Topics: Student Loans
Business school can be pretty expensive. But, finding ways to finance your MBA need not be overly complicated. Finding the money you need to finance your b-school education should include an exploration of scholarships, Federal Work Study (for those with demonstrated financial need), employer tuition reimbursement (if applicable), and federal loans. If you still have a void in your financial aid picture and need an MBA Loan to fill the gap, this article is intended to provide an overview of how these loans work and how to make an informed decision before borrowing.
MBA Loans are a form of graduate student loans that are used to cover the costs of a graduate business degree. Keep in mind that the Direct Unsubsidized Loan and the Grad PLUS Loan for graduate students (both federal loans) can also be used to finance your education. These loans may often be recommended by your school’s financial aid office because there are a number of deferment and loan forgiveness programs associated with them. (You may also want to explore the Perkins Loan if you are a student with exceptional financial need, in which case you may be eligible for up to $8,000 per year.)
Graduate students can borrow up to $20,500 per year in the Direct Unsubsidized Loan program and up to the full cost of attendance in the Grad PLUS Loan program, a loan that also requires a credit check. However, you should note that in today’s marketplace private lenders may offer rates that are lower than some of the federal student loans. Neither the Direct Unsubsidized Loan nor the Grad PLUS Loan are subsidized for graduate students. This means you will be responsible for the interest that accrues from day one regardless of whether you borrow a federal or private student loan. Of course, you still have to qualify for these low rates based on your creditworthiness or that of your cosigner.
To qualify for an MBA Loan you must meet certain minimum eligibility standards. These include the following:
- U.S. citizen or permanent resident*
- Enrolled at least half-time as a graduate student (at an eligible institution)
- Making satisfactory academic progress (SAP)
- Have a positive, verifiable credit history — or a cosigner with a strong credit history
*Some lenders will accept applications from foreign borrowers applying with a creditworthy cosigner. The cosigner needs to be a U.S. citizen or permanent resident.
Of course, you should check with your lender to confirm eligibility requirements. Many graduate students may qualify on their own without a cosigner especially if you have at least 2 years of employment history. But, having a cosigner with a strong credit history could also help you qualify for a lower rate, even if you’re eligible on your own merit. You’ll also want to consider that some lenders’ eligibility standards require you to be an existing customer or member (i.e. have a banking relationship with them or be willing to join a credit union) in order to borrow a loan in their program. You may find some competitive rates among these types of institutions, but be sure to read the disclaimers to understand their qualification standards.
The minimum loan amount you may be eligible to borrow is usually $1,000 but you will want to check with your lender.
The maximum amount you can borrow is the full cost of attendance, less other aid, as certified by your school.
Most lenders today do not charge an origination fee or disbursement fee.
MBA loans or graduate loans can carry either a fixed or variable interest rate. If applicable, your lender will give you a choice between the two. Some lenders may only offer one rate type and not the other. But, based on your creditworthiness — or that of your cosigner — you may find that the Annual Percentage Rate (APR) is still competitive. Also, note that some lenders use the 1-month London Interbank Offered Rate (LIBOR) vs. the 3-month LIBOR plus a markup on which to base the APR (Annual Percentage Rate). Others may use the Prime index plus a markup. Be sure to read the fine print when comparing your options for a better understanding of how your rate is calculated. For your convenience, we have expressed the range of rates available in today’s marketplace as an APR since that signifies the actual yearly cost of funds over the term of the loan, including fees.
The chart below outlines the current range of both fixed and variable rates in today’s marketplace:
|Variable Rates+||Fixed Rates+|
|As low as||2.50% APR+||5.74% APR+|
|As high as||10.49% APR||11.99% APR|
+The rates advertised may require that you or your cosigner enroll in auto debit. Variable rates may increase after the loan has been approved and accepted (i.e. after consummation).
Information advertised valid as of 7/07/2016.
The length of repayment will depend on your loan balance but could be as long as 20 years following your in-school deferment and grace period.
While borrower benefits and repayment incentives vary by lender — and some lenders only offer graduate loans to students enrolled in MBA programs — some commonalities exist. Below are some standard types of benefits and incentives you may encounter. Take some time to learn about what it takes to qualify for these programs so you can take advantage of the savings and unique perks that may be available.
- No prepayment penalties — This is standard across the board but always reassuring. If you come into a windfall or just work really hard to earn extra cash to pay down your debt, there is no penalty for early repayment.
- Auto debit discount — This is also a pretty common incentive but the savings offered could be between 0.25% and 0.50% cut from your interest rate when payments are automatically deducted from your checking or savings account. Just be on the lookout for any disclaimers that indicate the qualifying account needs to be associated with the bank or lender you may choose to borrow from vs. an account of your choice.
- [Existing] customer discount — Some lenders may offer a rate reduction (typically 0.25%) if you are an existing customer with a prior or qualifying account.
- Cosigner release — If it is important to you that you have the ability to release a cosigner from your loan in the future, look for this option when reviewing loan programs. The lender will require anywhere from 12 monthly on-time payments to 48 monthly on-time payments to qualify. And, of course, your creditworthiness will need to be reevaluated at the time you request your cosigner to be released to make sure you can handle the payments on your own.
- Deferment or forbearance options — Lenders may offer member protections in the form of deferments or forbearances. For example, if you run into a financial hardship or unusual circumstances, such as a job layoff or military deployment, your lender may grant you a temporary postponement of loan payments. This will enable you to get back on your feet, avoid your loan being considered delinquent or entering default, and help protect your credit. But, understand that the total amount of available deferment or forbearance time may be limited and the number of qualifiers for these plans may be limited.
- Free FICO® credit scores — Periodic, free credit scores may be provided by certain lenders, typically on a quarterly basis. Along with furnishing your actual score, you may be given information about the primary factors impacting your score and tips on best strategies to monitor and handle your credit in the future.
- Choice of repayment plan — This comes in two stages. First, your lender may offer choices up front that could save you money. An example would be an interest-only payment plan while you’re in school that could provide a lower rate than a deferred repayment option. Second, you may find that some of today’s lenders give you the choice of how many years you’d like to repay your loan. For example, you could choose 8, 10, 12 or 15 years. Keep in mind that there are no prepayment penalties but a choose-your-own repayment plan could help ensure your payments are structured in a way that helps you stay on top of your finances according to your financial circumstances and desired schedule; especially if you choose an auto debit payment method.