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MBAs Turn To Parents And Crowdfunding To Foot B-School Bills

MBA students are turning to new forms of financing to keep career options open, as business schools allocate more cash for scholarship funds.

Sat Sep 27 2014

Oladapo Ajayi is a former financial analyst for a leading asset management firm and founded his own fashion start-up business, Orange Culture, straight out of school when he was just a teenager. Now he is on the MBA trail, looking for business schools in Europe that will foster an entrepreneurial spirit and help him raise investment from venture capitalists.

His fledgling fashion company is successful, but since he took a step back into a non-executive role to pursue other interests, he has been pondering how to pay for an expensive business school program.

Even on the  back of a salary of an analyst at a boutique investment bank he does not intend to use his own funds. “My family is helping to foot the bill, and I hoping to get loans and scholarships as well,” says Oladapo, who is applying to four of the Continents highest-ranking MBA programs.

He is not alone in his quest to secure family finance. Many prospective business school students are seeking help from familiar investors: their parents – while many more are seeking to bank the increasing number of scholarships being handed out at universities.

“It [funding] is even more important than ever before in my time of MBA recruitment. Even though the economy is improving, it’s still tough out there,” says Ashley Arnold, director of MBA recruitment at the UK’s Henley Business School.

Forty-four percent of people considering graduate business degrees last year expected to receive financial aid from their parents, up from 38% in 2009 according to GMAC, the administers of the GMAT business school entry exam.

Those taping the bank mom and dad expect to receive more financing: 20% of the bill in 2013, up from 13% four years prior.

Many MBA students find it difficult to secure loans from banks and finance houses. The share of last year’s crop that planned to take out loans for MBA and master’s programs dropped 10% to 59%, according to GMAC, and they expected those loans to foot less of the total costs.

The shift in expected funding sources is partly in response to the assumption that high levels of debt will limit career opportunities, while banks have cut back on lending since the financial crisis.

By minimizing their debt loads, MBAs feel more confident to take two years out of work to pursue business school programs while often earning no income.

“For us as there has been a void over the past years because of the financial crisis – banks [are] more cautious on lending. Many years ago we had NatWest and HSBC [offering funding], and with the downturn in the economy – the global recession – banks stopped lending literally overnight,” says Ashley.

That slack in dishing out loans impeded many business schools like Henley, which took a “massive hit” in 2008-2009, according to Ashley.

So MBAs have instead looked to other forms of funding including crowdfunding, a peer-to-peer online lending phenomenon usually reserved for start-ups, and the scholarships which many business schools now offer.

“We’ve seen an ascendency on these crowdfunding sources, where you’ve got MBA alumni promoting this for the greater good. People are donating. They operate like a bank [but] interest rates are more favourable,” Ashley says. “They offer something for prospective MBAs.”

Business schools have raised huge amounts of finance to support students. Warwick Business School, based in the UK, allocates £2 million in scholarships for all its master’s courses with the biggest chunk directed at the MBA, according to Dr Sotirios Paroutis, assistant dean for the MBA program.

“We know scholarships are important for attracting high-quality candidates,” he says. At Warwick every MBA applicant is automatically considered for a scholarship. “Our MBA candidates don’t have to do a separate application for a scholarship,” adds Dr Sotirios.

Beyond the £2 million scholarship pot, MBAs can seek aid from funding bodies and corporates, often from their country of origin.

Henley Business School is planning to set aside £4.5 million in capital for bursaries and scholarships across the whole school next year, with MBA students eligible for about £1 million, according Ashley. “We set aside about 20% of our budget to help people with financial need,” he says.

These scholarships are “massive” in attracting candidates. Ashley adds: “I see a rise in demand for it.”

But it is not just schools that are involved in raising funds. Alumni are helping current students foot their fees.

Graduates from Sydney-based Australian Graduate School of Management set-up a fund in September to help students in need of financial support to cover the cost their residential fees. This is more of a problem at an international business school like AGSM which admits large numbers of foreign students who may need to find new accommodation.

“The last thing we want to hear is that an upcoming entrepreneur, business leader or change agent was unable to complete or had to delay their MBA due to [a] lack of finances,” says Alistair Pape who graduated from the program last year.

The AGSM Cohort C Business Fund will help EMBA students in the capstone year of their program. Australia’s highest-ranking business school also offers full-time MBA scholarships ranging from $10,000 to $30,000. 

Although banks have squashed much of their lending to students, Ashley thinks that company sponsorships, which also dwindled during the economic downturn, are similarly sparse.

“We still get company sponsorships but it’s harder. It’s the uncertainty of whether they will sponsor them [that is a problem]. Companies are a bit more apprehensive,” he says.

This uncertainty can put candidates off. Many business schools require acceptance to an MBA program before a student can apply for funding.

To counter these jitters, Warwick now informs applicants of how much scholarship funding they have qualified for from the outset, in the offer letter.

“It [funding] is critical for a lot of MBA applicants,” says Dr Sotirios. “If we spot great potential in an applicant, our mission is to offer a competitive scholarship package to see them join us,” he says.

According to GMAC data, company sponsorship dropped to an almighty low of 2.9% in 2009. Yet there has been a rise in recent years, fuelled by increased demand in the Western world. According to research by QS, 10.6% of MBA applicants will use company sponsorships to fund their degrees in 2014, the third consecutive yearly increase and a rise of nearly 8% in five years.

A company sponsorship program helps attract new talent and creates a stronger talent pool, says James Stevens, senior assistant dean of student affairs at UC Davis Graduate School of Management. “Paying for an MBA may also be considered a perk to retain talent,” he adds.

There are signs that banks are returning to the student lending front. Santander, the Spanish bank, struck a deal with Henley earlier this month to offer study loans for UK-based participants on some of the school’s MBA and EMBA programs.

Students can borrow up to £20,000 to help towards course fees, with from 4.3% APR on loans from £7,500 to £15,000.

The rise of specialist master’s programs offers students a cheaper, faster alternative to the MBA. Ashley admits the cost of tuition is an important consideration, but says an MBA is still the “jewel in the crown” of management education.

“The MBA still holds its own with top tier business schools,” he adds.

For Oladapo, financing a degree is significant. He will still try to utilize his family network to secure funding for his MBA next year, but it is clear that there are a wealth of options now available.