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These HBS 1st-Years Made MBA Loan Collective Bargaining A Reality

LeverEdge, founded by two first-year Harvard Business School MBA students, uses group buying power to negotiate better student loan interest rates. (Rates shown above are for illustrative purposes only — but the company vows “we will try to beat them anyways.”) Courtesy LeverEdge

The price tag for an MBA from Harvard Business School, including tuition, fees, room and board, and more, currently stands at more than $218,000. Last fall, two HBS admits, already concerned over the steep price of their education, took a look at the interest rates they were likely to face on the loans they were certain to need — and balked.

Then they got organized.

Nikhil Agarwal and Chris Abkarians co-founded LeverEdge to use the power of collective bargaining to get banks and other lending institutions to lower interest rates for MBA students. Using social media last summer before starting school, they organized a group of more than 700 students at Harvard, Wharton, Stanford, Northwestern Kellogg, Berkeley Haas, Chicago Booth, and other top schools.

“Over a few months, we convinced 700-plus students across top MBA programs to join a negotiation pool — then we contacted executives at dozens of banks, fintech companies, and credit unions and got them to bid on the portfolio of loans,” Abkarians says. The result: LeverEdge helped the students access over $20 million in loans at rates and terms “better than what a single student could hope to get on their own.”

Now Agarwal and Abkarians are planning the next go-round. For the fall 2019 intake, LeverEdge already has signed up more than 1,200 students.

‘A DRAMATIC DIFFERENCE’

Harvard is not alone in charging what it does. In fact, the cost to attend eight other elite U.S. B-schools is over $200K, and rising at all the schools in the top 50 of the latest Poets&Quants ranking. Nor is HBS the most expensive school in the land — that distinction goes to Stanford Graduate School of Business, where two years in the MBA program currently costs more than $230,000.

We say “currently” because as surely as night follows day the cost at all the elite schools will go up year to year. Even for a Boeing engineer (Agarwal) and a Netflix manager (Abkarians), these are exorbitant amounts, made even more so by the prospect of steep interest rates that prolong the pain of repayment. Imagine paying 7% or 8%, even as high as 9%, on a 10-year fixed-rate loan — and seeing thousands of dollars added to your overall debt. It’s not enough to dim the silver lining of your handsome starting salary from a high-paying firm — but it is enough to spark a search for alternative rates.

Or should be. Abkarians, who attended Duke as an undergrad, and Agarwal, who got his BS in aerospace engineering from the University of Illinois at Urbana-Champaign, couldn’t understand why some students spend less time deciding on loans than “buying a pair of shoes.” Running with Agarwal’s idea, they used Facebook to organize students to fight back. And LeverEdge was born.

Chris Abkarians, left, and Nikhil Agrawal of LeverEdge. Courtesy photo

HOW IT WORKS

Here’s LeverEdge’s business model. After finding out about the company largely — for now — through word of mouth, students join the negotiation group. LeverEdge keeps banks informed about the ballooning size of the group and ultimately asks them to compete for an exclusive recommendation. Last year, Laurel Road, based in Connecticut, was selected and their offer was shared with students.

Finally, students take advantage of the negotiated deal to get low-interest loans. Last fall, for amounts greater than $20,500, many students were considering the federal option that charged 7.6% interest and a 4%+ origination fee. Instead, they got a loan between 5% and 6% without any origination fee.

“We asked people what they were expecting, what their best offers were, and there were a few people who were paying in the 8% to 9% range,” Abkarians says. “Afterwards they got down to 5% to 6%. People who were in that boat, it’s a dramatic difference. One thing to keep in mind here is that the majority of people still take the federal student loan option. For some that makes a lot of sense. But for most people in business school, it doesn’t really make sense, because you’re quite likely to be able to pay off that loan afterward, so you’re better off enjoying a lower rate.

“Most people would go originally toward the federal rates that are actually really bad, in our opinion. As Nikhil said, the first $20,000 you borrow is at 6.6%, and I think at one point, 4% origination fee. After that, however, what you have to borrow is at 7.6% with a 4% origination fee. The origination fee is kind of a scam because you borrow $100,000 and pull $4,000 off the top — that just goes back to the federal loan servicer, and then you have to pay for the whole thing. I wish I could run a business like that.”