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Hunting for Money: A Guide to Financial Aid

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Add an MBA to your resumé, and your earning potential can skyrocket. But a B-school education doesn't come cheap. Find out how to get yourself the right financial aid package so you don't start off your new career saddled with debt.

"Twenty years of schoolin' / and they put you on the day shift," sings Bob Dylan in "Subterranean Homesick Blues." But even if you're doing quite well in your 9-to-5 gig, it's no secret that two years of B-schoolin' can give your paycheck a healthy boost.

According to a Financial Times business school rankings survey, just three years after graduation Harvard's 1997 MBAs were making an average of $173,500 a year, a 221 percent increase over their pre-MBA salaries. University of Chicago grads from the same year were pulling in around $151,000 (up 224 percent); Ohio State's 1997 MBA grads were earning about $75,700 by 2000, having increased their pre-MBA salaries by 89 percent; and Notre Dame graduates from the same year were making $85,200 (up 140 percent).

Keep in mind, however, that these impressive salaries are returns on hefty investments. Attending business school, especially full-time at a private institution, can be a financially intimidating proposition. Stanford, for instance, recommends that students budget around $48,000 annually to cover the cost of books, tuition, living expenses, and travel, while Northwestern's Kellogg School suggests a figure closer to $60,000.

Prospective students should also take into account the opportunity cost (you'll be hearing more of this term once you matriculate) of losing two years of full-time paychecks. When all is said and done, the total costs of an MBA-including tuition, expenses, and lost income-can easily add up to a sobering quarter of a million dollars.

Meeting these costs can mean facing major debt after graduation. In an attempt to compensate, you might expect to make some serious lifestyle adjustments once you become a student again. But don't forget the Pottery Barn factor: As a group, MBAs aren't always willing (or able) to participate in the kinds of radical cost-cutting typical of graduate students in other fields. Most B-schoolers work for a few years before returning to academe, so they tend to be accustomed to more expensive lifestyles. Also, because they are generally older (the average age of first-years at Carnegie Mellon, for example, is 28), MBA students are more likely to have spouses-even children-to consider. Though tempting, living in a garret and subsisting on tuna fish and rice for a couple of years may not even be an option.

Be Realistic, but Aim High
Should you let financial constraints determine your choice of school? Not necessarily. Tuition costs vary wildly across the board, with state schools generally charging a great deal less than private institutions or out-of-state public institutions. In-state tuition (for residents) can be as low as $3,000, while tuition at top-ranked private institutions can exceed $30,000. (The location of your school is also an important factor, given the exorbitant cost of living in large cities.)

On the flip side, a less prestigious MBA could lower your expected income after graduation. The average starting salary for the Wharton Class of 2000 was $92,000 with an average signing bonus of $22,700; their counterparts from SUNY Buffalo started at $53,700 with an average signing bonus of $5,300.

Darius Cayetano, an associate analyst at Moody's Investors Service, hasn't let the hefty tuition deter him from applying to top-10 institutions. "You can pretty much go to any school if you get in, as long as you're willing to borrow money," he advises. "All the top schools seem to have established programs with banks or other lending institutions to guarantee you aid."

Borrowing heavily is an option, of course, but probably not your best one; after all, you don't want to wallow in debt for years after graduation. However, if you plan ahead, think creatively, and seize opportunities, you can minimize the amount of loans you'll need to take out. Remember, the less debt you accumulate during B-school, the sooner you can start reaping the material rewards from your degree.

Tip: If you're coming to the U.S. as an international student, you'll probably have to demonstrate evidence of adequate financial resources in order to obtain a visa for entry into the country. However, the amount you receive in loans from your B-school may count toward this requirement; check with your financial aid office for details.

Apply for Grants
We can't emphasize this point enough: Contact your school's financial aid office to determine your eligibility for different kinds of scholarships, fellowships, and other grant aid that may be available to you. MBA scholarships come from a number of sources, including the schools themselves, federal and state governments, corporations, professional and alumni associations, and special-interest groups.

Essentially, scholarships fall into three distinct categories: merit-based scholarships, which may be awarded based on undergraduate grades, GMAT scores, and/or the overall strength of your application; need-based scholarships, which require you to demonstrate evidence of financial hardship; and affirmative action scholarships, which are awarded to women and/or applicants with minority ethnic or religious backgrounds. Several scholarships require you to submit a separate form along with your application. Some schools, though, automatically offer scholarships as part of your admissions package.

Amy Hernandez, a project manager in Atlanta, has been offered generous scholarships from local business schools. "Georgia Tech offered to reimburse the full tuition amount if I commit to a few hours each week as a graduate research assistant, [helping faculty with research]," she says. However, she also won a scholarship to the Goizueta School at nearby Emory University that will subsidize 50 percent of her tuition without requiring her to work. She plans to attend higher-ranked Emory, even though she has to pay half the tuition cost.

Available scholarships and eligibility criteria vary from program to program. For example, the Weatherhead School of Management at Case Western Reserve awards merit-based scholarships determined by your undergrad GPA and GMAT scores. Emory offers the James & Lynn Platt Memorial Scholarship, a $5,000 award based on financial need and academic excellence, while the University of Colorado at Boulder offers merit-based fellowships. First-year fellowships at UCLA's Anderson School are based on the overall strength of applications; second-year fellowships are determined by grades received in first-year core courses and contributions to the Anderson community.

Don't hesitate to mix and match to create your optimal package. Recent Wharton graduate Victor Calanog took advantage of all the funding sources available to him: He applied for and received the 1998 AT&T Leadership Award, the 1999-2000 Morgenthau Fellowship, the 1999-2000 NAFSA ASEAN Student Award, a grant from the Ford Foundation for a research project on technological innovation and leadership, and the Saul Fellowship from the University of Pennsylvania.

Tip: Since many of these grants require applications, determine the requirements and deadlines well in advance so that you don't miss out on money that could have been yours.

Take Out Loans
Laura Hardman, a private credit manager at lending giant Sallie Mae, advises prospective borrowers to first consider "ways to minimize borrowing-scholarships, school fellowships, tuition repayment plans from employers, or savings." But if you do need a loan, check out MBA LOANS, a program sponsored by the Graduate Management Admission Council (GMAC) and funded by Sallie Mae and Wells Fargo Education Services. Over the last 14 years, this program has financed more than $875 million worth of loans to graduate business school students.

Federal Stafford loans are the most common source of funds offered through the MBA LOANS program; they can be issued as need-based subsidized loans (the government pays the interest while you're in school and for an approximately six-month grace period afterwards) or as unsubsidized loans (you start paying interest immediately). Hardman advises loan applicants to "work with [the] financial aid office and follow the school's procedures for applying for federal aid."

You may borrow up to $18,500 annually (of which a maximum of $8,500 can be subsidized) under the Stafford Loan program, and you can negotiate options for repayment. Under the standard repayment plan, the borrower makes principal and interest payments each month for the duration of the repayment period. The graduated repayment option allows the borrower to make smaller payments at the beginning of the repayment period and increase the payment amount over time. Under the income-based repayment plan, your payment is calculated as a percentage of your monthly gross income. Finally, the extended repayment plan offers to stretch your payments over a period of up to 25 years.

What if you max out your Stafford Loans, but still need to borrow more money? You can obtain additional funds through the private Tuition Loan Program, also administered by Sallie Mae. To apply for a loan through the TLP, you must be in good standing in an approved graduate business program. However, Hardman warns, "If a student needs to obtain additional financing through a private, unsecured education loan, it is important to maintain good credit and avoid student loan defaults."

Interest on loans taken out through the TLP starts at the prime rate, but the actual rate and fees assigned depend upon your credit rating. (If your credit is particularly poor, or if you are an international student, you will need a creditworthy U.S. citizen or permanent resident to act as co-borrower.) The good news is that loans through the Stafford Loan program and the Tuition Loan Program are administered by the same servicing agent, so you won't have to deal with multiple repayment plans.

Tip: To get a copy of your credit report from the three major credit bureaus (Experian, Equifax, and TransUnion), visit

Work on the Side
Even if you have to give up a well-paying corporate job to attend school, you can still find gainful employment to help defray the costs. Schools generally don't place restrictions on the number of hours MBA students can work, trusting them to balance their jobs and courseloads. Just how industrious you want to be is up to you.

Most schools provide various options for working on campus. "I didn't want to have any loans, since I was planning on pursuing a Ph.D.," says Calanog, who is currently working toward his doctorate in applied economics. He certainly put his money where his mouth is: During business school, he was a teaching assistant for a graduate leadership class, an undergraduate marketing class, a graduate business strategy course, and an executive education module on managing the workplace. In addition, Calanog lived rent-free by working as a senior resident in a high-rise dormitory. He was also a graduate assistant for special projects in the MBA admissions and financial aid office, where he interviewed prospective students, read application essays, and handled international student recruitment.

Opportunities for off-campus work abound as well, and MBA students do everything from bartending to part-time consulting. It doesn't hurt to be creative, either. Faith Hunter, a 1995 graduate of Loyola University New Orleans' College of Business Administration, worked part-time for Louisiana State University Medical Center during business school, developing a social marketing campaign for the state. But she also competed in pageants to help pay for books and other incidentals, and ended up winning the title of Miss Louisiana. "Over a two-year period, I earned over $15,000 in scholarships through the Miss America Foundation," she says. Hunter now works as director of technical assistance and training at the National Minority AIDS Council in Washington, D.C.

One big source of income is the all-important summer job: Most MBA students do a full-time paid internship between their first and second years of school. During the summer of 2000, Carnegie Mellon interns made between $5,000 and $8,000 per month depending on the industry (higher-paid internships went to students working in consulting and financial services). University of Chicago interns earned between $5,000 and $8,000 per month, depending on industry-but some managed to make as much as $12,000 each month. With these earnings, most students are able to cover their summer living expenses comfortably and also put aside some extra cash for their second year.

Tip: Even if you don't have the stamina to work multiple jobs, a part-time gig can at least help you offset the costs of all those learning-team happy hours. Since courseloads are generally heavier in the first year of a two-year business school program, you may have more time available for working during the second year.

Double Up
Balancing school, work, and family life can be stressful, but marriage (or long-term partnership) can have significant financial advantages. "If a spouse can offer financial support, the borrower will be able to minimize the amount borrowed," says Hardman.

Some married couples even give up both incomes and opt to receive their degrees at the same time. Kimberly Berger and her husband, Lawrence, attended business school simultaneously. Berger says that being married allowed them to pool their income: "Since Lawrence is Canadian, he didn't qualify for some of the federal loans. So we paid for his expenses and borrowed for mine."

To help defray costs, Berger worked as an interviewer for the admissions office, coordinated a guest speaker series, and did a research project, all for pay. "Lawrence worked at the Small Business Development Center during school, so that helped, too. We also saved money by buying only one of each textbook," she notes. Berger says they consolidated loans after they graduated, giving them more time to pay off the debts.

Tip: Check out our article Family Ties: Balancing Marriage with B-School for more advice on balancing wedded bliss and academic demands.

Explore Other Options
If you're wary of full-time MBA study for two years, options do exist for structuring your business education around your lifestyle: You can attend school part-time, do a weekend executive MBA, consider an accelerated 12-month program, or even do your degree online. (See our articles on online MBAs and part-time MBAs.) These options can reduce your expenses dramatically, even if they mean having to juggle school and work responsibilities.

If you're lucky, your company will finance the cost of your MBA. Michael Grantedlio, an associate in the municipal derivatives group at Lehman Brothers, is a first-year student in NYU Stern's Executive MBA program and attends classes on weekends. Balancing his full-time job with his business school courseload is tough but worth it. "My employer is paying for the whole thing. It's great to be able to earn a salary while going to school at the same time," he says, "but you have to be able to organize and prioritize."

Even if your company is not willing to pay for your MBA outright, ask about its participation in Sallie Mae's Corporate Partnership Program. Under the CPP, employees borrow money through MBA LOANS, and the employer agrees to repay the employee's loans in full over three years if the employee receives the degree and stays with the company during the repayment period. The program also includes options for companies that wish to recruit new business school graduates by offering to pay off their loans in exchange for completing a certain term of employment.

Tip: Many companies have standard policies for employees who wish to pursue an MBA. Check with your supervisor or human resources department to find out whether sponsored part-time programs or paid full-time programs (with an obligation to return to work there after graduation) are an option for you.

Our final words of advice? Don't let the seemingly insurmountable costs of B-school thwart your ambitions; but don't sign loan agreement forms until you've explored other ways to make ends meet. Scholarships, part-time work, a summer internship, and prior savings can help absorb some of the financial hit and let you deposit more of that fat MBA paycheck into your bank account when you return to the workplace full-time.
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