An Innovative Way To Pay For That MBA Degree

It’s no secret that the cost of an MBA degree deters many would-be candidates from applying or even considering going back to school. After all, student debt burdens are at all-time highs, forcing changes in lifestyle decisions for many years. Even graduates of part-time online MBA programs are incurring massive levels of debt, in some cases $100,000 or more.

But now, the Graduate School of Management at UC-Davis is piloting an innovative interest-free deferred tuition plan for future applicants to its online MBA program for students who don’t want to take on a lot of debt or get themselves into an unfavorable income sharing agreement.

Under the new plan, announced today (Sept. 16th), admitted students would pay the first half of their full tuition fees of $105,480, roughly $50,000 like any other student in the 70-credit program, and defer all tuition payments for the second half. After commencement, graduates can expect to pay roughly 10% of their income monthly until they pay off the remaining tuition.

‘You do your stuff for the first 36 credit hours and pay your fees like everyone else,” explains Dean Hanumantha R. Unnava. “Once you start your 37th hour, you don’t pay any tuition until six months after you graduate. And then we will take 10% off your income every month, and you will pay that over the next few years. Assuming that an MBA student is making $100K, we are now talking about five years to pay it off. And if they make less, it might take a few more years.”


Unnava believes the deferred plan could ultimately increase the available pool of applicants by as much as 20% because it makes a graduate degree more immediately accessible to candidates that don’t want to go heavily into debt. Even for graduates of programs that are less costly than the UC-Davis program, it’s not unusual for a high percentage of students to graduate with more than $50,000 of debt for an online MBA. “I think there is going to be widespread adoption of this model in higher education, and we are so delighted that we are the first school to do it,” he says.

At UC-Davis, the online MBA program, launched only two years ago, has already doubled the school’s enrollment. Currently,  550 students are enrolled in the online MBA. The deferred tuition option will be made available to incoming students in the school’s January intake. Unnava expects about 30% of the 60 to 80 students who enroll at that time would likely take advantage of the new payment plan.

UC-Davis’ Graduate School of Management was the first business school in the UC system to launch an online MBA. Now it is the first to offer a deferred tuition option. The school’s deferred tuition option will be administrated by London-based EdAid which claims the program will grow enrollment and yield, improve completion rates, drive access and diversity, and increase the revenue from each entering cohort. To Dean Unnava, the motivation for adopting the plan is largely about increasing access to the school’s online MBA.


H. Rao Unnava, dean of the UC-Davis Graduate School of Management. UC-Davis photo

“What led us to this point is we would talk to students as they were applying to the program or going through the program and they would ask if they could not pay for six months,” he says. “Even if you give them a $20,000 scholarship, the problem is cash flow. They were worried about having to pay $80K in two and one-alf years (the average length of the online MBA program). We knew there were some people who weren’t applying because they didn’t have the cash. This appeared to be a segment that would benefit from a deferment of their tuition rather than a tuition reduction.”

The deferred tuition plan is different from the more common income sharing agreements. For one thing, the deferred plan is interest free. There’s also no scenario where you would pay more than the cost of tuition. And if you lose your job for any reason, you don’t have to make your monthly payment until you land a new position. Income sharing plans, on the other hand, include interest payments and graduates can find themselves paying two or more times the amount of money they receive. It’s possible to repay far more than you get under an income sharing plan.

For the Graduate School of Management, the deferred tuition program would cost the school some immediate loss of tuition, along with a small percentage of revenue to EdAid, though the upfront decline in tuition would be shared with 2U, the school’s online education partner. “Obviously this is a hit on the cash flow of the GSM but because we have 2U as a partner and they also had a similar idea, the revenue impact would only be our share,” adds Unnava. “So they are participating as well so it is lot less of a hit to us if we had done it for the full-time MBA program.”


In the end, he adds, “it translates into the equivalent of the tuition relief you might give a student. But the problem still remains. If you don’t have a lot of savings and you know you have to pay the $90K even after the scholarship and don’t have it, you won’t go and get your MBA. $50K is all you need now and you can start paying later. That is much more comfortable for people.”

The dean uses the metaphor of home buying.  “It’s like buying a house if you can allow someone to pay it over 30 years. Even if the house seller gives me a $100K discount on a million dollar house, the problem still remains with cash flow. Debt actually has something associated with it: a repayment schedule with accruing interest. If you have a problem, it doesn’t stop accurring interest. That is a side of debt that is unforgiving. Whatever happens to your life, you still have to pay your interest. This is a lot more forgiving for people. If you lose your job,  you won’t have to pay until you find a new job. This is specifically meant for people who won’t get a degree due to financial concerns.” 

Unnava makes clear that he is trying out the plan. “This is a pilot stage,” he says. “We want to understand the market forces. It has to be easy for students so they can focus on learning and not sort through these issues. We have to see what the numbers will be but we know we may be slightly ahead or breakeven when all is said and done. But we will have increased access to the online program by a significant number. To me, as a dean, this is an interesting way of insuring certain future revenues for the next dean. The cost of educating the students has already been paid. For the future dean, it could quite a bit of money coming in every year that can be used for innovation because that money is not tied to current expenses.” 


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