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A Financial Lifeline for Foreign MBA Students

Admissions Director Rosemarie Martinelli remembers the panic she felt when she learned a program that the University of Chicago Booth School of Business(Booth Full-Time MBA Profile) was using for international student loans collapsed at the height of the frenzied 2008 fall admissions season. The CitiAssist loan program was the second lender to disappear at the time, and few, if any, other banks were willing to help international students secure funding.

"It was a nightmare. I lost the program just after I admitted all the students," says Martinelli, who put in a desperate phone call to the Graduate Management Admission Council (GMAC), which administers the Graduate Management Admission Test (GMAT), asking for advice.

Her timing couldn't have been better. GMAC had just convened an advisory group to help schools come up with ways to solve the international student loan crisis at business schools, and they invited Martinelli to join and brainstorm with them. By January, Booth became the first school to sign onto the Affiliated Loan Program for Students (ALPS), a pilot program financed by Deutsche Bank (DB) which makes it easier for international students to come study in the U.S.

"It provides a very, very necessary thing for us and, while it was expensive, it helped out students who wanted to come to Chicago Booth without a problem," Martinelli says.

Growing Appeal

Nearly a year later, the loan program is starting to gain traction at business schools across the country. A number of top business schools signed on to ALPS in 2009, including Northwestern University's Kellogg Graduate School of Management(Kellogg Full-Time MBA Profile), the University of Rochester's Simon Graduate School of Business(Simon Full-Time MBA Profile), and UCLA's Anderson Graduate School of Management(Anderson Full-Time MBA Profile), among others. Six universities and 15 graduate programs are now using the lending program, most of them business schools. The program holds appeal for international students because it doesn't require them to have a U.S. co-signer to take out a loan, a crucial requirement for many students, schools say.

Over the past year, ALPS has so far issued about 3,500 loans to foreign and domestic students, and loan volume is upwards of $100 million, organizers say. Business schools are not the only ones taking an interest in the loan program; graduate law and medical programs are also taking note, and more schools are expected to join in 2010, says Kevin Moehn, president of Moehn & Associates, the loan program's administrator, who's in the midst of signing agreements with at least four other universities.

"As we get more schools on board, I'm convinced we'll get some momentum," Moehn says. "We are very pleased with this year's volume, and we believe we should at least double the number of schools we have in 2010."

Stepping into the Breach

Part of the reason the loan program is taking off is it is filling a void in the market created when the popular CitiAssist and Sallie Mae Loan programs were taken off the market. Those programs let foreign students borrow up to $150,000 without a co-signer to assume responsibility for the loan should the borrower default. In addition, other private lending sources that international students turned to for loans also dried up in 2009, with dozens of lenders either shutting down or halting loans to non-U.S. students without creditworthy U.S. co-signers. This left in the lurch many business school students who planned to study in the U.S. last year—until ALPS was announced last spring, with Deutsche Bank providing loan capital for the program.

Deutsche Bank saw the loan crisis as an opportunity to make inroads in the student lending market during a challenging time for students and universities, says Fred Brettschneider, head of global markets for the Americas at Deutsche Bank.

"As a result of the global financial crisis, we saw some of the country's most prestigious schools struggling to replace student loan funding that had been restricted or discontinued by previous lenders," says Brettschneider in a statement. "By utilizing our resources to create and invest in ALPS, Deutsche Bank is able to help students around the world further their education despite the challenges of the current lending environment."

What Schools Like

The ALPS program is by far the largest of the business school international student loan programs currently available, and it replicates some of the popular features of the old loan programs, such as not requiring students to have a co-signer or established credit. Interest rates for the student loans are less than 10%, though rates vary depending on the school, and organizers hope rates will be even lower in 2010.

Some features of the program also make it especially appealing to graduate schools. For example, the program leverages a participating school's credit rating, not its cash, to meet the level of student financing that the school determines. Schools also don't incur any up-front expenses and don't need to commit to any minimum or maximum level of loan volume, though they are required to act as co-signers on the notes for the loans, which students obtain from Liberty Bank, an Ohio-based lender. Deutsche Bank purchases the student loans from participating universities and bundles the loans into securities, which are then sold on the capital markets.

Regions : Asia

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