A Financial Lifeline for Foreign MBA Students
Admissions Director Rosemarie Martinelli remembers the panic she felt when she learned a program that the University of Chicago Booth School of Business(Booth Full-Time MBA Profile) was using for international student loans collapsed at the height of the frenzied 2008 fall admissions season. The CitiAssist loan program was the second lender to disappear at the time, and few, if any, other banks were willing to help international students secure funding. "It was a nightmare. I lost the program just after I admitted all the students," says Martinelli, who put in a desperate phone call to the Graduate Management Admission Council (GMAC), which administers the Graduate Management Admission Test (GMAT), asking for advice. Her timing couldn't have been better. GMAC had just convened an advisory group to help schools come up with ways to solve the international student loan crisis at business schools, and they invited Martinelli to join and brainstorm with them. By January, Booth became the first school to sign onto the Affiliated Loan Program for Students (ALPS), a pilot program financed by Deutsche Bank (DB) which makes it easier for international students to come study in the U.S. "It provides a very, very necessary thing for us and, while it was expensive, it helped out students who wanted to come to Chicago Booth without a problem," Martinelli says. Growing AppealNearly a year later, the loan program is starting to gain traction at schools across the country. A number of top schools signed on to ALPS in 2009, including Northwestern University, the University of Rochester's Simon Graduate School of Business(Simon Full-Time MBA Profile), and UCLA's Anderson Graduate School of Management(Anderson Full-Time MBA Profile), among others. Six universities and 15 graduate programs are now using the lending program, most of them business schools. The program holds appeal for international students because it doesn't require them to have a U.S. co-signer to take out a loan, a crucial requirement for many students, schools say. Over the past year, ALPS has so far issued about 3,500 loans to foreign and domestic students, and loan volume is upwards of $100 million, organizers say. Business schools are not the only ones taking an interest in the loan program; graduate law and medical programs are also taking note, and more schools are expected to join in 2010, says Kevin Moehn, president of Moehn & Associates, the loan program's administrator, who's in the midst of signing agreements with at least four other universities. "As we get more schools on board, I'm convinced we'll get some momentum," Moehn says. "We are very pleased with this year's volume, and we believe we should at least double the number of schools we have in 2010." Stepping into the BreachPart of the reason the loan program is taking off is it is filling a void in the market created when the popular CitiAssist and Sallie Mae Loan programs were taken off the market. Those programs let foreign students borrow up to $150,000 without a co-signer to assume responsibility for the loan should the borrower default. In addition, other private lending sources that international students turned to for loans also dried up in 2009, with dozens of lenders either shutting down or halting loans to non-U.S. students without creditworthy U.S. co-signers. This left in the lurch many business school students who planned to study in the U.S. last year—until ALPS was announced last spring, with Deutsche Bank providing loan capital for the program. Deutsche Bank saw the loan crisis as an opportunity to make inroads in the student lending market during a challenging time for students and universities, says Fred Brettschneider, head of global markets for the Americas at Deutsche Bank. "As a result of the global financial crisis, we saw some of the country's most prestigious schools struggling to replace student loan funding that had been restricted or discontinued by previous lenders," says Brettschneider in a statement. "By utilizing our resources to create and invest in ALPS, Deutsche Bank is able to help students around the world further their education despite the challenges of the current lending environment." What Schools LikeThe ALPS program is by far the largest of the business school international student loan programs currently available, and it replicates some of the popular features of the old loan programs, such as not requiring students to have a co-signer or established credit. Interest rates for the student loans are less than 10%, though rates vary depending on the school, and organizers hope rates will be even lower in 2010. Some features of the program also make it especially appealing to graduate schools. For example, the program leverages a participating school's credit rating, not its cash, to meet the level of student financing that the school determines. Schools also don't incur any up-front expenses and don't need to commit to any minimum or maximum level of loan volume, though they are required to act as co-signers on the notes for the loans, which students obtain from Liberty Bank, an Ohio-based lender. Deutsche Bank purchases the student loans from participating universities and bundles the loans into securities, which are then sold on the capital markets. The new loan program isn't for everybody. Several schools, including Harvard Business School (Harvard Full-Time MBA Profile), the University of Pennsylvania's Wharton School (Wharton Full-Time MBA Profile), the Stanford University Graduate School of Business (Stanford Full-Time MBA Profile), and the MIT Sloan School of Management (Sloan Full-Time MBA Profile), announced deals with credit unions to provide no-co-signer loans for international students last spring. Simon School's ExperienceBut for many others, the new program is a lifeline. One institution participating in the ALPS program is Rochester's Simon School, which signed up in July. About half the school's student body is international, so demand for a loan program of this sort was huge, especially after the credit crunch, says Greg MacDonald, Simon's admission director. So far, about one-third of the school's international students have signed up for it, and the school expects even more students to sign up in 2010, MacDonald says. "Our options for international students before this were fairly limited, and we didn't have any no-co-signer options available for students before we signed this," MacDonald says. "It was clearly necessary, and I'm afraid to think where we would be if we didn't have this product to offer students." Other participating schools are reporting similar successes. At Northwestern, Deutsche Bank has purchased $67 million in student loans through the program. At Chicago Booth, more than 100 international students are now taking advantage of ALPS, Martinelli says. Meanwhile, the UCLA Anderson School was able to issue $3 million of loans to students through the ALPS program this year. As a result, 20 first-year and 20 second-year MBAs were able to fund their education, says Kevin McCardle, the senior associate dean of Anderson's MBA program. "Providing loans for international students is key. We would be in serious trouble and we would not have the international students we have now if we did not have some method of providing credit to the students," McCardle says. Not Much PaperworkRoger Ivan Cordero-Mueses is one of the MBA students taking advantage of the ALPS program this year. He came here with his wife from the Dominican Republic in 2008 for business school and paid for his first year at Rochester's Simon School by asking his wife's sister, who lives in the U.S., to co-sign a loan for him. He was reluctant to ask her to do this again for his second year, so he was eager to sign up for Simon's new loan program for international students, which didn't require a co-signer. "It was very easy to apply, and I didn't have to do much paperwork," he says. "I think without it, I would have had problems financing my second year of school here in the U.S. It has really helped me." Dave Wilson, president and CEO of GMAC, has been keeping a careful eye on the program since he helped develop it last year. So far, the feedback from schools using the program has been positive, and he expects it will help them attract more international applicants this year. Meanwhile, he is working to promote the ALPS program among his member schools, he says. "I'm hoping the loan program will continue to tempt schools and will continue to grow," Wilson says. "The program certainly has the financial strength in the lender to take the program up to a quarter of a billion dollars, and that starts to make a real difference. Once it becomes more broadly adapted, word will get out very quickly."