7 Questions to Ask Before Getting a Graduate Student Loan

This article is sponsored by Prodigy Finance.  

Learn more about Prodigy graduate student loans. 

You studied for the GMATs, perfected your application and chose the ideal school. When the acceptance letter arrives, it's the culmination of months of hard work. Yet, for most, that excitement fades once the reality of paying for your MBA education arrives. The total cost of attending a top-ranked program approaches US$200,000.

While most students can expect to receive some form of merit-based scholarship, for international MBA students government-sponsored financial aid programs are usually unavailable. Loans must bridge the gap between what is offered by the school, what is provided by the student, and what tuition costs. Financing such a potentially huge debt can be scary. Borrowers paying for B-school should be better versed in the minutiae of loan applications, than say someone attending a culinary arts academy. Lenders say this is often not the case.

Peer-to-peer lender Prodigy Finance provides loans to international MBA students who have few other options. Knowing the basics of getting an MBA loan can ease the process  –– improving your chances of not only qualifying but of paying it off.  Potential borrowers can ask themselves these questions to learn seven secrets for getting an MBA student loan.

1. Am I Financially Literate?

Besides its importance to future MBAs, financial literacy is vital to anyone taking out a student loan. Prodigy's head of operations, Trevor Watson, describes financial literacy as, “the ability to make a sound and informed decision regarding one’s financial resources. For our student borrowers, deciding to take a loan with us (or another institution) will be one of the more important decisions of their financial lives. Therefore we believe we have a duty and an obligation to help improve our borrowers’ financial acumen.”

Borrowers must look at more than tuition. Will you still work? Where will you live? Take a look at the cost of living where your MBA program is based. It’s a sad reality that many renowned MBA programs are in pricy cities, but there are alternatives. Residing in an area with a lower cost of living may reduce your future loan payments but it could also affect your networking opportunities.

Determining your expenses along with how much you have saved is not just a nicety. It’s a vital part of the application process. 

“It is critical that we see that students have carefully considered how they are going to manage the costs involved with an MBA,” Prodigy’s co-founder and CEO Cameron Stevens explained in an interview with The Financial Times. That’s why he wants potential borrowers to start by writing out a detailed budget along with a financial plan. “And please don’t withhold information on your application – it’s far better to be honest upfront and clear rather than trying to tailor your application to what you think the company is looking for. These things often come out down the line and then leave your application in worse shape.”

For borrowers, these questions sometimes motivate them to delay enrollment using an additional year to save money and prepare for becoming a graduate student.

2. What is my credit rating?

You don't have to guess! In the U.S one can get a free credit report from Annualcreditreport.com while international students should investigate local channels.

Before you apply for a loan take the time to discover errors in your credit report and work to resolve the problems. Stevens argues in a blog posting that credit reports leave out too much - like payments for rent, assets and savings –– information that could be used to determine a borrower's ability to repay the loan. He feels credit bureaus need to consider international MBA student’s credit history from other countries, something they don’t always do).

3. What is APR?

Although you may be prepared for your loan’s interest rate, it is important to remember that the total cost of the loan also includes fees charged by the loan provider. The Annual Percentage Rate (APR) is the interest rate plus any fees or points. At Prodigy, most of their loans have an application fee of 2.5% –– half of this is paid up front.

4. What is the difference between fixed and variable interest rates?

Fixed interest rates provide a level of predictability but variable rates may provide a chance to pay less over the life of the loan –– if interest rates drop. Prodigy offers loans at an average rate of 7.8% above the Euribor (the Euro Interbank Offered Rate), with a variable APR of 9.05% after factoring in all fees and the effects of compounding interest. Some programs are tailor made to MBA borrowers –– who have a far lower default rate than graduates of other programs.

5. What is the repayment period?

Student loans can be financed for as long as twenty years. Most MBA students try to accomplish prepayment in six to seven years. They recognize that the longer they hold a loan, the more they are paying in interest.

6. What is a grace period, and why is it helpful (or sometimes not helpful?)?

When you get a loan you will be given a set period of time in which you have to repay it. The time you have between graduation and your first payment date is called a grace period. This is an important consideration as making a loan payment during a job search can be challenging.

7. When do you start paying off your loan?

Some students choose to begin repaying their loan while they earn their international MBA. Others delay repayment until graduation. Both choices have advantages and disadvantages. Obviously, for many students paying for their loan while earning a degree isn't realistic financially. Making payments while you are still in school, however, means you will be reducing your debt before you graduate.

Regardless of your choices, student loan debt is daunting. Along with financing a home, paying for your MBA means taking on a great deal of debt. Yet for those who are well-prepared, it is an expense that provides a lifetime of rewards.

This article is sponsored by Prodigy Finance.