Almost everyone headed back to school deals with the super stressful decisions around paying for it. After you get admitted, your happy-success-feeling bubble may have gotten burst pretty darned quickly when you realized how effing expensive this thing is. Why on earth does bschool cost so much!?? If you’re a foreigner interested in coming to the States for grad school, you may have been particularly shocked to see the numbers.
Thankfully (or not) most schools do a good job of escorting their new admits through the process of securing loans to pay for the MBA — if they didn’t, the schools would probably lose half their candidates. How this works is, once you’re accepted, you fill out the FAFSA which is the US government’s student loan and grants system. You provide information on your personal situation and finances and then the school’s financial aid office comes up with a loan package for you.
Here’s where we need to warn you, Brave Supplicant.
The schools all publish a Cost of Attendance, aka a student budget, which covers the tuition and all the costs of being a student (books and materials, fees, mandatory health insurance coverage unless you can provide proof of comparable coverage on your own, etc.) along with an estimate of cost of living in their specific city. For a full-time graduate program, they assume you’ll be seeking a loan to pay for housing, food, transportation, etc. to live on during the time you’re in school. The school’s published Cost of Attendance establishes the maximum amount you can borrow each school year. As an example, Columbia Business School for 2018-2019 has a COA of $110,978 .
That’s only for the school year, which runs for nine months.
And this is our warning:
Hopefully you’ve already been saving your ducats for the costs involved in earning your MBA. You’ve been planning for this for awhile, going all the way back to the time you started studying for the GMAT. We realize that many people do not do this, but hopefully you were thinking ahead on the financial front too and have been stashing some money now, while you’re still earning a healthy salary. If you haven’t been doing that, then now is the time to begin.
Bschool is EXPENSIVE and it royally sucks to go from earning a very nice paycheck every two weeks to $0 coming in.
And, it can be totally tempting to simply go along with the school’s financial aid offer and let them disburse a loan package to you for all this money, including the estimated rent and living expenses part, just because they have said you are qualified to receive it.
Please tread carefully on this part, whippersnapper.
Yes you’re about to embark on this great MBA experience, and no you don’t want to be stressing about money while you’re doing it. If you need to get the full COA amount in order to pay your bills during this time, then do it.
But if you don’t, then we’d encourage you to carefully consider.
The interest rates on student loans (for U.S. borrowers at least) are currently not exorbitantly expensive, but they’re also not cheap; new loans issued right now are at about 5% compounded interest. That’s not like the 17%+ amount that you’re probably paying if you’re carrying a balance on your credit card (which hopefully you’re not, but if you are, definitely get that paid down immediately and then stop using credit!!! it’s an avoidable waste of money!!! don’t do it!). Still, 5% every year for the life of the loan adds up to be a significant chunk of change.
You’re likely to have plenty of disposable income in 2 years when you graduate, should all go to plan, and it’s unlikely that your student loan payments will take such a huge bite out of your paycheck every month that you’ll feel it. But borrowing against the future should only be done for specific well considered reasons. If you haven’t looked into the actual costs you will be incurring to merely support yourself — outside of the whole tuition thing which is separate — then doing that now would be wise. And recognize that your standard of living will probably need to change. If you’re living a venti double shot mocha latte kind of life right now, then home-brewed drip in a travel mug may be in your future once you’re a student.
The main point we’re hoping to impart today though is this:
When the school generates a financial aid package for you, it may be tempting to simply accept it and sign on the dotted line.
Instead, look carefully at what you’re committing to. Do you need all of the money they have approved you for in the loan package? (Many students do; it’s not like the student budget figures that the schools generate are overly generous.)
Are you thinking about the nut that you’re taking on?
Be an advocate for yourself. Think critically about what you’re signing up for, and what your own individual situation requires.
It may be that you decide that the full COA amount is exactly right for you, and you max out your loan limits completely.
But maybe you don’t need to do that. It’s up to you to look at the numbers and decide what is right. Don’t get swept up by the process of the school’s intake procedures. Just because a full loan amount is available doesn’t mean you personally need to borrow it. Don’t put yourself in hock if you don’t have to.
If you do, then that’s OK too. You’re likely to end up just fine financially when you graduate. This post is only to get you to think through your options and decide for yourself. Once you register, you’re just a Student ID Number in the system, so be sure you’re still thinking for yourself at each step of the way.