Financing an MBA

The MBA opportunity cost is actually an investment. Familiarise yourself with the topic of financing an MBA and examine your options.

Financing an MBA

An MBA will be one of the most significant investments you will ever make. But the return on investment could be more rapid than you ever anticipated. Financing the project and making sure of the return on investment are all important, both requiring a business-like approach similar to any professional project you might undertake.

Calculating the cost

Prospective candidates should expect to make some sort of financial sacrifice to participate in an MBA programme. The debts that arise from bank loans are usually paid off with a gradually decreasing debt to equity ratio over the life of the loans due to MBA graduates commanding higher salaries. All the same, MBA candidates are advised to calculate the ROI before beginning the MBA, even if it is at best a rough estimate.

To begin the calculation process, you first need to know the duration of your MBA programme. Many of the MBA programmes in Europe are 12 to 16 months long, while many of those in North America last up to 24 months. The difference in cost between a one-year MBA and a two-year programme can be sizeable, especially if there is no paid internship in the second year. Part of the reason that many North American business schools can offer prospective candidates the luxury of their two-year programmes, is that until the recent banking credit crunch at least, students attending North American schools could get fairly easy access to large student loans. Easy access to credit has never been the case for most students attending European MBA programmes.

Thinking about borrowing

Loans of whatever form, including government-related financial aid, are the principal source of financing on both sides of the Atlantic and the vast majority of loans are paid back on time. Hence, the ROI calculation will not be that different as interest rates tend to be about the same on both sides of the Atlantic, although salary levels are somewhat higher in North America, which would lessen the impact of the debt to equity ratio for those with higher pay packages.

There are many different types of student loans available. Prospective MBA candidates should find out from the financial aid office at their target schools about the loans for which they are eligible; each European country offers a wide range of loans to its nationals. Bank loans can be low-interest student loans. ABN AMRO Bank, for example, grants individual loans to Dutch MBA students, while NatWest offers a loan scheme to residents of the UK. French banks that offer loans are BNP Paribas, Banque Populaire (BRED), Credit Lyonnais (LCL), and Société Generale. In most cases, the loans would pay tuition fees. When considering taking out a loan that covers the total cost of a full-time MBA, you should make a list of the following: application expenses, tuition, moving expenses, technology fees, room and board, books, travel, interest on student loans, incidental expenses, and the opportunity costs.

Compare the costs: EMBA vs. full-time MBA

While tuition for a full-time MBA programme is usually less than for an Executive MBA, the additional costs for room and board along with the lost earnings will result in a total cost that is higher than a part-time Executive MBA.

At IE Business School (Spain), the tuition for the Executive MBA programme is EUR 56,200. Meanwhile, the International MBA costs EUR 69,200. The school offers tens of various scholarships for applicants, and about 40% of students receive assistance between 15% and 45% of the cost of the tuition fee.

The full-time MBA programme costs more than the EMBA, but the return on investment is rapid. According to the Financial Times 2016 rankings of full-time MBA programmes, alumni of IE earned salaries of almost USD 160,000, an increase of 104%. So, the return on investment is likely to be fast.

Corporate sponsorship for EMBA

Top business schools often require executives to have corporate endorsement before applying for an Executive MBA. In fact, most corporations support employees who want to do an Executive MBA, and give them permission to take a certain amount of time off work to attend classes on evenings or weekends or even undertake modules abroad. But an endorsement does not necessarily mean that employees will benefit from company funding.

In fact, the economic crisis has led to executives deferring their EMBAs, as they are afraid of losing their jobs to take time off work. At the same time, many companies are cutting back on education budgets.

In summary, an MBA represents a substantial investment in your career. However, the rapid return on investment continues to make it the degree of choice for executives across the globe. Employers, banks, and the learning institutions themselves understand the power of the MBA to advance careers and create wealth. If you have confidence in yourself and your decision, you will find the financial means to make the MBA investment.

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