Your Guide to Student Loans for MBA Programs

Earning a Master of Business Administration (MBA) can be expensive, so it's not surprising that in the 2019-20 academic year, MBA graduates owed an average of $66,040 in student loans, according to the National Center for Education Statistics.

If you're pursuing an MBA degree, you have multiple borrowing options, including federal and private loans. Here's what you need to know to decide which student loans for an MBA are right for you.

Federal student loan options for MBA students

The Department of Education offers two main federal student loan options for MBA students:

• Direct Unsubsidized Loans: You don't need to demonstrate financial need or pass a credit check to qualify for these loans, and they come with affordable fixed interest rates. However, they have lower borrowing limits than graduate PLUS loans.
• Graduate PLUS loans: You have higher borrowing limits with this loan type, but also higher fixed interest rates compared with Direct Unsubsidized Loans. You must undergo a credit check when you apply, and you can't qualify if you have adverse credit, unless you add an endorser (similar to a cosigner) or document extenuating circumstances for your adverse credit.

Typically, it's wise to explore these loan options first when looking to fund your degree. To qualify for any of these federal student loans, you'll need to complete a Free Application for Federal Student Loans (FAFSA) and be enrolled in an eligible MBA program at least half-time.

Federal student loan benefits

“Students should usually choose federal student loans to pay for their education over private student loans,” says Glenn Sanger-Hodgson, a certified student loan professional and founder of Shonan Gold Financial LLC.

Sanger-Hodgson explains that these loans offer many borrower perks that private loans can't, including “access to income-driven repayment plans, forgiveness options, or other protections provided by federal student loans.” Those additional benefits include generous forbearance and deferment policies and the ability to change payment plans as needed.

Federal student loan downsides

The biggest downside is that there are strict annual and lifetime limits for Direct Unsubsidized Loans. While grad PLUS loans allow you to borrow up to the school-certified cost of attendance, minus other aid received, that may still not be enough to cover all of your expenses during business school. However, these limits are less of a concern than they are with undergraduate loans.

"All professional students — including MBA students — qualify for much larger federal loan amounts, up to the total cost of education," says Ryan Law, certified financial planner, author of “Student Loan Planning,” and director of the Utah Valley University Money Success Center. Still, Law warns that MBA students “should keep a close eye on their balance and understand how much their payments are going to be after graduation.”

Private student loans for MBA programs

Private loans are an alternative to federal loans. They are offered by banks, online lenders, and credit unions.

Private student loan benefits

Private student loans can come with fixed or variable interest rates, and many don't charge origination or other fees. These loans also often come with much higher loan maximums, and you can apply for private loans at any point during the school year. You may even be able to get a lower rate than you would with a federal student loan, though you'll need excellent credit and a steady income to qualify for the best rates.

Private student loan downsides

Because eligibility for private student loans is based on your credit and income, many borrowers won't be able to qualify on their own, especially young students. You'll need to apply with a cosigner if you can't qualify on your own, which means putting another person's credit on the line. If you fail to make payments in the future, your cosigner is responsible for repaying the loan.

You also won't get the same benefits federal loans offer, such as income-driven repayment (IDR) plans, generous deferment and forbearance options, and the possibility of loan forgiveness.

When private student loans may make sense

Still, there could be a role for private student loans when funding an MBA degree, especially if you've exhausted eligibility for Direct Unsubsidized Loans or if you expect to earn a high salary after graduating.

“Federal loans are generally preferable due to protections like IDR plans, which cap payments based on income,” says Chad D. Cummings, certified public accountant and attorney at The Law Office of Chad D. Cummings. “However, for students with high expected incomes post-MBA, private loans with competitive rates may sometimes be a better option, though they lack federal protections.”

Some students who graduate with MBAs won't be able to take advantage of federal borrower benefits like loan forgiveness because their income will be too high to qualify. In this situation, taking advantage of a better offer from a private lender could make sense.

“If federal lending shifts toward higher interest rates or longer repayment terms under Trump, it may tilt some MBA students toward private loans,” says Cummings.

While this is understandable, he still warns that you need to be aware of what you're giving up before moving forward. “Keeping loans in the federal system remains advantageous due to the security of fixed interest rates and flexibility in repayment options.”

How to apply for student loans for an MBA

To apply for federal student loans for an MBA, you'll need to complete the Free Application for Federal Student Aid (FAFSA). You can complete the FAFSA online. You will need:

• Your verified Federal Student Aid (FSA) ID and password
• Your contributing parent or spouse's name, if applicable
• Your date of birth, email address, and Social Security number, as well as those of a parent or spouse, if applicable
• Income and asset information

Once you have submitted your FAFSA, the information will be transmitted to the schools you selected. If accepted, the schools will prepare a financial aid package for you.

To apply for private student loans for an MBA, shop around among multiple lenders to obtain rate quotes, and then submit an application with the lender offering the most favorable rate and terms for you. You must provide personal and financial information like proof of income and your Social Security number. You will also undergo a credit check. If you can't qualify on your own, you'll need your cosigner's details.

Alternative funding options for MBA students

Loans must be paid back, so it's smart to explore funding options for MBAs that don't require repayment. These include scholarships and grants from your school, the government, or from private and public organizations. You can reach out to your school's financial aid office to discuss potential sources of funding.

In some cases, employers also provide tuition reimbursement or other types of assistance for workers to earn an MBA. You'll usually need to work in a field where you could benefit from a business degree, and may need to make a service commitment to your employer.

MBA loan forgiveness programs are also available if you have federal student loans. This includes Public Service Loan Forgiveness, which allows you to get federal student debt forgiven after 120 on-time payments while working full-time for the government or a qualifying not-for-profit organization. These programs can help you manage student debt after school if you borrowed to pay for your MBA.

Tips for managing MBA student loan repayment

Once you have graduated and entered repayment, you'll need to choose the right method to become debt-free.

“There are numerous factors in choosing the best MBA loan repayment plan,” says Domenick D'Andrea, accredited investment fiduciary and co-founder of DanDarah Wealth Management. “These include type of job, income, and potential signing bonus.”

D'Andrea suggests exploring Public Service Loan Forgiveness if you're working for the government or another eligible public service employer. He also advises looking into income-driven repayment.

However, these options may not be available to those who get a job with a high starting salary. “If you have federal loans and you don't think that you will need to utilize the benefits of a federal loan, including potential loan forgiveness, it may make sense to refinance,” says D'Andrea.

If you do keep your student loan debt federal, sticking with the default Standard Repayment Plan will allow you to become debt-free in a decade, and is a good option for many. However, some MBA grads may want to repay their debt even sooner than that.

“If you received a high starting salary, I would suggest starting with an aggressive repayment plan, as your bills will probably never be as low as they are today,” says D'Andrea. “You can always lower the payment back to the original amount if needed. Also, by being aggressive with your repayment plan, you will be lowering your debt-to-income level, and this could make it easier to obtain future loans.”

Finally, if you're lucky enough to get a great job after graduation, this could provide a golden opportunity. According to D'Andrea, “If you received a signing bonus, this could be a great way to pay off a chunk of your loan and save both interest and years of payments.”