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MBA students are embarking on a journey into the world of business and finance. First, though, they need to determine how to best finance their education. While many may have employee assistance, most are relying on savings and student loans to get through those rigorous two years. Full-time students in particular will not have the benefit of a steady salary, yet will still need to cover tuition, other educational costs, and living expenses. This page covers the ins and outs of MBA loans to provide resources for the business leaders of tomorrow.
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What Are MBA Loans?
An MBA student loan is a financial instrument that assists future business leaders in completing their graduate degrees. Loans are often a necessity for MBA students due to the high cost of that degree. The total cost of the degree plus ancillary costs, including living expenses, can climb well past $100,000. For full-time students, it can easily exceed $200,000 when you factor in lost income.
There are two general types of MBA loans: federal student loans and private student loans. Federal loans are available to those who fill out a FAFSA form. This is the standard form that most students use when they need outside funding to complete their degree. Private student loans can come from any private lender.
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What Federal Loans Work for MBA Students?
MBA students have two federal student loans to choose from:
- The Federal Direct Unsubsidized Loan
- The Federal Direct Graduate PLUS Loan
These loans have much in common: both begin to accrue interest as soon as the funds are disbursed, students obtain funding by means of a FAFSA form, and at least half-time enrollment is required or students are required to begin making payments.
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The Federal Direct Unsubsidized Loan has a lower interest rate and the origination fee is much lower than the federal PLUS loan. However, the unsubsidized loan caps out at $10,250 per academic year. That is hardly enough to pay for a full year in a good MBA program, but there is funding available to cover the balance.
To make up the difference, students will likely need to obtain the Federal Direct Graduate PLUS Loan. The terms for that loan are not as friendly as its unsubsidized cousin, but it will cover the cost of attendance, minus any costs covered by other loan programs.
Differences Between Federal and Private Loans
One of the first differences between federal and private loans is that all of the former are obtained by means of the FAFSA form. Every college and university should have links to this resource on their financial aid web pages. The loans are available to all citizens or permanent residents who hold a green card.
Private loans, on the other hand, are obtained by applying directly to the lender. There are at least thirteen different private lenders who assist students with tuition and other costs. Since private loans tend to require a more robust credit history and also have stringent repayment programs, most schools or financial advisers recommend that students first exhaust their FAFSA options. However, some students still need loans to bridge the gap between them and graduation. Further, private loans are helpful for MBA students who enter an internship or other non-work, yet also non-tuition-based educational experience.
Borrowing Limits on MBA Student Loans
There are limits to everything, and graduate student loans are no exception. Since MBA students often cannot offset their tuition with teaching assistantships, they must bear the full brunt of the tuition and all associated fees. Thus, it's easy for MBA students to exceed their borrowing limits. The Federal Direct Unsubsidized Loan, for example, caps out just above the $10,000 mark. Students can still utilize the Federal Direct Graduate PLUS Loan to cover the remaining balance.
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The cap for federal graduate student loans is currently around $138,500. Since other costs, such as housing, continue to accumulate during graduate school, it may be necessary for federal borrowers to dip into the private student loan market in order to make ends meet.
What to Think About?
- Forbearance/Deferment: Unfortunately, students sometimes have difficulty making their loan payments. Thus, it is possible for students to defer their payments through formal deferment or forbearance. Deferment is for students who re-enter a degree-granting program as full-time students. Borrowers can, in this way, defer their payments for up to 48 months, depending on the lender. Forbearance likewise allows borrowers to postpone, or dramatically reduce, their loan payments. In the case of forbearance, borrowers have often lost a job, are unable to work due to medical reasons, or have other verifiable barriers to loan repayment.
- Interest Rates: Interest rates are subject to a number of factors. In the case of student loans, rates are set based on the loan type, the borrower's credit history, and prevailing economic and even political climates. In the case of graduate student loans, borrowers are subject to higher interest rates. Current figures show that graduate student loan rates are approximately one half of a percent higher than undergraduate rates. The difference is probably due to the overall higher value of the education in question.When borrowers initiate a loan, they’ll find that they can choose between a variable rate and a fixed rate. Variable rates are tied to the prime lending rate, which is subject to adjustment by the Federal Reserve Bank. Sometimes the fixed rate is higher than the current available variable rate. However, given that interest rates are subject to change, it can be prudent to lock in a fixed rate, lest the variable rate skyrocket at some future date.
- Loan Fees (Origination or other): Not only do borrowers need to pay back the principal loan amount plus any and all accrued interest, but there are other fees associated with student loans as well. For instance, the Grad PLUS loan offered by the U.S. Department of Education, currently has an origination fee of over 4%. Meanwhile, the Federal Direct Unsubsidized Loan's origination fee is a little more than 1%.Private student loan lenders may have other fees associated with their products. For instance, they might charge an application processing fee, late payment fees, and variable origination fees. Since each private lender's terms are subject to their individual business need, their fees may rise or fall to meet their projections.
- Eligibility Requirements: To qualify for a federal student loan, students need to provide all of their personal information such as their credit score, employment history, income tax return information, and proof of citizenship. For a federal loan, all borrowers must either be full citizens or permanent residents who have a valid green card.To determine a borrower's worthiness, lenders also need to know what school and program the student means to attend. Certain degree types, such as an MBA, are deemed better loan risks since those with an MBA tend to have higher salaries and have an easier time landing a well-paid job.
- Repayment Options:
Repayment is the big concern for all borrowers. For federal loans, students can make early payments if they desire. However, most students wait until after graduation, and the six-month post-graduation grace period, to begin paying off the loan principal and accrued interest.Private loan holders have a few more options. Sallie Mae, for example, allows students to pay some small fixed amount while still in school, interest-only payments, or to defer all payments until after the post-graduation grace period has passed. It is also possible to consolidate student loans with other debts so that the borrower only needs to make a single payment each month. Loans that are in good standing can also be refinanced to help lock in a lower rate and perhaps more amenable repayment terms.
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Sallie Mae MBA Loans
- Why Sallie Mae for MBA Loans: With some MBA loans, you must read the fine print to discover exactly what the funding covers. With a Sallie Mae MBA loan, you don’t have to worry about whether certain expenses are included. Tuition, fees, books, housing, meals, and travel are all eligible, as is a laptop for school use. Applicants need only apply once annually to receive funding for the entire school year. Many MBA students cannot earn their degree full-time, and some cannot do so even on a half-time basis. Many lenders will not approve loans to those attending graduate school less than half-time, but that is not the case with Sallie Mae.
- Repayment Options: Sallie Mae MBA loans allow you 15 years to repay, and there are no prepayment penalties. You can choose either a fixed or variable interest rate. With the former, you will pay the same amount every month, making payments predictable. With the latter, the rate may change over time, but it is possible you could end up paying less should interest rates decline. Students may opt for paying down small amounts of the loan while they are still in school, reducing their overall loan costs. This may also qualify you for a lower interest rate, adding even more savings. Choosing to use an automatic debit payment will reduce your interest rate by 0.25 percent.
- Features and Benefits: Sallie Mae MBA loans do not charge an origination fee. There are no payments necessary while you are in school and you’ll have a six-month grace period after earning your MBA before required payments begin. You can defer payments for up to 48 months if you’re pursuing an internship. Sallie Mae provides the shortest co-signer release period available. After just 12 months of on-time payments, pursuant to meeting particular credit requirements, you can apply for a cosigner release. You and any cosigner receive free FICO credit scores quarterly.