MBA Loans |

MBA Loans

By Jonathan Taves

Updated November 19, 2015 Updated November 19, 2015

I’m sure you’ve seen the headlines on Twitter or in the news about the epidemic of student debt in America. Politicians have proposed different ways to deal with the problem, but like Frank Underwood’s Southern drawl, Washington moves slowly. Instead of waiting for a federally mandated cap of interest rates or individual debt limits, if you’re going to business school next year, you’ll need to know your MBA loan options. This week’s post will investigate just that. 

Before you start learning about the different types of federal and private MBA loans, however, you need to budget how much you’ll need to borrow. Do your research; while it can be tempting to max-out each MBA loan, since you’ll have to pay back what you borrow with interest, you don’t want to take more than you need. For example, someone attending a top-15 MBA program without scholarships will need to borrow approximately US$180,000 (US$120,000 on tuition, US$4,000 on books, US$6,000 on health insurance and around US$50,000 on living expenses). 

Fill out the FAFSA

The next step is to file the Free Application for Federal Student Aid (FAFSA), which is available in January each year and can be completed after you file your federal income tax return. This application will determine if you qualify for a lower, fixed interest rate loan, 5%, through the Perkins loan program. Graduate students that qualify for the Perkins loan are able to borrow up to US$8,000 annually. This loan is only available for students with ‘exceptional need’, however, so don’t count on it.

The FAFSA is important to complete because even if you aren't awarded a Perkins loan or other discounted interest rate loan, it’s required to apply for other federal loans. Everyone’s situation is different, but some argue that federal loans are more advantageous to borrowers than private loans because they have more flexible repayment plans and are eligible for the Public Service Debt Forgiveness program. In short, don’t restrict your options: fill out the FAFSA.

Stafford loan and unsubsidized loans

For those going to graduate school with steady career prospects - think physicians and those at top-15 MBA or JD programs –  the benefits of federal loans aren’t as sizable. While flexible repayment plans and the option to consolidate multiple federal loans into one payment are nice, unless you’re getting a lower interest rate, the Financial Hardship Deferment and Public Service Debt Forgiveness programs probably aren’t applicable.

Still, it’s wise to know what federal loans are available: the unsubsidized Stafford Loan and the Grad PLUS. The Stafford Loan differs from its undergraduate sibling in that there isn’t a subsidized option where interest is deferred while you’re in school. One can borrow up to US$20,500 each year – more if you’re in certain health fields – and the interest rate is the 10-Year Treasury Note plus 3.6%. Grad PLUS doesn’t have a cap and its rate is the T-Note plus 4.6%.

What’s more, that interest rate is locked in for the life of the PLUS and Stafford Loan. Private loans, on the other hand, offer fixed and variable rates. While interest rates are low today, chances are it will take you 5-10 years to pay off your graduate school debt and the US economic environment will likely change. Fixed rate loans provide more stability, but you do pay a premium for that peace of mind. For those with aggressive repayment strategies, variable rate loans may be a calculated risk.

Wells Fargo and Sallie Mae are two of the largest private lenders to graduate students in the US. Your school’s financial aid office will most likely have relationships with these lenders and will help you apply for your MBA loan. One item to note is that since these are private loans, they don’t necessarily have to mirror the structure of federal loans. Like I mentioned above, with strong career prospects, this shouldn’t be a concern, but it is something to keep in mind.

An excellent resource to use is, where you can type in what graduate program you’re interested in and how much you’ll need to borrow and the website will search for the best interest rates. Particularly helpful for MBAs, has an 'MBA Student Loan Calculator' that will tell you what the price of attending your program is and how much a CommonBond loan would cost. Here’s an example:


Grad school loans

Last, the newest option to pay for graduate school loans is by using peer-to-peer (P2P) lending. Several companies – Lending Club, Prosper, Upstart, Prodigy, and SoFi – pool investors together to fund a student’s tuition or an entrepreneur’s new venture. The need for due diligence from the borrower is higher here because all loan contracts will be different from lender to lender. P2P can be advantageous, however, because these loans do offer an opportunity to get a low interest rate loan rather quickly.

Whatever source you choose, make sure it’s the best option for you. Make a budget so you know how much you’ll need to borrow and then fill out the FAFSA. After that, shop for the best interest rates: depending on your career choice, you might be able to minimize the risk associated with a non-federal, variable interest rate loan. As daunting as taking on US$100,000+ in loans can be, take a deep breath and remember that this is an investment in your future.

This article was originally published in November 2015 .

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Written by

Jon Taves is a CPA from Minneapolis, MN. He writes weekly about business-related topics, including his MBA journey, at

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