Dan Thibeault, co-founder of Graduate Leverage, fields questions on the loan challenges facing international MBA applicants
International applicants to top business schools are panicking because the loan crunch has left them seeking U.S. co-signers to receive loans for their MBA education. Without a co-signer and thus a loan, many fear that their dreams of attending a U.S. graduate program will be crushed. Even domestic applicants, says Dan Thibeault (Dan Thibeault), president and co-founder of Graduate Leverage, a student lending organization launched by Harvard Business School students, are having trouble getting the money they need to attend B-school.
Recently, Thibeault, during a live chat event, answered questions from BusinessWeek reporter Francesca Di Meglio (FrancescaBW) about what aspiring MBAs can do to turn their dreams into reality. Here are edited excerpts from the chat:
FrancescaBW: Why don't you start by briefly explaining exactly what is happening to international MBA applicants. Why has it become difficult for them to attain financial aid?
DanThibeault: International students face immense challenges with regard to student loan financing today. Turmoil in the credit market has increased lenders' financing costs and reduced loan availability across all loans sectors. Sectors perceived to present higher risks have been hit the worst, and unfortunately international student loans are deemed high risk. The primary reason for this is lenders' ability to collect is limited.
What is it that we keep hearing about co-signers?
Lenders have responded by discontinuing their international loan programs and requiring U.S. co-signers for all new loans. Even the large lenders now require a U.S. citizen or permanent resident as a co-signer on the loan. In addition, the co-signer also must have exceptional credit.
Does this mean that fewer international applicants are actually joining U.S. MBA classes? What are some of the ramifications so far?
I do not believe this has resulted in a reduction in international student attendance yet, but it certainly will by the fall of 2009. On the negative side of the equation, more international students will either have to find U.S. co-signers, cut back on expenses and/or find a job while attending school, or use savings to pay for their education. On the positive side, if you have financing or a U.S. co-signer, admissions may become less competitive over the coming year.
What are some things international applicants can do to help themselves find the financing they need?
I thought you might ask this, so here is what I would do if I were in their shoes. Start with your school, if you haven't already begun working with them. They have an incentive to keep international enrollment up and should view this market as a temporary problem. Hopefully the schools that haven't been able to find lenders (virtually every school) will begin subsidizing international students' tuition with either increased grants, loan risk-sharing programs, or both. If a school does initiate one of these programs, the availability could be limited, so you'll want to ensure that you're at or near the top of its list.
Next, I would reach out to any U.S. citizen or permanent resident who may agree to co-sign your loan. I realize this is a big commitment, but for many it could prove to be the only option for this year. I would look for any governmental support programs in your home country. For instance, CanHELP is a Canadian program that supports Canadian residents attending international universities.
Lastly, I would look to find a financial institution in your country of residence that is the equivalent of a credit union, perhaps a small community or regional bank. Ultimately, you should be [viewed as a safe bet], given your pursuit of an advanced degree.
What about domestic students? Are they having more difficulty securing loans, too?
Yes, they have experienced reduced loan availability and also much higher rates and origination fees. We've heard anecdotes from students who [had the size of their loans] scaled back by their lender and [were] forced to find the remaining balance from an alternate source.
What can domestic students do to help their situation?
If they are having difficulty obtaining a loan or believe that they are paying excessively high rates and fees, they should attempt to improve their credit application. This can be done in the short-term by obtaining a co-signer with a high credit score. If they do not have access to a co-signer, [they should] attempt to improve their credit score directly. This will take some time, but it could make all the difference. Students can pull their credit score online for free and pay the credit unions a small fee for feedback on what is causing them to have poor credit. For some borrowers, the fix could be as easy as closing revolving lines [of credit, such as credit cards] or establishing a working credit line.
What advice do you offer for keeping on budget when you're in business school?
Budgeting is never easy but it's necessary in today's market. We've found the best areas for cost-cutting for MBA students are with housing, transportation, and food. If you can simply cut back on one aspect of each, you will incur significantly less costs. In terms of budgeting tools, we had utilized Quicken and MS Money in the past. There are now some great online tools that are being offered free as well. Mint.com is one and it takes advantage of automated expense categorization, which saves a great deal of time.
Which schools are responding best to the loan crisis and why?
In terms of school response, I would say MIT Sloan School of Management is leading the charge here, with their School/Credit Union solution. I think it's too soon to judge, however, as I believe most of the programs will come out with some type of support for students.
We're writing a five-part series about getting ready for the MBA application process in the five years after completing an undergraduate degree. How much money should aspiring MBAs save in that span of time? How can they best save it?
We have never focused on this in an attempt to come up with a specific number. This is, of course, based on the fact that financing had never been an issue. For U.S. citizens, the total cost of attendance can be covered by federal loans if need be, so savings is less of an issue. If one did want to come up with a good rule of thumb, however, a good number would be the total cost of attendance minus Stafford loan availability. Students today can borrow about $20,000 [annually] in Stafford loans, so if the attendance cost was $30,000 each year, then saving at total of $20,000 would be a good start ($10,000 for each year). For international students, the number would be higher and could approach the total cost of attendance if their school did not offer loan or grant support.