The Blogger Ponders Financing Options for the $107,000 MBA

In the past week, I’ve been busy meeting with loan officers, talking to my insurance broker, and crunching the numbers.  Putting aside the “opportunity cost” paper loss, my out of pocket expenses will be 48,800 Euro for tuition and another 20,000 Euro for living expenses.

After hearing that the HSBC Loan program had been discontinued, I did what any INSEAD student worth his weight would do… I complained to the administration! In this case I wrote to the Dean of Admissions.  She responded with a polite and factual customer-service dept. style answer along the lines of, ‘We are sorry that you were affected by our decision to discontinue the McRib Sandwich’.  But unlike a complaint to a company, there were no freebie coupons or comps to console my disappointment.

Lucky for me, the INSEAD Alumni association in my home country has a standing loan arrangement for tuition only with a local commercial bank. The loan terms are 48,800 Euro at LIBOR + 2.5% with 2 year’s grace (ie. interest only) followed by repayment of interest and capital over 4 years. This would amount to a monthly repayment of approx. 1,200 Euro. The problem is that because I have moved around so much over the past few years to gain ‘international experience’, I can’t offer the bank the usual guarantees which they demanded. I’m bitting my nails now, hoping that the bank will accept my guarantees. I expect an answer on my application from the loan officer on March 29, 2007.

Now comes the tricky part… living expenses. I came up with an ambitious budget of 20,000 Euro for the year, based on renting an average apartment in Fontainebleau, insurance, food, entertainment, airfare, doing an exchange to Singapore, buying a new suit and laptop computer, and tuition for the pre-MBA week. If I add the Wharton exchange and a week or two touring Europe, I will inevitably hit the official 24,000 Euro INSEAD estimate.

If I wanted to raid my life’s savings, I could probably self-finance all of my living expenses. But it’s depressing to see all those years of scrimping and saving go down the drain in one year.  So I’m looking into alternative financing sources… borrowing against my pension fund, using the severance pay when I leave my current job etc.  Unfortunately, I keep encountering nasty tax consequences to all of these choices. I’m sure there are many students in worse financial predicaments.  At least I have the money, difficult as it may be to plough through my savings.

The truth is that INSEAD ought to provide guaranteed financing to all students at a preferred interest rate. From a marketing perspective, this is a no-brainer for the school. Admits are more likely to say, “Yes” if they don’t have the financing issue hanging over their heads.  INSEAD’s official response points to the diversity of the student body as being detrimental to their ability to provide a universal financing plan. But surely the world’s best global business school ought to be able to overcome this challenge.

The Blogger Goes to a Job Interview

Yesterday I went to a job interview. My recruiter phoned me last week and told me about a job opportunity at a company that makes “digital routing switching widgets for next generation roaming wireless network techno-somethings”. I was skeptical and a little unsure because I am leaning towards accepting the INSEAD offer and I’m not really drawn to the telecom sector but I didn’t want to slam the door without hearing their pitch. Maybe they would surprise me and offer me the job of my dreams– something challenging with significant responsibility, interesting work, high-level interaction with management, and above-market compensation. I went to the interview and kept mum about the INSEAD offer sitting in my pocket.

The company is a pre-IPO telecom equipment vendor with solid sales, solid financing, and all-around stability. The job I interviewed for reports to a V.P. and involves working intensely with the sales force, drafting sales agreements for the company’s products. With good negotiating and some luck, I might be able to snag the job with a 10-20% salary increase over my current pay, plus more stock options.

But as the interview progressed, it become obvious that my heart wasn’t set on the job. Unlike my current job, there would be no diversity and exposure to other areas. Even worse, there didn’t seem to be much opportunity to expand my business management skills and fulfil my goal of moving into a business function. The interviewer didn’t immediately volunteer this information… but because of my experience, I was able to ask the right probing questions and hone in on the pluses and minuses of this particular position. In fact I might have done too good a job, because at the end of the interview, the consensus in the room seemed to be, “This position will not be stimulating or rewarding enough for [the Blogger]“.

But maybe that’s the sign of a successful interview… talking yourself out of a job that doesn’t fit your career goals and realizing that you’re more drawn towards attending INSEAD.

The Blogger Pauses for A Sober Second Thought on the $107,000 MBA

Derek Bok, former President of Harvard University once said “If you think education is expensive, try ignorance”. He obviously never faced the $107,000 USD price tag of a top-name MBA program. At the moment I am pondering whether to take the plunge and change the value sign in front of my balance sheet from positive to negative.

I’d wager that a fair number of would-be MBA students never bother to calculate the real cost of their degree. I arrived at the $107,000 USD figure by computing the “Opportunity Cost” of leaving my job, ceasing my current pension and savings contributions for 1 year, and spending 48,800 Euro on INSEAD tuition plus another 24,000 Euro on living expenses, travel, and post-degree relocation costs. The grand total? $107,000 USD!!!

This means that after “My Year of MBA” I will need to pay back this amount in after tax dollars. So in my case, from a purely economic viewpoint, if after earning an MBA, my post-degree salary is not $39,000 USD higher than my pre-MBA salary for the 6 years that I forecast it will take me to re-pay the Opportunity Cost, then it just ain’t worth it. The $39,000 USD figure is also challenging in view of the fact that it must constantly trump whatever annual salary increase I could expect at my existing job.

Today I chatted on Skype with a close friend who is pursuing a Ph.D. in philosophy at Georgetown University in Washington, D.C. He asked if I thought I could justify the expense of studying at INSEAD. Like all good MBAs, I responded with a guarded, “It depends!” If I go into investment banking or consulting where the starting pay is north of 100,000 USD/GBP/EURO, then yes it could be justified. If on the other hand, we get hit by a recession and I end up working in a compromise job for $70,000 to $80,000 USD, then maybe not.

I have 2 final thoughts on the subject… 1) If on the basis of having studied at INSEAD and worked a successful career in a given industry, at age 50 I am suddenly rewarded with offers to serve on Boards of Directors with annual director fees and stock option packages worth $100,000 USD+, then my current fears will have been for naught; 2) Perhaps I have it all wrong, and instead of thinking of an MBA as a revenue-generating investment, I should perceive it as a rapidly-depreciating luxury commodity. When you put an INSEAD MBA on par with buying a Porsche, it suddenly seems like a good deal.

The Blogger Receives An MBA Admission Offer to INSEAD Fontainebleau, France

Last week, the admission offer arrived in the form of a cryptic-sounding e-mail message that read: “Confidential – INSEAD Final Decision”. I remember that my law school admission letter in the pre-Millennial age, arrived by post. At the time I was bummed out that I had received a “thin envelope” which I incorrectly assumed to be a PFO letter. It wasn’t. The big “package” simply followed a few days after the short and sweet letter from the Dean, congratulating me on being accepted.

Alas, it’s deja vu all over again with the INSEAD Poker face offer. You click on the e-mail, expecting a rejection, only to be surprised with the notification that you have been selected for the MBA class of 2008, starting the last week of August in Fontainebleau, France.