Written By Miranda Marquit
Attending business school can be an expensive proposition. In fact, 51% of Master of Business Administration (MBA) holders have student loan debt, according to EducationData.org. The average amount of student loan debt for an MBA holder is $82,439, most of which comes from graduate school.
Many of these MBA students borrow private graduate student loans in addition to federal student loans. If you’re planning your financial aid for an MBA, a federal Grad PLUS Loan might be a wiser option.
Using Grad PLUS Loans strategically could save you money on monthly payments and let you access additional benefits over time. Keep reading to learn about misconceptions related to private loans, and what to know about this Grad PLUS strategy.
Why MBA students choose private student loans
Federal student loans for grad school, much like the loans for undergraduate school, don’t always cover the total cost of attendance associated with getting an MBA. Many students look for additional options, including comparing private MBA school loans and Direct PLUS Loans.
Business school students mistakenly think taking out private loans is the better option, usually because the interest rates can seem low. Also, private loans might not have an origination fee and repayment terms are often shorter.
The illusion of a quick payoff
Often, the variable interest rates quoted by private student loans are a little lower than the fixed Grad PLUS Loan rate demanded by the government. As a result, borrowers might believe they can pay off private loans faster. However, this might not be the case if their out-of-school income isn’t what they expected or if other unexpected situations arise.
Private student loan repayment options are often more limited compared to PLUS Loans. Additionally, variable-rate private student loans can result in a higher rate later on. Even though a Grad PLUS Loan might come with an initially higher interest rate, it’s a fixed interest rate that remains steady for the life of the loan.
Misconceptions about MBA loan forgiveness
Another reason some MBA students avoid Grad PLUS Loans is because they don’t believe their loan balance will be eligible for Public Service Loan Forgiveness (PSLF) or other loan forgiveness programs later.
The reality, though, is that after going through an MBA program, some graduates work for nonprofits or government organizations. MBA salaries don’t always end up being too high to qualify for various programs.
Additionally, by getting on an income-driven repayment (IDR) plan, it’s possible to have a portion of the balance forgiven after making so many student loan payments.
Get Started With Our New IDR Calculator
Grad PLUS Loans are the better option
In some cases, the best MBA student loans are Grad PLUS Loans. First, the credit check is much easier to pass with a PLUS Loan than a private loan. The only credit-related requirement is that you don’t have an adverse credit history. And even if you have adverse credit, you might still be eligible for a PLUS Loan.
Unlike a private loan, you don’t have to worry about getting a different interest rate based on your credit score with a Grad PLUS Loan. Conversely, private student loan lenders often require a cosigner if you don’t have good credit.
Another reason to consider Grad PLUS Loans is that they offer access to federal IDR plans. This includes potentially qualifying for the new SAVE plan, which lets you reduce your monthly payments. If you work with private lenders, you aren’t eligible for these valuable repayment plans.
How the SAVE plan helps you save on MBA student loan interest
The SAVE plan, introduced by the Biden Administration, subsidizes 100% of the interest that your monthly payment doesn’t cover. Also, you receive credit for making payments while in school, helping you reach forgiveness faster. You can access unsubsidized Direct Loans and Grad PLUS Loans by filling out the Free Application for Federal Student Aid (FAFSA).
Additionally, the payments you make during school won’t “reset” if you consolidate your loans after graduation. The new approach to payment counts includes payments you made before consolidation. This change lets you access forgiveness programs sooner despite consolidating your debt.
According to a Student Loan Planner analysis, making payments on the SAVE plan could knock about 10% off your balance at graduation because you won’t accumulate unpaid interest and have it added to your total loan amount.
The only strategy you need to unlock savings
This strategy requires just one step: MBA students must request to enter repayment every semester on their PLUS Loans. Grad PLUS Loans don’t have to be deferred while in school, so you can waive deferment and enter repayment immediately.
Servicers can be difficult to work with, though. For this interest-saving strategy, you must request the deferred repayment waiver every semester while in school and waive the six-month grace period. The support agent you’re speaking with might not realize that you can begin your PLUS Loan repayment period while in school — and do so using the SAVE plan.
Grad PLUS vs. private loans for MBA students
Although the Grad PLUS program can be a good choice for some MBA students, it does have potential drawbacks. Carefully consider your options.
For example, while Grad PLUS Loans provide useful federal benefits and protections, you might have a higher loan cost in some cases. This is because of the potentially higher interest rate on PLUS Loans and the added origination fee.
For student loan borrowers with good credit, a private loan might provide a much lower interest rate and the chance for student loan refinancing to a lower rate and term later. However, private loans can’t be federally consolidated with your government-owned undergraduate loans. Private student loans are ineligible for income-driven repayment plans and forgiveness programs.
Even though initial costs might be higher with Grad PLUS Loans, using the SAVE strategy can help save money overall. But you’ll need to maintain eligibility, be enrolled at least half-time, and ask for the waiver after each semester disbursement.
Why business students should reconsider their loan choices
The best way to pay for an MBA is with money you don’t have to pay back, like employer assistance, scholarships or grants and fellowships. However, you might need financial aid in the form of student loans.
If you reached the limit with your “regular” direct unsubsidized loans for grad school, consider whether the Grad PLUS Loan strategy makes sense for your goals. Even if you receive an offer for a private loan at lower loan interest rates, Grad PLUS Loans unlock savings you can’t get with private lenders.
Need help figuring out which loans to borrow for your MBA? Schedule a pre-debt consultation to strategically map your finances for school.
FAQ: How the SAVE plan can save you money on your MBA
Yes, graduate Direct Loans, including PLUS Loans made to graduate or professional students, are eligible for the SAVE plan.
Whether the SAVE plan is worth it depends on your situation. The plan lets you access PSLF and comes with loan balance forgiveness at the end of the loan term. Plus, it provides interest savings since interest doesn’t accumulate if you make on-time payments. Consider your personal finances and what is likely to work best for you before making a choice.
Yes, you can qualify for loan forgiveness with an MBA. As long as you meet the forgiveness program’s eligibility requirements, you can have federal loans forgiven, especially if you combine them into a Direct Consolidation Loan.
In general, people can pay off MBA loans in various ways, like through an income-driven repayment plan, participating in forgiveness programs, and refinancing their MBA loans potentially at a lower rate with lenders like Sallie Mae or SoFi. Keep in mind that refinancing federal loans into a private student loan makes the debt ineligible for federal benefits and protections.
