My journey through the maze of financing an MBA

Prem Prakash, an MBA graduate from Hult (Class of 2012) charts out his long and fascinating journey to finance his MBA. Read it so your trip is easier.

 By Prem Prakash

Google search lists some 34 million web sources when one searches these exact words – ‘arranging finances for MBA’. So, I believe I can add very little if I just mention the various sources of financing a One Year MBA. Rather I’d like to share my personal story of how I arranged my finances. So here it goes:

First my background:

• B. Tech. in Electronics & Communications from Kurukshetra University, SKIET campus, Kurukshetra, India.
• GMAT Score: 660
• Strong co-curricular achievements
• Basically from a village in Haryana, India so I had no access to the ‘secured’ loan route – government policy makes it impossible for banks to consider ‘agricultural land’ as a collateral for a study loan (It’s quite an irony how it’s perfectly fine for the government to buy the land from farmers and give it out to Big Industrial houses to build SEZs and what not, but if a farmer wants to guarantee a study loan with the same land, it’s illegal 🙂

In 2009, I applied to 5 schools (all outside India) and got accepted to Richard Ivy Business School, Canada. I had about Rs 5 lakhs (Rs. 500,000) of my own and I needed another Rs 40 lakhs (Rs. 4 million) for my Ivy MBA (the total cost of the course was CDN $ 110,000, which at the conversion rate prevailing in April 2009 comes out to be Rs 45 lakhs. At today’s exchange-rate, that would be Rs 64 Lakhs !! At that time I tried to arrange my finances from the following:

1. Banks- I went to 18 banks but got a negative reply from all of them. My regular bank ICICI Bank doesn’t give study loans which was quite a shock to me. All the rest sighted the ‘agricultural land’ reason. Also nobody was ready to extend a Rs 40 lakhs study-loan. The limit was Rs 18 lakhs, even if you had collaterals et al. Also you can take study loan only from 1 bank. So it was a dud option for me.
2. I applied to Lions-club scholarship which used to give an interest free loan of Rs 4 Lakhs to those who commit that they will promote the Lion’s Club’s cause in the country they pursue the MBA. Unfortunately (maybe due to the financial meltdown of 2008) the Lion’s Club discontinued this scholarship from end of 2008.
3. I applied to the JRD Tata interest-free loan scholarship, but the date had passed that year. So I had to wait for another year.
4. I wrote back to Ivy Business School, Canada about my lack of finances and if it would be possible to arrange a co-signer (in almost all developed countries, if you can find someone who can sign a study loan on your behalf, you can easily get a study loan for a school in that country. This loan is usually the full tuition fees + living expenses; and the interest rates vary from 5% to 8%).  But they couldn’t help me on this front.
5. I went to the district co-operative bank (essentially a farmers’s bank in rural India) but the high level of corruption there (they demanded a ‘facilitation fees’ for granting me a Rs 4 lakh loan at an interest rate of about 8~9%) left me wondering if these banks really help needy farmers. So that door was closed for me.
6. Social Media- Desperate to get funds I contacted all my gmail and Orkut friends and asked them to help me. Also I offered a 5% advance-money to anybody who could help me get a co-signer to sign on my study-loan in Canada. Essentially it meant that if a Canadian co-signs a study loan for me, I would pay 5% of the total loan (about Rs 2 lakh 50 thousand at the 2009 exchange-rate) to that person. My logic was this: Even if the study-loan costs me 6%, my total cost would still be 11% (6% study loan interest + 5% advance-payment to my co-signer).

But despite my herculean efforts of trying to find someone who could help me, I couldn’t get any takers for my ‘super-duper 5% get rich soon’ deal.

To cut a long story short the whole incident left me with a broken heart- I gave up on my MBA-dreams, changed my job, moved my apartment – things you do when a long passionate relationship comes to a sour end. But the story doesn’t end here.

THE SECOND INNINGS

In the summer of 2011 a few juniors at my workplace started seeking my help on getting a good score in GMAT. One thing led to another and pretty soon I was again burning the midnight oil researching my own options.

This time I applied to 3 schools and cleared the first round with 2, both in UK- Manchester Business School and Hult London.

With Manchester, I was back at square one, because there were no study-loans from the school. In these conditions Hult London seemed to be the best option, because of 4 reasons:

1. The school was galloping up the rankings-ladder in prestigious ranking guides such as the Financial Times rankings’ and The Economist Rankings.
2. They offered me the highest scholarship among all the schools I applied to (due to my agreement with HULT, I can’t reveal the amount to anybody)
3. They offered a very generous loan-scheme where the school would arrange a good study loan package for me without any co-signer from UK ( as shared earlier, the amount is secret!)
4. Credila, an Indian NBFC (Non Banking Financial Corporation) affiliated with HDFC Bank agreed to give me an unsecured loan of Rs 8 lakhs at 14% interest-rate.

So, this time things went right. Of course there are a lot of small details (and I can literally write a book on that, given the time and motivation) in the process, but finally I got all my financing issues fixed this time.

The total cost was Rs 45 lakhs. Fortunately I got a lot of support from my relatives and friends this time. So that took care of my living expenses in London. The unsecured loan from Credila combined with the scholarship and loan from Hult took care of the tuition fees.

Summary: Here is my personal-preference of funds for financing a One Year MBA:

1. Friends and relatives: Take as much as you can from friends and family. There is no interest to be paid, though make sure you return the money as promised and with a very fitting gift. Make all transactions through your bank account so there is no confusion on who lent what.
2. Scholarships: Bargain as much as you can. Maybe like me, you will be surprised how much money you will save by getting a good scholarship. So use your haggling skills to the hilt. There is no shame in negotiating your scholarship. And usually the first offer from every school can always be improved!!
3. Interest-free Loan scholarships from 3rd parties like Tata Scholarship, Lion’s Club etc. Not many know about these hidden gems which means that the competition is comparatively less for these scholarships and grants. So dig things up on this front. (PS: If I find out my cheat-sheet on these scholarships and grants, I’ll share it with you in a future article).
4. Indian banks: Try to get as much as possible, though the maximum limit is only Rs 20 lakhs (please correct me if things have changed since September 2012). The minimum ‘unsecured’ loan is Rs 4 lakhs and maximum ‘unsecured’ loan is Rs 8 lakhs.
5. Indian NBFCs: They charge more interest than Banks and usually their terms and conditions are not as favourable as banks, so read the fine prints utterly attentively.
6. Loans in foreign currencies: The interest rate is low but the need of a co-signer is a killer here. Also your credit-history in India is not considered and that might lead to higher interest rates!

One word of caution here: From my personal experience, it’s much better if you take a Rs 20 Lakhs loan from an Indian Bank (or other financial institution) at 14% interest-rate than taking a £20,000 loan from a UK institution (banks, societies etc) at 7%. More on that in a future article.

I hope my personal account helps you sort out your financing needs and priorities. All the best for the pursuit of your MBA-dreams!

Contributing Blogger Prem Prakash has 9 years of experience in Sales, Marketing and Sustainability-management in companies ranging from start-ups to established brand names. He completed his MBA from Hult, UK in 2012. Currently Prem works as a marketing consultant helping Small and Medium Enterprises’ achieve their bottom line goals. Prem is a book-worm and has an interest in world-history and international politics. He had a brief stint studying Russian at the prestigious Jawaharlal Nehru University, New Delhi which lasted till the authorities noticed that he didn’t attend any classes.