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Look Before You Leap Into Business School

stock_classroomSo, you’ve decided that getting an MBA degree is next on your list of accomplishments, but as you begin to research top programs, you’re experiencing sticker shock. Today, a top-notch MBA program that promises access to business leaders, faculty known in their fields, and a dynamic life-long alumni network can cost anywhere from $37,000 to more than $72,000 (counting living expenses). Add to that the lost income from taking an 18-month break from work, and the price tag can soar to more than $180,000.

How will you pay for that? If you’re counting on taking out loans, how much will paying that debt back cut into your post-MBA salary? And what about if you’re thinking of going into the non-profit sector or taking some time off in a few years to raise a family?

You’re not even in graduate school yet, and already you need to start doing cost-benefit analyses!

Well, it’s a valuable exercise to go through—not only will it grease the old wheels for what’s to come in that finance class, a little forethought now will boost the immediate payback of your degree by minimizing your monthly loan payments.

First, no one disagrees that making the decision to get an MBA degree hinges on more than the price tag. Daphne Atkinson, vice president of industry relations for the Graduate Management Admissions Council (GMAC), points out, “It’s an investment in your future that will be on your resume and will pay dividends for life.”

That was something Priti Mody, now an MBA graduate and former Forté Fellow at Kellogg School of Management at Northwestern University, says she agonized over. “I’m very debt-averse, so taking on such a large debt burden was a factor I thought through seriously,” she says. “Ultimately, I came to the conclusion that I had the rest of my life to earn money, and that the value of an MBA and the MBA experience were greater than the debt burden.”

Even so, Mody did everything she could do reduce the debt she would inevitably take on. Here’s some advice that she and others say can help shrink your loan payments post-MBA.

Lower The Pile

The last thing you want to do is pile debt on top of debt. So if you aren’t one of the fortunate ones who escaped undergrad debt-free, your first order of business will be to pay those undergraduate student loans off as soon as possible.

Are you in a job that awards bonuses? If so, apply your next bonus to your undergraduate loan, and the one after that. Resist the urge to splurge. When you’re thinking of graduate school, it’s not the time to buy a new car or spend money on a designer wardrobe.

“Save, save, save,” Mody says. “With the goal of earning an MBA in mind, I diligently saved money throughout my career and invested it.”

Becky Jones, an MBA graduate from the Olin Business School at Washington University in St. Louis, also looked ahead by joining Americorps immediately after graduating from college. “Americorps is not only a wonderful experience, it looks great on a resume and it provides an education award,” she notes. The amount of the award depends on the term of service, and it can be used either to pay off current student loans or for future academic endeavors. Jones chose to apply her award to the Olin MBA program.

Go For The Gold

GMAC’s Atkinson believes that to manage expectations, potential students need to assume that they will be footing the entire graduate school bill. “You just can’t gauge where you might fit in terms of the competition for scholarships,” she points out. “So, just assume that you will be financing the education, and if you get a scholarship, it’s icing on the cake.”

That said, Atkinson says that there are an overwhelming number of scholarship opportunities out there—both within the schools at which you are accepted and from outside sources that can be applied to any school—and you should research them all exhaustively. “Some are related to geographic area, others are designed for people working in different industries, and so forth.”

The most important thing, she says, is to clearly understand the eligibility criteria for each scholarship. “You must be prepared to compete vigorously, and you can’t look for any special treatment—make the necessary deadlines, make sure you meet the criteria and fulfill all of the requirements,” she advises. Following the rules is very important.

Going above and beyond doesn’t hurt, either. Allison Rhodes, an MBA graduate from the McCombs School at The University of Texas at Austin, says that she was admitted to the school with an acceptable GMAT score, but she felt that a higher score might make her eligible for more scholarships. She called the MBA admissions office to find out whether it would be worthwhile to retake the test. “Of course, admissions offices like higher scores because they drive up their statistics,” Rhodes says. “I was told that if I was willing to go to that effort, that they would see what they could do—fortunately, I got the higher score and was rewarded with a great scholarship. I think the key is not just taking the test again but making sure the admissions office is aware you are doing it for further scholarship consideration.”

Live Like A Student

Most MBA students have had a few years of work experience and have gotten used to a paycheck and the lifestyle that regular employment affords. But one key to reducing future debt, many say, is to regain your student mindset—not the partying-all-night mentality, but rather the broke-all-the-time mentality.

In an MBA Podcaster interview, Atkinson urges, “No new car, no fancy vacations, don’t buy a house right before you go to school, and most of all, get on a budget and stick with it.” She advises that the financial aid office at any school will have a number of helpful tools: loan calculators, budget monitors, credit and debt management information. If you’re still in college, make a one-on-one appointment with a financial aid officer; and if you’re lined up for graduate school already, take a financial aid seminar for accepted students. Even if you think you know it all, you’ll be able to pick up tips and valuable information.

In addition to saving money before she started school, Mody scaled down her lifestyle once she entered school, living on campus and cutting the fat out of her budget. Graduate student housing may be a cost-effective alternative at a school located in large city where apartment rents are substantial. Alternatively, living half an hour or more away from the university may also offer a savings, as the cost of living may be reduced (and a train or bus commute may afford extra time to study!).

Pay As You Go

Jones from the Olin School offers another great piece of advice: she paid the interest on her loans monthly while she was in graduate school. “My lender asked at the loan closing whether I wanted to do this; and as far as I understand, any student can approach her funder and request to pay the interest on the principle each month,” Jones says. By doing this, the student pays less on the loans by avoiding paying interest on each month’s interest.

Of course, going to graduate school is not all outlay. There are opportunities to earn some money during those 18 months. There’s the summer internship, teaching and research assistant positions, and even some winter break assignments. Another option may be to extend the summer internship into a part-time, flexible paid position during second year. Companies with more structured programs may not offer this opportunity, but the more entrepreneurial ones might.

However, Atkinson warns against taking on much paying work during graduate school—definitely not during the intense first year, and only cautiously thereafter. “Second-year students have two extremely important goals—completing the academic requirements (because you still need to get the degree to enjoy its benefits) and interviewing for and securing full-time employment.” Those aren’t things you want to jeopardize.

Part-time programs enable students to continue working while attaining the degree, and these can be good options for certain types of students. “You need to assess whether you are looking to enhance your options in your current field or to switch careers entirely,” Atkinson says. Career switchers will almost always want to go into a full-time program, as they need the opportunity afforded by the summer internship to bridge their pre- and post-MBA experience.” Atkinson confirms, “The internship actually does provide street credibility.”

But for students looking to deepen an already existing skill set within their industry or business function, a part-time program can be the better option, particularly if finances are a concern. What’s more, you can take a tax deduction on part of your educational expenses if this is the case—if you’re pursuing the MBA degree to be able to advance in your current field. Those using their MBA as a launch pad to a new career are not eligible for the tax deduction.

Choose Your School Well

As mentioned earlier, how much a program costs isn’t the only thing you’ll look at when choosing an MBA program. “There are so many intangibles that govern this decision,” says Atkinson. “Fit, ability to realize career goals, what companies are in the school’s recruiting portfolio, and the strengths of the alumni network are all factors that are much harder to quantify but still should play an important role in your decision. And all of these may have a significant influence on your post-graduate school debt.” For instance, you may want to save money by going to a less-expensive school, but if the types of companies you ultimately are suited to work for don’t recruit there, your chances of getting that well-paying job in the company of your choice are significantly decreased.

“You need to look at the placement information and what starting salaries are the norm for people with backgrounds similar to your own,” advises Atkinson. “You may also want to find out if the school itself or any of the recruiters in the school’s portfolio offer loan forgiveness or signing bonuses that you could immediately apply to your school debt—anything that could put a dent in your program costs.”

For instance, Yale School of Management graduates who enter the non-profit/public sector and make an annual income of less than $72,300 are forgiven their need-based loans. Those with an income higher than that cutoff are responsible for a percentage of the loan repayment, but not the full amount. It’s very worthwhile to find out if the schools you are considering have similar offers, particularly if you’re interested in pursuing an atypical business career track.

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