3 Best Loan Repayment Strategies for MBA Graduates

MBA graduates leave school with an average of $66,040 in student loan debt, according to the latest data from the National Center for Education Statistics (NCES) — that's more than double what undergraduate borrowers typically owe leaving school. Managing such a large balance can be a challenge, especially if your post-graduation salary hasn't caught up with your career goals yet.

This guide breaks down three of the best repayment strategies to help you pay off your MBA loans efficiently and work toward becoming debt-free.

Understanding your repayment options

Federal student loans typically provide more flexibility, allowing you to choose from several repayment plans that can be adjusted over time to fit your financial situation. Here's a breakdown of your main choices:

• Income-driven repayment (IDR) plans: These adjust your monthly payment based on your income and family size, with repayment terms of 10 to 25 years depending on the plan. After that, any remaining loan balance is forgiven. While income-driven plans can reduce your monthly payments, you'll generally pay more in interest over time.
• Standard Repayment Plan: This plan divides your loan balance into fixed monthly payments over 10 years. It's a faster route to being debt-free and minimizes the amount you'll pay in interest, but monthly payments may be higher.
• Graduated Repayment Plan: With this option, payments start low and increase every two years, with the loan paid off in 10 years. While it offers lower payments initially, you'll pay more in interest compared with the standard plan.
• Extended Repayment Plan: Designed for borrowers with at least $30,000 in federal loans, this plan stretches payments over 25 years. Monthly payments are lower, but the extended timeline significantly increases total interest costs.

“Borrowers should start by figuring out whether they need to pursue forgiveness, or if they are going to pay their loans in full,” says Glenn Sanger-Hodgson, a certified student loan professional and founder of Shonan Gold Financial LLC. “This requires that borrowers take a step back and review their budget.”

Sanger-Hodgson recommends choosing a plan that will reduce monthly payments, such as income-driven or extended options, if you're struggling to make ends meet or pursuing forgiveness. For those with higher incomes or no plans for forgiveness, the Standard Repayment Plan may help you save money in the long run and pay off your debt faster.

If you have private student loans, your options are more limited. You can either stick to your lender's terms or refinance your loans. Refinancing allows you to secure a new loan, potentially with a lower interest rate, and adjust your repayment term.

Choosing the right repayment strategy depends on your financial goals, income, and career plans. The strategies below will help you make the most of your MBA loan repayment journey.

Current student loan refinance rates

1. See if you qualify for forgiveness

Federal loan forgiveness programs can be a lifeline for MBA graduates, particularly those in public service roles. Public Service Loan Forgiveness (PSLF) is a program that forgives your remaining loan balance after 10 years of qualifying work with a government or nonprofit employer. If you're pursuing a career in finance, marketing, or management within the public sector, PSLF may align with your long-term goals.

Another option is income-driven repayment (IDR), which adjusts your monthly payments based on your income and family size. After 10 to 25 years of payments, depending on the plan, any remaining balance is forgiven. IDR plans are especially beneficial for borrowers with lower incomes or those facing significant financial constraints.

Some MBA programs also offer loan repayment assistance programs for graduates working in public service roles. For example, the University of Michigan's Ross School of Business provides as much as $7,500 annually for five years to eligible graduates, while other business schools, such as Harvard, NYU, and Columbia have similar programs. These programs may even extend to private student loans, offering quicker relief compared to PSLF's 10-year timeline.

If you're considering this route, check with your business school to see if you qualify for any repayment assistance programs.

2. Sign up for income-driven repayment

Income-driven repayment (IDR) plans can be a practical choice for MBA graduates, especially if your starting salary is on the lower end. These plans adjust your monthly payments based on your discretionary income, making them more affordable early in your career.

In addition to lower monthly payments, IDR plans also include forgiveness for any remaining balance after 10 to 25 years of payments, depending on the plan.

Here are the four main IDR options available to MBA graduates with federal student loans:

• Saving on a Valuable Education (SAVE): For graduate school loans, payments are set at 10% of discretionary income, with forgiveness after 10 to 25 years of payments depending on your original loan balance. Payments increase as your income grows.
• Pay As You Earn (PAYE): Payments are capped at 10% of discretionary income, and any remaining balance is forgiven after 20 years. Payments will not exceed what you'd pay under the Standard Repayment Plan.
• Income-Based Repayment (IBR): Borrowers who took out loans after July 1, 2014, pay 10% of discretionary income, with forgiveness after 20 years. Payments are capped at the amount due under the standard plan.
• Income-Contingent Repayment (ICR): Payments are the lesser of 20% of discretionary income or what you'd pay on a fixed 12-year repayment plan, adjusted to your income. Loans are forgiven after 25 years. Payments risk increasing if your income grows.

IDR plans are ideal if you anticipate earning a low to moderate income, or want to prioritize cash flow while building your career. However, some plans, like SAVE and ICR, could lead to higher payments as your income grows.

3. Refinance your student loans

Refinancing graduate loans can be a smart move, especially if you have private MBA loans or don't plan to use federal benefits.

When you refinance, you replace your current loans with a new one from a private lender. This could help you qualify for a lower interest rate or change how long you have to pay it off. However, if you refinance federal loans, you'll lose access to benefits like income-driven repayment and Public Service Loan Forgiveness.

In some cases, you may not be using those benefits anyway. “If you have federal loans and you don't think you'll need to utilize the benefits including potential loan forgiveness, it may make sense to refinance,” says Domenick D'Andrea, AIF, CRC, CPFA, financial advisor, and co-founder of DanDarah Wealth Management.

According to the Graduate Management Admission Council, the average starting salary for MBA grads exceeds $100,000, so many borrowers may find they no longer qualify for federal forgiveness programs.

Check Out: Should I Refinance My Student Loans?

Most private lenders require you to meet certain criteria to refinance, including having a good credit score — usually at least 670 on the FICO scale — and a steady income. If you don't qualify on your own, adding a cosigner with a strong financial profile can help.

Refinancing also gives you flexibility to adjust your repayment term. Choosing a shorter term can help you pay off your loans faster and save on interest, while a longer term will lower your monthly payments but cost you more in the long run.

Alternative repayment strategies

If your goal is to pay off your MBA loans as quickly as possible, there are a few proven strategies to consider. One popular approach is the debt snowball method, where you focus on paying off your smallest loan balance first. Once that loan is paid off, you take the money you were putting toward it and apply it to the next smallest balance, creating momentum as each loan is eliminated.

Another method is the debt avalanche. With this strategy, you prioritize paying off the loan with the highest interest rate first. Once that's paid off, you roll those payments into the next highest-interest loan. This approach saves you the most money over time by minimizing the amount of interest you pay.

Also consider taking advantage of any financial windfalls, such as a signing bonus or gift funds, to make a lump-sum payment on your loans. You can also consider taking on a side hustle to generate extra income and put it toward your debt payoff.

Check Out: 12 Strategies To Pay Off Student Loans Faster