Financing your MBA abroad
Factors to consider while finalising your finances
Deciding to apply for an MBA abroad and finally getting that acceptance letter feels like a victory – but in reality, the journey is only half done. The other half begins when you need to figure out all the logistics to make this big dream happen, and financing is a major chunk of it.
An MBA abroad can be really expensive, so you need to plan your finances carefully to ensure that you and your family don’t stress too much about the costs.
There are 3 major points in your MBA journey when you need to think about your finances:
Deciding What Schools to Apply To: It might sound a bit discouraging, but listen to your consultant when they suggest applying to safe schools. The reason isn’t that they doubt your ability to get into your top choices, but because having scholarships from safe schools might help you negotiate scholarships from your target schools. This is a strategic move and there’s no guarantee it will work, but in a high-stakes game like this, you need to play smart.
Evaluating Your Final Admits: This is the trickiest and most anxiety-inducing stage. You have all your final admits, some with scholarships, some without. You need to compare and evaluate what matters more to you: a better brand with no scholarship or a decent one with considerably lower fees. This is a tough choice because you’re deciding on a brand that will be associated with you for life (And now that you’ve decided to do an MBA, I am sure you believe that brand matters). Discuss it with your mentors, parents, and peers. This is also the stage when you can try to negotiate with schools using a scholarship offer as leverage. It might not always work, but it’s worth a shot.
Planning for Funding: After finalizing your school and financial aid, it’s time to figure out how you’re going to fund the rest of your education. Amazing if the rest is 0 for you, some work if it’s not. There are mostly three options people take:
Personal/parents’ savings
Loan from the US
Loan from India
Now, a couple of factors to consider while evaluating these options:
Using savings is okay only if you ensure you have enough emergency funds intact, your family is secure and comfortable with this decision, and your assets yield lower returns than your available loan options.
With loans, the effective interest rate matters more than the apparent rate. An Indian loan at 11% might be cheaper than a US loan at 9%. How? Let’s break it down:
Indian Loans vs US loans
Indian Loans: Pros
Uncapped tax benefits: Your parents can avail of tax benefits on the loan interest without any cap, significantly reducing the effective interest rate on the loan.
Dollar–INR depreciation: Historically, the rupee depreciates against the dollar. If the trend continues, the rupee you repay in the future may be worth less, benefiting you in terms of the effective interest rate.
Indian Loans: Cons
Hassle to transfer funds: US loan providers usually have a seamless setup with universities to disburse funds. Transferring funds from India involves additional hassle but can save money.
Forex fees: Transferring funds from India incurs a forex fee, which is not applicable to US loans. However, the benefits can outweigh these costs.
US Loans: Pros
Easier to process: US loan providers have a seamless setup with universities for hassle-free disbursement.
US federal loans with co-signer options: If you have a US relative with a green card or citizenship, you can get loans at interest rates as low as 4.5%, which Indian banks can’t match.
US Loans: Cons
Dollar–INR depreciation: Borrowing in a depreciating currency (rupee) rather than the dollar is advantageous, as explained.
Cap on tax benefits: If you earn in the US and repay the loan, the maximum tax benefit you can get is $2,500, unlike the uncapped benefits in India.
Financing your MBA abroad requires careful planning and consideration. Balancing costs with potential returns and using strategic financial options can help make your MBA dream a reality without overwhelming financial stress.
You can get guidance on your loan process from Nomad Credit who helped me with the entire process of securing an Indian loan at the lowest possible interest rates. You can sign up here for your free consultation with them, highly recommend it.