By Kaitlin Butler, CommonBond
The best way to pay less for business school is simply "getting the right loans." Let's be honest. Some MBAs will secure great scholarships, and others will have access to personal and family funds that cover the rising cost of business school (about $200,000 at some programs). However, the facts remain: $42,000 is the average debt load for MBAs with student loans, and more than half of MBAs borrow money to pay for school. That means that for the majority of business school students, picking the right student loan -- and the right lender -- is a hugely important decision.
Getting the right loans starts with knowing how much you need to borrow, and here at CommonBond, we're making that the easy part. Check out our MBA Student Loan Calculator for a fully customizable budgeting tool, which also automatically populates the cost of attendance for several MBA programs. Then you're ready to choose the best loans for your personal financial situation.
You'll need to weigh a few pros and cons to make your choice, so we'll provide an overview of the two main types of student loans for MBAs: federal loans and private loans.
On the federal side, loans are open to U.S. citizens and permanent residents only, and international MBAs should contact their financial aid offer to determine their best funding sources. The two key federal loan programs are Direct Unsubsidized Loans (commonly known as the "Stafford for grad students") and Direct PLUS Loans. Both loans have fixed interest rates, meaning you lock in your rate when you sign up for the loan and it remains the same over the life of your loan. Both loan programs also come with an origination fee, which is calculated as a percentage of your total loan balance -- these fees are common among federal and private student loans. The Direct Unsubsidized Loan has a rate of 5.84 percent and a fee of 1.073 percent. The Direct Grad Plus Loan has a rate of 6.84 percent and a fee of 4.292 percent.
Besides the cost, what else might you consider when it comes to federal student loans? You'll be able to take advantage of the U.S. government's borrower protections, which are the most robust on the loan market. They include common features like deferment and forbearance as well as Income-Based Repayment (IBR) plans and other options for borrowers in repayment, especially those who enter fields such as public service.
On the private side, loans are open to any borrowers who fit a lender's specific criteria, which might include U.S. citizenship but does not always. Private student loan programs come in many shapes and sizes and may be offered through institutions such as banks or lending platforms. For example, the MBA Student Loan through CommonBond starts at a fixed rate of 5.59 percent and includes a 2 percent origination fee for a total APR of 5.78 percent.
What are other considerations for private loans? The main tradeoff is that private student loans might offer lower rates than the government loans, like in our case at CommonBond, but private lenders don't offer the same borrower protections. For instance, we have a unique CommonBridge program for borrowers between jobs, deferment and forbearance, but we don't have any IBR plans or loan forgiveness options to match those that come with government loans.
The key takeaway? You'll likely want the lowest rate possible without forgoing any borrower protections you might need. On a loan for $85,000, the difference between a rate of 5.78 percent versus a rate of 7.8 percent (an approximated average rate for private student loan rates) amounts to just over $10,000 in interest over the life of the loan. When you find loans that might be a good fit, take the next step by vetting your lender carefully. Make sure you can get them on the phone or email -- or however you're likely to interact with them in the future -- and get all your questions answered. Should you ever have a question as a borrower, top notch service will make a huge difference down the line.
If you have any questions about how to pay for your MBA, leave a comment or get in touch with us at care@commonbond.co -- we'd love to hear from you!
Kaitlin Butler is Content Manager at CommonBond, a student lending platform that provides a better student loan experience through lower rates, superior service, a simple application process and a strong commitment to community. CommonBond is also the first company to bring the 1-for-1 model to education and finance.