Personal finance plays an inevitable and significant role when undertaking any higher education or entrepreneurial endeavor. Not only is expense a deciding factor in choosing whether or not to even pursue an MBA/Master’s degree, but it can place many top-tier programs seemingly out of reach for many hopeful students. But while postgraduate fees and traditional student loan rates continuously increase, so does the fintech disruption to the traditional financial sector. That said, it then makes sense to look to the fintech sphere—and more specifically, peer-to-peer lending—as a potential opportunity for a new way to fund your studies.
What is peer-to-peer lending?
Peer-to-peer lending, abbreviated as P2P lending (and often referred to as crowdfunding), is a system that matches people looking to borrow money—borrowers—to people looking to invest and earn more on their money—lenders or investors.
Companies (like Bondora) offer their services to match borrowers with investors online, which allows for lower overhead and makes operations much cheaper than traditional financial institutions (such as banks). This allows for lower interest rates for peer-to-peer borrowers and higher returns for peer-to-peer investors.
So how can I use P2P lending to finance my studies?
The options with P2P lending are twofold: apply for a P2P loan as a borrower or invest in P2P loans as a lender.
The latter may seem counterintuitive—you obviously need money, so why would you put money into something? Stick with us, and we’ll explain.
First, you can easily apply for a P2P loan to fund your studies (or to perhaps refinance your existing student loans). P2P loans generally are more straightforward and more attainable with less rigid criteria than those through traditional banks. There usually are no hidden fees (Bondora has none), such as advertised lower rates as smokescreens to hide high contract or late payment fees.
Additionally, P2P loans are a lot quicker than the hurdles presented by traditional banks. No need to go to a physical location, fill out a strenuous application, and wait 4-6 weeks while they make a decision. When you apply for a loan with a P2P lending service, it usually means an automated online service with advanced technology that can provide with an instant “yes” or “no.” Different P2P services have unique (and proprietary) credit scoring models that use both traditional and non-traditional data to determine a potential borrower’s creditworthiness. This allows for quick decisions and creates a unique experience for borrowers and is attractive to investors, as they can invest in different loans depending on how much risk they want to take.
Second, you can make investing in P2P lending part of your financial plan. As decent interest rates from banks are nearly non-existent, it’s becoming increasingly difficult for students to save while pursuing their postgraduate degrees. As more and more young people move away from traditional banking, students need options that are simple, flexible, and worthwhile (meaning, the possibility for decent returns). Investing in P2P lending is an ideal option, as it fulfills those criteria and doesn’t require a minimum amount to start investing—students on a tight budget can still benefit by investing what they can to hopefully make a dent in their future loan debt with their returns. You can also take advantage of automatic tools, so you don’t need to invest a lot of time or manual work away from your studies to see real returns.
P2P lending and entrepreneurship
Additionally, the students with goals of entrepreneurship are often deterred by the impending need to come up with starting capital to get their business ideas off the ground. So many startups and business ideas are born during MBA programs, but the major roadblock to running with the idea is money. When repayment of debt is looming, it may seem like the best route is to get a job with a corporation that will provide a steady salary to repay your loans once you’ve completed your program. Even a small lump sum to start with may make it seem less risky to pursue your entrepreneurial goals and get your business started. After all, ideas are just ideas unless they’re brought to fruition.
If you have a notion for entrepreneurship, you can invest a portion of your finances into peer-to-peer lending and—depending how much risk you’re willing to take—see ample returns. Obviously, higher risk generally reaps higher rewards, but you can be as conservative you’d like when choosing which loans to invest in (lower to higher risk). Basically, you can become your own bank and start earning, thus building a decent amount that can become (or supplement) your starting capital once you pursue your business.
Additionally, if you’re fairly new to investing but have entrepreneurial goals within a similar sphere, investing in P2P lending is a great way for you to dip your toe in and learn about building a diverse portfolio. You can start passively, and as you get more comfortable and accustomed to the tools, you can become more active and choose more manual options. All investors start somewhere, and many have built an investment career out of it or are founders of successful fintech startups. Knowledge is power, and as the financial sphere continues to shift away from traditional banking, it’s a good time for people to learn about (and become accustomed to) ulterior financial options.
What else can I do?
We’ve put together some additional tips to help you cut costs and optimize your MBA financial plan:
Prepare in advance
Easier said than done, right? However, the sooner you get some semblance of a financial plan in order, the better. If you’re even just contemplating pursuing an MBA, start saving and setting a certain portion of your funds aside for this purpose. Preparation also means determining which type of program you want to do, as some are longer than others. Even if tuition is the same, a longer program can extend living and other expenses while also meaning more time away from a full-time job.
Cut unnecessary costs
This speaks to budgeting, plain and simple. Organize your expenses into categories, prioritize, and see where there is excess spending. Setting a budget for each category (and even subcategories) will allow you to have a better handle on where your money goes. Just as nutritionists recommend food diaries to identify eating habits to efficiently cut calories, keeping a budget and log of your finances will allow you to pinpoint and minimize unnecessary costs.
Apply for a scholarships and grants
We recommend you start doing this as early as possible, as there is more money available at the beginning of the application cycle. In addition to looking at public offerings, think outside the box by looking for scholarships funded by private organizations, which typically are based on different demographic groups or other unique components.
Work for an employer that provides tuition assistance
If you can plan ahead, seek employment with a company that provides tuition assistance for MBA programs. Some companies will foot the entire bill (of course, there may be contractual requirements of continuing your employment for x amount of years) while others may provide a stipend or reimburse a portion of the costs. If you’re not sure whether your company does this, share your plans with your employer and see if they would be willing to provide some assistance.
Ultimately, it’s important to be smart with your money, start planning ahead as soon as you can, and consider outside-of-the-box ways to help you optimize your finances while working toward your goals of getting an MBA.
Are you pursuing or do you have an MBA? What did you do to optimize your finances? Let us know in the comments.