first 6 months or so, and thus would be able to make the monthly loan payments by cashing everything in.

my current lifestyle of trading 24x5 will come to an abrupt end when i get to b-school, but i can easily alter my strategy and simply go more "long term", say going for trades with a few weeks to few months time frame. plus, if i'm banking profits during b-school, the easier it will be to use those funds to pay off the loan debt.

and here's a tax consideration to consider. depending on your tax situation, whether you're single or married filing jointly, etc., you could seriously reduce your capital gains taxes when you're trading short-term (i.e., less than 1 year holding) during business school. if you're making say $30k in short term gains during b-school over one year, and this is your only income, then you're only paying 15% total taxes. see, your short-term caps gain rate is based off the tax bracket in which your ordinary income falls, which could be as low as 10%. and in this case, your ordinary income would be the profits from your trading , i.e. capital gains (plus any other ordinary income you and/or your partner may have). i think it's a no brainer to trade during b-school. of course, there's a risk! but, when you have a clearly defined trading plan with limits to max losses you're willing to take, you can be successful. most successful traders have more losing trades than winning ones. the differentiator is that these traders have many small losing trades, but have few big winning trades. the other factor is the psychological component of trading. most people are unsuccessful because a) they trade with fear and/or b) they do not know how to control their greed and fail to ring the register after a huge windfall.

https://www.optionsxpress.com/educate/ad ... nning.aspx
https://www.irs.gov/formspubs/article/0, ... 72,00.html

rhyme · Answer

Nice post.

I know people at the GSB who took out student loans and were intending to trade with that money. I personally find that particular strategy pretty nuts.

rhyme · Answer

In my experience, most of the time (when it happens, that is, assuming it even does), its tuition reimbursement for the 2nd year of school... not for the full two years -- so 45K not 90K.

Praetorian · Answer

Nice thread. great post trader1. +10.

Just re-posting the set of links I posted elsewhere.

Credit Scores and Business School Loan Qualification

https://www.gmatclub.com/phpbb/viewtopic.php?t=43370

Financing FT MBA

https://www.gmatclub.com/phpbb/viewtopic.php?t=43035

Financing your MBA

https://www.gmatclub.com/phpbb/viewtopic.php?t=41568

What are you going to do with your 401K?

https://www.gmatclub.com/phpbb/viewtopic.php?t=38272

Tuition and Taxes

https://www.gmatclub.com/phpbb/viewtopic.php?t=41533

Is anyone else freaking out about debt?

https://www.gmatclub.com/phpbb/viewtopic.php?t=44347

kryzak · Answer

definitely check out (and help fill out) the "Comprehensive Financial Aid/Scholarships/Loan" thread, so we can have enough materials for a wiki soon!

solaris1 · Answer

trader1, you can defer payments on federal student loans without any negative repercussions if you're unemployed. most federal loan programs give you a grace period of between 6 - 9 months after graduation to begin making payments. unless you qualify for a subsidized loan however, interest would still accrue. also, it's now next to impossible to secure loans below 6% unless you qualify for a school's own institutional loan program and for that you have to demonstrate acute need.

my federal student loans from college (2004 vintage) will incur a < 2.00% rate for the remainder of their term. it's a  real  pity that virtually all federal student loan programs were switched to fixed-rate programs before the Fed started easing interest rates again earlier this year.

also, you're aware that if you're in b-school between 2008 and 2010, and assuming the very likely scenario that you fall in the 15% federal income tax bracket, you could sell appreciated stock holdings and incur 0% capital gains?

trader1 · Answer

excellent point. i was aware of that, but since my strategy has been entirely short-term based, it hasn't been my primary focus. now that you bring it up, i actually may just load up on GLD or a precious metals fund and hold for the next couple years.

SALawn · Answer

Hey guys,

First off, congrats on the admits!!!

I thought I'd share some information here that may be helpful for international students in particular. The solution I came up with is Prodigy Finance. Prodigy Finance is a loan provider that specifically funds students who are travelling abroad for their MBAs, and they don't require a co-signer. They have loan programmes with quite a few top business schools in Europe, the UK and the US, so depending on what business school you're going to, they may be able to help you out.

The process was surprisingly pain free and I had an offer of finance at a sub 7%p.a. interest rate with a 6 month grace period post MBA about 2 weeks after I applied. Best product on the market I could find.

You can check out the full list of schools they offer loans for on their website: search prodigy loans and check it out.

If that looks interesting, they're hosting a series of info sessions which you can navigate to through the website.

Hope this is helpful!!

Steve.

MBAbot · Answer

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How to answer this question- how will you finance your MBA

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