How do I pay for an MBA

Once you decide to make the commitment to obtain an MBA, it is necessary to decide how to pay for your decision.

Career Journal provides some valuable information regarding the subject of how to pay for an MBA..

How to Pay For
Graduate School


Terri Cullen gives some sound advice in the Wall Street Journal Online

Calculate Your Need
The first steps in mapping out a college-affordability plan is to figure out how much money you'll need to attend school, how much debt you can reasonably afford to carry and, most importantly, how much time you anticipate being without a regular paycheck while you're pursuing that degree.

To determine how much debt you should be capable of shouldering, college-planning Web site FinAid.org offers calculators for master's students as well as doctoral students.

To get a feel for how long you'll be out of work, contact a financial-aid counselor at the school of your choice and discuss your career goals. Determine whether night school is a feasible option, one that would allow you to continue to work at your full-time job while matriculating. Also, many fields of study require extended internships in order to obtain a degree. Ask for guidance on how well these jobs pay, if they pay at all, and include that sum in your calculation.

Now add in all the collateral costs to your pursuing a degree: Will you need more child care? Will your commuting costs increase? Will you have to pay for your own health care? What, if any, additional communications technology will you need to ensure you can keep current your full-time job?

Now brace yourself: When you add it all up, sticker shock may ensue. But there are sources of funding available -- traditional and nontraditional -- to help ease the burden. Let's take a look at a few.

Search for Financial Aid
One big mistake most adult students make is assuming they make too much money, or are too rich to get financial assistance.

"I have a client who really wanted to go to law school, but she was making a good deal of money in her current job as a career counselor and she didn't think she'd be eligible for any aid at all," says Patricia A. Konetzny, a certified financial planner in Maynard, Mass. "After speaking with the financial-aid counselor at her university, it turns out she was eligible for a full scholarship."

The best place to start looking for "free money" such as scholarships and grants is the College Board's scholarship search site, which lets you search for aid opportunities based on your professional, military, religious and social affiliations, among other things. Among the most popular free scholarship and grant search engines online is Fastweb.com, a site operated by career Web site Monster.com (which itself is owned by TMP Worldwide Inc.). But the process takes some time, primarily because you're inundated with annoying pitches from the site's advertisers at practically every stage of your search. The Financial Aid Resource Center's scholarship search page also includes a laundry list of more targeted search engines, some of which are tailored for ethnic students and for various areas of study.

As you begin your search for scholarship and grant money, you'll probably notice a number of scholarship-finding services that charge a fee, and "guarantee" results. Be warned: some of these services may be scams. In its most recent scholarship-scam sweep, the Federal Trade Commission targeted eight organizations that engaged in fraudulent, deceptive or unfair business practices aimed at fleecing students and their parents. The FTC estimates that combined 175,000 victims lost more than $22 million from these eight organizations alone. Financial aid research Web site Finaid.org provides a rundown of red flags that a service may be a scam.

Ask Your Current Employer

Your employer should be your next stop. More companies are adding tuition assistance and other education-benefit programs to their employee-benefits packages in an effort to attract -- and retain -- top talent. Some 80% of the 945 companies surveyed offered some type of tuition-assistance plan in 2001, according to the Employee Benefit Research Institute in Washington, D.C.

But company aid often comes with strings attached. Many employers will want to evaluate your request before reimbursing you for college costs to be sure you're enhancing your current skills, not training for a new career. Other companies require you meet a certain grade-point average in order to receive the funds. And a growing number of companies are adapting the military's take on higher education: You sign a contract that says if your employer agrees to pay you two to four years of higher-education costs, you'll agree to continue to working at the company for an equal or greater number of years. If your employer doesn't offer this option, and you hold a position of some influence in the company, you may want to float the idea yourself.

The Internal Revenue Service allows workers to exclude from taxable income up to $5,250 a year in tuition assistance provided by their employers. (For more information on tax breaks for educational programs, see IRS Publication 508.)

Also, if you, a spouse or a parent is part of one of more than 40,000 worker unions in the U.S., you may be eligible for additional tuition-assistance programs, grants, or scholarships. Check out the AFL-CIO's Web site, under "Help With College Costs," where you can search for union-sponsored scholarships and other tuition-assistance programs.

Various state higher education authorities also offer their own work-related financial assistance plans to nontraditional students. The U.S. Department of Education's Web site includes contact information on all state higher education agencies.

Student Loans

Once you've determined what kind of financial aid you're likely to receive from all sources -- and you're still left with a substantial nut to shoulder on your own -- federal student loans are as close to free money as you're going to get right now.

"Rates are at historically low levels," says Karen F. Folk, PhD., a certified financial planner in Urbana, Ill. She's right, effective July 1, 2002, federal student-loan interest rates for students attending college have dropped to 3.46% for students attending school (or 4.06% for students who've left school), the lowest rate in decades.

Figure out what your student-loan costs will be down the road using FinAid.org's loan-payment calculator, which estimates the size of your monthly loan payments and the annual salary required to manage them. Then you can evaluate the rates and payment schedules of several loans, including total payments, interest paid for different interest rates, loan terms and monthly payments, using the site's loan comparison calculator.

Many adult students who are in the same boat as would-be job changer Ms. Braly, who is still paying off $11,000 in undergraduate student loans, may be leery of taking on more debt. "We really don't want to take out another loan to fund the additional education," she says.

But in this low interest-rate environment that might be a mistake. After taking out new student loans to cover the costs, you may be able to consolidate those loans under federal loan consolidation program at a much lower rate than you're currently paying. Under certain programs, including one offered by Sallie Mae, you can lower that rate even more.

There's also an interesting alternative to loans for students who are loathe to take on new debt. Myrichuncle.com, a Web site founded two years ago by a pair of entrepreneurial investors, doesn't loan prospective students money -- it invests in their future. If you qualify, the New York investment company will give you the money you need to pay your college costs, and in return you agree to repay at a set percentage of your future income over a certain number of years. Rates for graduate students start at 0.1% per $1,000, for up to 10 years, with a maximum rate of 0.4% per $1,000, depending on such things as your major, your GPA, and the school you're planning on attending. Once you're employed, you're required to show Myrichuncle.com your monthly income statements and annual tax returns.

But note that while more than 1,000 prospective students have applied to the company, only 65 students have received funds -- a sure sign Myrichuncle.com is working hard to ensure that it chooses its "investments" wisely.

Dip Into Retirement Savings

Education is a long-term investment in yourself, so it might seem like a no-brainer to tap your 401(k) to pay for it -- whether you stay with your current employer or not. But borrowing from your retirement savings should be tapped only when all other financial options have been exhausted.

"I don't advise borrowing against a 401(k) to pay tuition costs because you're paying an opportunity cost -- you're not only cashing out in the midst of a bear market, but you risk missing out on any recovery," says Dean Knepper, certified financial planner and CPA with Lifetime Financial Planning in Leesburg, Va. "It's better to keep that money earning tax-deferred interest."

A case, however, can be made for borrowing from your retirement savings if you're absolutely certain you'll be able to pay back the loan within five years while continuing to make new contributions toward your savings. After five years, that "loan" becomes a distribution in the eyes of the IRS, so not only will you not have that cash to count on for your golden years, but you'll have to pay personal income taxes and a 10% early-withdrawal penalty on the money.