Financing the MBA

Without doubt, the MBA will be one of the biggest investments in time and money you will ever make. But if you consider the MBA move […]

Without doubt, the MBA will be one of the biggest investments in time and money you will ever make. But if you consider the MBA move as a once-in-a-lifetime opportunity, you will find the means at your disposal to overcome the financial hurdles. For the vast majority of graduates, the MBA has not only resulted in a full return on the investment but has also opened up a whole new stage in their careers.

Prospective MBA candidates have traditionally financed their education with the resources at their disposal, including personal savings, family or bank loans, or financial assistance from a wide range of public and government sources. In addition, prospective MBA candidates can apply for school scholarships and fellowships or government grants which do not have to be paid back. How much money you need will depend on the type of programme. Tuition for full-time MBA programmes often cost less than tuition for part-time Executive MBA programmes, but the full-time student will have a higher opportunity cost in terms of lost earnings than part-time students.

MBA tuition rates have risen faster than inflation rates because most programmes use their own funds to award financial aid to students based on need. If business schools did not make such need-based awards, according to FinAid, which offers free financial aid information, then MBA tuition would not rise nearly as much as it has. Without institutional financial aid, programmes “would charge tuition rates that are 22 per cent to 25 per cent lower, but then many lower income students would not be able to attend,” says the FinAid Research Report.

Calculating the Cost

Prospective candidates should expect to make some sort of investment for any MBA programme. The debts that arise are usually paid off quickly with a gradually decreasing debt to equity ratio over the life of the loans as a result of the higher salaries that are paid to MBAs. All the same, MBA candidates would be smart to calculate the ROI before beginning the MBA, even if it is at best a rough estimate.

To begin the process of calculation, you first need to know the duration of your MBA programme. Many of the MBA programmes in Europe have a duration of between 10 and 15 months, while many of those in North America last up to 24 months. The difference in costs between a one-year MBA programme and a two-year MBA programme, while not readily apparent, is nevertheless sizeable.

Part of reason that many North American b-schools can offer prospective candidates the luxury of their two-year programmes is that, until the recent banking credit crunch at least, students attending North American schools could get fairly easy access to large student loans without too much difficulty. Easy access to credit has never been the case for most students attending European MBA programmes.

All the same, loans in whatever form they may take, including government-related financial aid, are the principal source of financing on both sides of the Atlantic, and the vast majority of loans are paid back on time. Hence, the ROI calculation will not be that different as interest rates tend to be about the same on both sides of the Atlantic, although salary levels are somewhat higher in North America, which would lessen the impact of the debt to equity ratio for those with the higher pay packages.

When calculating the total cost of a full-time MBA, you will need to add up the following: application expenses, tuition, moving expenses, technology fees, room and board, books, travel, interest on student loans, incidental expenses and the opportunity costs. While tuition for a full-time MBA programme is usually less than that for an Executive MBA, the additional costs for room and board along with the lost earnings will result in a total cost that is about three times more than an Executive MBA programme.

At UCLA Anderson School of Management, tuition for the 22-month Executive MBA Programme is $50,000 for the first year, which covers registration, tuition, books and software supplies, meals, lodging during class sessions every other weekend, parking, and off-campus residentials. While the tuition for the 21-month full-time MBA programme at UCLA Anderson is $43,000 or $7,000 less than the EMBA, students must pay $13,500 for room and board. If you factor your lost earnings into the equation, the full-time MBA programme will cost much more than the EMBA.

One of the best places to find out this information is from Business Week, which calculates the total cost of many full-time MBA programmes. According to the 2008 Business Week survey, the 19-month IESE full-time MBA is the most expensive programme in Europe, costing $226,200. But students who graduating from IESE took only three and a half years to pay back their investment as a result of the higher pay packages that IESE graduates received upon graduation. Signing-on bonuses can also be significant.

Searching for Scholarships and Loans

Most students typically finance their MBA from three sources, school scholarships, government and bank loans and savings. A high GMAT score, for example, could entitle you to a scholarship. Students with excellent credentials can apply to a huge range of sponsors. The Ambassadorial Scholarships from the International Rotary Club bills itself as the world’s largest privately funded international scholarships programme. Nearly 800 scholarships are awarded for study through grants totalling approximately $500 million every year. Recipients of the Ambassadorial Scholarships were from about 70 countries and studied in more than 70 nations. The US-based Fulbright Programme, for example, offered 6,000 grants in 2007, on the basis of academic merit and professional promise.

There are many different types of student loans available. Prospective MBA candidates should find out from the financial aid office at their target schools about the loans for which they are eligible; each European country offers a wide range of loans to its nationals. The ABN AMRO Bank, for example, grants individual loans to Dutch MBA students, while NatWest offers a loan scheme to residents of the UK. Bank loans can be low-interest student loans.

Financing the Part-time MBA and EMBA

Top business schools often require that students have corporate endorsement before applying for an EMBA, which means that corporations support their employees to the extent that they have their permission to take a certain amount of time off to attend classes on evenings or weekends, or even undertake modules abroad. An endorsement does not necessarily mean that employees will benefit from the financial largesse of their companies. Even before the recent credit crunch, companies have been reluctant to sponsor students financially on EMBA programmes so it is no surprise that now, more and more students are self-financing part or all of their studies.

At the Kellogg-WHU Executive MBA programme, where the tuition fee is €65,000, 40 per cent of students self-finance the entire cost of tuition, while 60 per cent self-finance part of the cost, having received some form of financial support from their employers. The return on investment is well worth the cost for all the students. According to the 2008 EMBA Financial Times rankings, Kellogg-WHU graduates earned $156,217 in their first year after graduation, an increase of 78 per cent over their pre-EMBA salary levels.

In summary, an MBA represents a substantial investment in your career. But the return on investment continues to make it the degree of choice for executives across the globe. Employers, banks and the learning institutions themselves understand the power of the MBA to advance careers and create wealth. If you are confident in yourself and your decision, you will find the financial means to make the MBA investment.

Learn more about the Access MBA Tour and register for our event in Bucharest on November 23 on our website www.accessmba.com.