Innovative sources of finance emerge for MBA students

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International students may receive loans without the need for a US co-signer

You have sat your GMAT, written your essays, submitted your applications and been offered a place on that coveted overseas MBA programme. Now comes the hard part: paying for it.

The credit crunch only exacerbated a problem that had been brewing for years, as the big banks and other traditional lenders pulled out of financing international students. However, the recovery of western economies and the return of jobs for graduating MBA students has done little to improve the situation for students who want to study overseas.

“In terms of the wider market, it is becoming more difficult,” says South African Cameron Stevens, one of the founders and chief executive of Prodigy Finance, which is working with Insead alumni to help fund loans for students studying there.

He points to the decision by NatWest to withdraw from the market in the UK as recently as January as further evidence of the parlous state of funding availability.

Traditional banks are not suited to the idea of MBA loans, he says, because, however global they might claim to be, they operate as a series of national branches. “It [an MBA loan scheme] sits very badly in a local banking portfolio. What they [local banks] want is the high-income local managers. But they are forced to include international students as well, who are outside their remit in terms of offering other products and services.”

The first signals of a crisis in funding for international students hit in the summer of 2008, when international students studying at schools such as Chicago Booth had to scrabble to put together loan packages.

To help out its international students, Chicago Booth, along with schools such as Kellogg School of Management and the Simon school at the University of Rochester, opted into a programme brokered by GMAC, which administers the GMAT test, with Deutsche Bank, for international students to receive loans without the need for a US co-signer – the person who picks up the bill if the student defaults on the loan.

“Schools become the de facto co-signer,” says Stacey Kole, deputy dean for the full-time MBA programme at Booth. She says about 50 per cent of the international students at Booth take advantage of the programme, known as Alps – affiliated loan programme for students.

Other US business schools, such as Wharton, the Darden school at the University of Virginia and, most recently, the Haas school at UC Berkeley, have turned to credit unions, not-for-profit financial co-operatives, to finance student loans.