Cost is a big barrier for anyone hoping to attend a top business school. The price-tag of an MBA at an elite school can be up to $100,000 per year, once tuition, living, travel and other expenses are totted up.
“Value for money is a big concern,” says Michelle Sisto, director of the Global MBA at EDHEC Business School in France.
As a result, 51% of MBA students will use loans this year, according to data from the Graduate Management Admissions Council. But since the financial crisis, banks have curtailed international lending.
MBAs are instead turning to slick online platforms that offer postgraduate loans.
Fintech companies such as Prodigy Finance, CommonBond, and Prosper have gained a toe-hold in the student loans market by offering cheaper rates and faster access to loans than large lenders.
“We have a good number of students who take up Prodigy loans,” says Conrad Chua, head of MBA admissions at the UK’s Cambridge Judge Business School.
Below, BusinessBecause explores three fintech platforms offering MBAs online loans.
Prodigy Finance offers loans to students at a slew of leading business schools, such as Stanford, Wharton, Oxford Saïd and INSEAD. Students can apply online in 30 minutes and loan decisions are made in five days. Rates vary. At IMD, they’re 5.25%-8.5%. At INSEAD, 5.25%-7.5%. There’s a six-month grace period.
Prodigy was founded in 2007 by three INSEAD MBAs who struggled to get funding. “Affording school can be a huge barrier to a lot of students,” says Zach Hirshfeld, US student relations manager at the company. Prodigy has since processed more than $140 million in loans. It has funded around 4,300 students from 115 nationalities.
The company operates through a listed bond program: investors buy a stake in an asset-backed bond, supporting a group of students, rather than offering credit to individual borrowers. Its repayment rate is in excess of 99%.
CommonBond, founded by Wharton MBAs, lends to students enrolled in certain MBA programs in the US. Last year, it expanded its student loan refinancing program from 200 to more than 2,000 universities.
“I personally faced the painful process of taking out student loans to fund my business school degree at Wharton, and have been fixated on creating a better experience,” says David Klein, CEO and co-founder of CommonBond.
The company claims MBA borrowers can save $10,000 on their student loan compared to a federal loan. Because CommonBond looks beyond credit score, it says it provides lower interest rates than banks. The 10-year fixed rates is 6.05%. There’s a six month grace period.
The money borrowed by students has been raised via crowdfunding — with alumni as investors — and also from institutional investors.
SoFi offers loans to MBAs who are US citizens or permanent residents at 25 business schools, including Harvard and MIT Sloan. The minimum loan amount is $10,000 and the maximum loan amount is a school’s Cost of Attendance, which includes tuition, books, and certain qualifying expenses, and varies from school to school.
Fixed rates range from 6.50% APR to 6.99% APR. SoFi also offers a six month grace period.
The company was founded in 2011 by three Stanford business school students. It has a socially responsible investment slant. “Student debt has reached crisis proportions in this country, and borrowers — especially millennials — are struggling to repay their loans,” says Catesby Perrin, head of business development at SoFi. SoFi was the first marketplace lender to reach $6 billion in funded loans, last year.