Welcome to MBA Podcaster—the only source for cutting-edge
information and advice on the MBA application process. With an MBA under your
belt, higher salaries are likely to come your way. “The average salary,
according to the 2005 Global MBA Graduate Survey that the council does, was
$88,600.” But the challenge is how to come up with upwards of $40,000 a year to
finance your way through business school so that you can get that higher
salary. We’ll hear about the different funding options available out there from
federal loans to private loans, scholarships to corporate sponsorships. And
we’ll also find out if you can deduct your MBA expenses on your tax return. We’ll
talk to a top business school’s director financial aid, an industry analyst, an
MBA loan specialist, as well as a tax specialist to find out the best options
available to you. You can also visit our website mbapodcaster.com for a list of
loans and grants available.

Let’s break down financing to three chapters—life before an
MBA, life during business school, and the aftermath with rewards but, likely, a
lot of debt. Daphne Atkinson is Vice-President of Industry Analysis for the Graduate Management Admission Council. She
says even before you embark on the path of getting an MBA, make sure you put
your financial house in order. “And what do I mean by that? In particular for
full-time students, because they will not be employed—they will not be
working—they need to learn to live like a student before they become one. They
should pay down existing consumer debt and avoid incurring major expenses. I’m
thinking of new cars, a big, fancy vacation, and house purchases. They should
also make arrangements for either deferring or paying off any outstanding
undergraduate loans they might have. And if they are not already doing so, they
need to create a budget and learn how to stick with it. For part-time students,
they need to find out to what degree an employer reimburses for degree
programs, and if there is a process at their company, how they go about
qualifying for it. Public institutions and state institutions have in-state
tuition and out-of-state tuition. And there’s often a differential between the
two. Private institutions, particularly those that are acknowledged as top
schools, have price tickets to go with it. But it doesn’t mean that everyone
has to be out-of-pocket $75- or $100,000. Executive programs often cost way in
excess of $100,000. But those are programs where, typically, the full cost of
program attendance will be underwritten by an employer.”

Thomas Caleel is Director of MBA Admissions and Financial
Aid at the Wharton School of the
University of Pennsylvania. Wharton’s tuition is steep, but Caleel says all
students admitted will be able to afford their education. “For Wharton, the
tuition is close to $40,000 a year. Our two-year budget—and that includes rent,
food, phone, books, fees, everything they would need to live for two
years—comes out to roughly $130,000. We allow them to borrow up to
approximately $130,000—which is more than enough to live for the two
years—because you also have to understand that they’ll also be doing a summer
internship. And they can make anywhere from $10- to $30- or $40,000 in that
summer internship. One of the things that sets Wharton apart is that we are
need-blind. We admit based on merit—based on their ability to be here and be
successful. And we guarantee any admitted student financing. We have a program
with Citibank. And that, essentially, means that as a U.S. student,
you can borrow up to the $130,000 at prime. And international students without
a co-signer—they don’t need a co-signer—their rate is prime plus 2%.”

Financial aid options vary at each school. So once you
decide on which school you want to attend, your best bet is to visit the
financial aid office or check out the school’s website. You have to provide tax
documents and fill out various forms including a FAFSA—the free application for
federal aid. You’ll typically get a quick response from the school on funding
options available to you, and you’ll then work directly with a financial aid
office to secure your loans. Sallie Mae is
one lender that offers an MBA loan program that includes a combination of
federal Stafford loans and private education
loans. Cori McManus is Sallie Mae’s MBA loan specialist. She says students
should look to apply for the federal Stafford
loan first. “A Stafford loan is federally
guaranteed and, generally, carries the lowest interest rates and best terms.
However, there are limits to what students can borrow under the federal Stafford loan program, and that limit is $18,500 for
graduate students.”

Federal loans can come in two forms—a subsidized and an
unsubsidized loan. For subsidized loans, the government pays for the interest
accrued until you get out of school and start repaying. An unsubsidized loan is
similar to a standard loan where interest will accrue while you’re in school.
But still, interest rates on federal Stafford
loans are, generally, lower than private loans. And if you still need more
money, Cori McManus says Sallie Mae
approves more than 80% of students applying for a private loan, and interest
rates are based on prime which she says is currently 7.5%. As Thomas Caleel
said earlier, Wharton’s primary loan provider is Citibank. And even
international student’s can borrow up to $130,000 without a co-signer. But for
international students trying to get a loan through Sallie Mae,
Cori McManus says it’ll be a little more challenging because you do need that
co-signer. “It’s anybody who’s a U.S citizen or permanent resident. So it can
be a relative. It can be even a friend or a spouse. It can be someone who
simply is willing to do so. The actual relationship between the co-signer and
the borrower doesn’t really matter to us as long as they have the appropriate
INS documentation and the right citizenship status.”

But going into debt isn’t the only way to get your MBA.
There are a host of scholarships, fellowships and TA-ships that are available.
GMAC’s Daphne Atkinson says you can do a web search to see what kinds of
scholarships are out there. You can also check out our website at
mbapodcaser.com for a list of grants. But your best bet, again, is to check in
with their financial aid office, says Atkinson. “Schools sometimes have a
specific number of scholarships they mark as full tuition. They may have
received them from donors who have very specific requirements as to whom those
scholarships should be granted. There are other schools that have a policy of
partial scholarships that may be anything from half-tuition to one-quarter
tuition. It really depends on how the school has chosen to carve up its
scholarship budget. And then, there are things like fellowships which,
actually, may require a student to give back something in return for receiving
scholarship money. And that may be some limited number of hours that they have
to spend working at the school doing something specific—whether it’s being a
research assistant, or a teaching assistant for a course, or working in an
administrative office.”

Here are some examples of scholarships available at Wharton.
Thomas Caleel: “We go out with over $6,000,000 a year in financial aid. There
are grants—some of that is need-based, some of that is merit-based. For
example, we have a large fellowship for students coming from Mexico
interested in finance. We have loan forgiveness programs, for example, set up
for students going into social impact management, not for profit or government.
So there are many different ways that the students can get grants. I have one
scholarship for a resident of Lackawanna, Pennsylvania; one for a finance major coming from Wisconsin. Some of them
are just very, very specific. For example, our Howard E. Mitchell fellowship is
a full-tuition fellowship for under-represented minorities. We have an emerging
market fellowship that we award five students each year in the incoming class,
and that’s $20,000 per year based strictly on need. There are opportunities to
earn money while you’re in school. You can take a TA position. My office hires
65-70 second-year students every year to help us read applications and
interview candidates. But, again, it’s important to think about the fact that you
only have two years here. And you should really be focused on being prepared
when you come in—not coming in and saying, ‘Well, I’ll also work, and I’ll try
and pay my mortgage and do this.’ You’re coming here and making a substantial
investment in your future and a large part of that is the academics and the
networks and friendships that you build. And that’s really where you want to be
focusing your attention—not making a couple of dollars at a part-time job.”

And to secure that financial aid, make sure you meet
application deadlines, says Daphne Atkinson. “The timeline is going to be
program and school specific. So the best piece of advice that I can give to
perspective students that are looking for financing options is to use the
school’s website, as well as the admissions and financial aid offices, to find
out what the deadlines are for the various pieces of paperwork and
documentation that are needed as part of the financial aid process. They need
to make sure that, above all, they meet those deadlines because there are no
exceptions. And if you miss them, you have missed an opportunity. So you really
owe it to yourself, if necessary, to keep a very detailed calendar of what is
due when and to whom. And make sure you stick with it. It varies from school to
school. Some schools have a single point where they consider all of the
financial aid, and it’s all granted, and people are all notified on a single
date. Other schools have a rolling policy as far as notification. When you
apply and you receive the decision, and if you’re accepted, you may also find
out what your financial aid package may look like. It just depends. And
students will need to really work closely with the school to understand what
the timetable is.”

Once you’ve secured your loans, your main concern during
school is proper debt management which means making intelligent spending
habits, says Wharton’s Thomas Caleel. Once you graduate, you’ll soon have to
start paying back those loans. And the payback options available vary, says
GMAC’s Daphne Atkinson. “That depends on the loan type. There are a couple of
federal programs that allow you up to 30 years to pay back. Federal Stafford
loans, for example, are 10 years. Some students can even qualify for federal
consolidation loans that can be paid back over 30 years. So there are ways for
students to meet their loan obligations and also continue living.”

Here are some of Sallie Mae’s payback options. Cori McManus:
“There is a standard repayment term of 10 years, where principle and interest
payments are due each month during the loan repayment term. There’s a graduated
repayment term, where payments are lowered at the beginning of repayment where
they might need some financial help. And then, it steps up at specified periods
and in specified amounts over the term of the loan and still gets paid off in
the ten-year period. Then there’s an income-sensitive repayment option, where
monthly payments are based on the percentage of the borrower’s monthly gross
income. And then there’s extended repayment, where eligible borrowers get
payment relief through a lengthened repayment term of up to 25 years. Students
can also consolidate their loans, where federal consolidation loans allow
borrowers to refinance one or more federal education loans and significantly
lower their monthly payment by extending the payback period. The original loans
are paid in full, and a new loan with combined balances is issued with new
terms, including a low interest rate that is fixed for the life of the loan.”

Now let’s see if you can deduct your MBA-related costs.
Under Section 162 of the IRS code, tax payers can deduct educational costs if
the coursework maintains or improves skills required in their current job. But
the education can’t be towards a new career. Kathy Burlison is Director of Tax
Implementation at H&R Block. “So,
someone who is clearly in a position where the course of study that they
undertake for an MBA would improve the skills that they’re currently engaged
in—perhaps a marketing executive who is already doing the work that they’re
learning more about through the MBA program—and whose classes are improving
their job skills in their current job would be allowed the expenses. On the
other hand, someone who is not doing work—as in one case of an engineer— who
might have been able to deduct education expenses to improve his or her
engineering skills. But the MBA course that this engineer took wasn’t closely
related to his job skills and job performance as an engineer; therefore, the
MBA was not allowed for him.”

If you can take a deduction, you’ll be saving yourself a lot
of money. And Burlison says there are probably a number of MBA students that
are qualified, but aren’t aware of it. The IRS, in recent years, has been
challenging these deductions. And often times, the court has ruled against the
taxpayer. So Kathy Burlison says if you’re going to take the deduction, make
sure you have the proper documentation. “It would be helpful to start with a
job description. And if their current job description accurately explains what
it is that they’re doing on the job—and I know that’s not true for a lot of
people— make sure that that job description does accurately reflect what you’re
doing on the job, and be able to look at the skills that are promised through
the MBA program that you’re pursuing, and be able to match those up. It doesn’t
have to be every single item matching up, but be able to say that your current
job, for example, requires that you analyze the environment to determine risks
and a threat to your organization in a particular area, and the MBA program
provides courses that improve skills in identifying risks and opportunities.
Then, you’ve got a pretty tight match. You have your job that’s requiring you
to do this item and a course of study that’s improving your skills in doing
that same item.”

What if you get audited and you had changed jobs after your
MBA, but you feel that it’s along the lines of the law? “If you change jobs
after getting the MBA and the new job required an MBA, then that, actually,
weakens your case because that would show evidence that the MBA might have been
acquired in order to meet the requirements of a new job or a new profession. If
you’re going from one employer doing one type of work to another employer doing
a similar type of work, and they both would benefit from the MBA course of
study, then you’re probably going to be okay. So, it’s really going to be a
case by case situation concerning what the differences are between the two
jobs, and whether the MBA study or degree is more closely aligned with the old
job or with the new job.”

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