Luis should be enjoying one of the happiest and most exciting times of his life. Instead, it’s turning into one of the worst.
Recently admitted to a top-20 MBA program in the United States, Luis should be busy preparing for the life-changing experience of pursuing an elite MBA, a lifting-up into a new career — and life — trajectory.
But Luis, a native of Brazil, is not happy or excited. He’s seriously concerned, to the point of desperation.
After an arduous application journey that saw him waitlisted at one top school, rejected at a couple, and finally accepted to a program he sees as a perfect fit, Luis might not be able to attend — because of money. He can’t secure a loan because of new restrictions by a top lender, and he can’t afford the cost without one.
‘I’M SURE THAT IT IS NOT A PERSONAL CREDIT RISK’
“The payments, for me with my wife and my daughter, it’s almost $200,000,” says Luis, who asked that his real name not be used for fear that he end up on a loan “blacklist” or offend his school. For the same reason, Poets&Quants is not naming the school where Luis gained admission early this year to join the MBA Class of 2023.
“All we have are a little value of savings, but not the total amount.”
Luis is not alone in his plight. He is close to three other Brazil citizens and another from Peru, all admits to the same top-20 U.S. business school, working together to sort out their loan situation. He says the others’ total cost projection is lower than his, hovering around the $175,000 range.
Because Luis and the others have no U.S. co-signer and their school is not among those — like MIT and Harvard Business School — that have credit unions that co-sign loans on behalf of their students, they were counting on financing from Prodigy, the fintech platform founded by INSEAD MBAs in 2007. Prodigy has helped thousands of international students in all fields navigate the daunting regulatory edifice that faces non-citizens. But contending with the dramatically heightened volume of B-school applications in 2020 and 2021 — amid a landscape complicated by travel restrictions and consulate closures stemming from the ongoing coronavirus pandemic — Prodigy is being more selective in its loans this year. Luis and his friends are among an increasing number of rejected applicants.
“Everybody works, everybody’s normal people. I think that our credit is better than the average — I am a lawyer, another guy’s a medical doctor, another one’s an engineer,” says Luis, pointing out that the median starting salary for MBAs graduating from their school is $150,000. He adds that his credit score is just south of 800. “Everybody works and is looking forward to grow in their careers. And so I am sure that it’s not a personal credit risk. I know they hardly ever declined anyone, especially those accepted to a very good business school.”
UNPRECEDENTED APPLICATION VOLUME
Prodigy Finance has helped more than 20,000 students from 135 different countries attend graduate school in the U.S. in the last 13 years, providing more than $1 billion in loans through its collective funding approach that involves a community of alumni, institutions, and qualified private investors. But in March, “bound by regulatory frameworks which preclude us permanently from some markets,” Prodigy expanded its list of countries whose citizens it could not loan to. Prodigy is permanently excluded from supporting markets like Sudan, Sweden, Taiwan, and Belgium; markets excluded temporarily due to funding restrictions include much bigger countries, like the U.S., UK, China, France, Australia, Canada, and Germany.
Brazil and Peru — the home countries of Luis and his colleagues — are not on the list of excluded markets, says Prodigy’s Head of Americas Joel Frisch, who says “we would not want to discourage students from these areas to apply for the funding that they seek, especially as each application is reviewed independently.” However, he adds, “the reason why we may be unable to offer loans to some students in eligible markets is the application-specific result of our borderless credit model, which utilizes over 10 years of internal and external data to calculate a student’s affordability and probability of default.
“The impact of Covid-19 has certainly had impact on some regions more than others. Following our commitment to responsible lending, we cannot extend loan offers to students with outcomes below our risk thresholds.”
Frisch tells Poets&Quants that amid coronavirus, 2020 was the first year that the company had a “disruption” in matching investors to certain regions of the world.
“The restricted markets that students may be questioning about are not a change to Prodigy’s model,” he says. “They’re not a change to Prodigy’s desire to help students from these regions. It is 100% a Covid-related issue and is purely a result of matching investors who are interested in investing in those regions, and that’s something that we’ve been able to successfully do over the years. 2020 was the first year where we had disruption there. It affected a small amount of students in 2020, and it’s still impacting a smaller pocket of students.”
Frisch says with regard to Luis and his Brazilian and Peruvian colleagues, “that we are certainly seeing specific regions of the world more economically affected by the impact of COVID-19 and this is being reflected in the future projections of our global model.” Brazil is currently, and for the near future, one of the world’s worst Covid-19 hotspots. Restrictions stemming from the pandemic, and others, may improve as the year progresses, he adds.
‘THINGS ARE STARTING TO TURN AROUND’
“We are not a balance sheet lender,” Frisch says. “We don’t lend our own capital. We are a platform that matches high-potential students with what I would deem impactful capital, so investors who are looking for both financial and social returns. The majority of our students come from developing regions of the world, heavy concentrations in your brick countries, if you will: India, Brazil, etc. We’ve been doing this continuously for 13 years, including the crazy year of 2020 in which we were able to bring over 5,000 students to campus when many of our peers and competitors either had to exit or temporarily stop lending.
“Then, as we go into this year, we’re seeing incredible record demand and are seeing applications up almost 50% across all of the different disciplines that we focus on. I know we want to talk about MBAs and business schools in particular, but we obviously now cover a wide variety of schools — with engineering actually running faster even, I would argue, than business schools. Like 2020, Covid disrupted a lot of things, but global investment markets is one, including many potential investors for student loans.
“However, things are starting to turn around, and as we stand here today we are still able to support over 85% of requested markets, with some updates coming very shortly about the others that I know students are very eager to hear about.” He says those updates will come “in the next few months.”
OFFERED $50K BY MPOWER
For admits without a U.S. co-signer, Prodigy is not the only player in the international student loan game. MPOWER Financing, launched by INSEAD MBAs in 2014, also offers loans to students who cannot typically qualify for a loan from other banks or lenders without a co-signer or collateral. But MPOWER offered Luis and his colleagues only $50,000 each — nowhere near enough to pay for two years at their elite MBA program. “That’s the maximum amount they would approve,” Luis says.
Another platform, Nomad Credit, turned them down entirely. Juno, formerly LeverEdge, was launched in 2018 by a pair of Harvard Business School MBAs; it uses group buying power to negotiate better MBA loan rates. Juno has not worked with a lot of international students because it requires a U.S. co-signer; it partners with Nomad on the international front. Juno is, however, gauging interest in an international student loan refinancing negotiation group; more than 900 have signed up to build the group, with a target of 2,000.
“We’re hopeful that because we’re different than the international student lenders, that we don’t have to make money off of this and we can make it enticing enough for an investor to sign up,” Juno co-founder Chris Abkarians tells P&Q. “That’s where we’re at right now.”
‘WHAT ELSE CAN I DO?’
Financing is not a new problem for international students, Abkarians notes.
“What’s kind of crazy about this is, international students have had trouble accessing financing for as far back as anybody who’s directed financing offices have worked there,” he says. “In such an ongoing issue that it hasn’t had as a sustainable solution for so long, that it’s just surprising overall.”
Juno’s Nicolas Echegaray spoke to Luis to see if there was any way to help him and his colleagues. But Luis and the others had already exhausted currently available avenues.
“It’s heartbreaking that there are no options in the market,” Echegaray says. “We are still trying hard to find other sources of funding for them, but I didn’t want to give him false hope.”
Luis says he and his colleagues are becoming resigned to the fact that they may have to turn down the opportunity to study for an MBA at a world-class school, at least this year.
“Most U.S. lenders are not willing to provide loans to international students without a U.S. co-signer,” he says. “We have gone to alternative sources such as international banks, family offices, and investment banks. We don’t have the option to have our school co-sign, so probably we will have to apply to another school, or re-apply, probably next year. We don’t know what to do right now.
“I don’t have another option. What else can I do? Nothing.”