A Master of Business Administration (MBA) degree can advance your professional opportunities. This is especially true if you attended a top-tier business school after graduating. The only issue is that you likely paid $70,000 or more a year for tuition.
Given these figures, it's critical to understand the methods for repaying MBA student loans. Refinancing your MBA student loans is one option for handling your debt. But when you find out about your alternative choices, you might be startled.
the total amount owed on MBA student loans
Graduate students have had access to Grad PLUS Loans since 2005, allowing them to borrow up to the entire cost of attendance. This essentially gives graduate degree institutions, like MBA programs, blank checks to charge whatever they want and obtain 100% federal financial aid.
Given this, it shouldn't come as a surprise that graduate program tuition has skyrocketed recently, increasing the amount of debt graduates owe in the process. According to a 2018 Bloomberg survey, half of MBA graduates from the top business schools have at least $100,000 in debt.
According to PayScale, the typical MBA graduate earns $90,125. Given the wide range of career options for this degree, it wouldn't be accurate to use this figure to calculate MBA debt repayment. For instance, the typical salary for a Chief Financial Officer (CFO) is $151,000, compared to $65,000 for a financial analyst.
The CFO might qualify for student debt refinancing for MBA loans, but the financial analyst won't. Your student loan debt repayment plan must be tailored to your present income and professional aspirations.
Federal debt consolidation vs. MBA student loan refinancing
There are two ways to combine various student loans you took out during your undergraduate and graduate studies into a single loan. Getting a Direct Consolidation Loan from the Department of Education is the first choice. Refinancing with a private lender is the alternative method.
Each choice has a unique set of benefits and drawbacks. Federal consolidation can be the best option if all you want to do is change servicers and simplify payments. Any borrower of a Direct Loan is eligible, regardless of creditworthiness. Additionally, you'll continue to be eligible for federal benefits if you keep your MBA loans with the Education Department.
The fact that you cannot use federal consolidation to reduce your interest rate is its one drawback. Therefore, even if your credit is good and your debt-to-income ratio is low, you won't be able to receive a better rate.
Refinancing can be used in this situation. Private lenders may provide much cheaper interest rates even while they can match all of the flexible repayment options provided by federal student loans. Refinancing could help you save tens of thousands of dollars in interest over the course of your loan if you have six figures in MBA student loan debt.
When to use options for refinancing MBA student loans
You can refinance student loans online or at your neighborhood bank or credit union. Your student debts are repaid by the lender, and you are then given a new private student loan. New loan terms and one payment follow.
The objective of refinancing is normally to quickly pay off your debt. This means that in order to pay off your debts as quickly as possible, you may wish to choose a shorter loan payback term in addition to a lower interest rate.
Choosing whether refinancing MBA loans will be beneficial for your scenario is the difficult part. If you have private student loans, you should always look into refinancing for a better rate. However, federal student loans are a different matter.
Federal MBA student loan refinancing benefits and drawbacks
There are some typical benefits and drawbacks of refinancing your federal student loans. The following are benefits of refinancing your MBA loans:
You could avoid paying interest. For graduate students, the interest rate on Direct Unsubsidized Loans is 5.28 percent. Grad PLUS Loan and Parent PLUS Loan interest rates are higher at 6.28 percent. You might be able to refinance your student loans to get a considerably lower rate.
Only one monthly payment will be required of you. By combining your debts into a single loan, you could make managing your finances simpler.
Release by cosigner. If you have to have a cosigner to get your initial loan and are unable to get rid of them, refinancing can allow you to do so and allow you to start over.
More money in your wallet results from a higher interest rate. One payment makes it simpler to manage, but it doesn't guarantee that you won't miss some things. The following are drawbacks of refinancing your MBA student loans:
Lose your rights as a federally protected borrower. If you are having financial troubles, some of these benefits, such as delay and forbearance, may be beneficial.
It is not possible for you to enroll in an income-driven repayment (IDR) plan.
You will need to allow a credit check. To be eligible for the best rates, you must also have a strong credit history and satisfy other eligibility requirements.
According to this general advise, converting your MBA loans into private loans may still allow you to save more money. However, there is a payment trick that only works with federal loans and can be more in line with your professional objectives. Let's look at an instance where paying the higher interest rate on your federal loans could result in cost savings for you.
Refinancing your MBA student loans should wait until you have read this tip.
As previously stated, there are wide variations in MBA earnings. If refinancing makes sense or not depends on your salary and the size of your student loan debt.
Your federal student loans are still outstanding and you have chosen to participate in the Revised Pay As You Earn (REPAYE) repayment plan. One of the four IDR schemes is called REPAYE. REPAYE has the benefit that the government actually contributes to the interest.
On subsidized loans, the government will cover your entire interest for up to three years, then half for another three years, if your monthly payment is insufficient to pay the interest. The government will also cover half of the interest owed on your unsubsidized loans via REPAYE.
Should you try to refinance your MBA student loans?
Examine your cash flow requirements and professional objectives before refinancing your MBA federal student loans. Refinancing can be the best course of action if you want to work in the private sector and anticipate earning six figures in a short period of time.
Before choosing a private lender if you do decide to pursue refinancing, be sure to compare several of them. Make sure the lender doesn't impose an origination fee or prepayment penalty, at the very least.
However, you should also search for additional advantages like a formal forbearance policy, an autopay discount, and adaptable repayment periods. Also keep in mind that several student loan refinancing businesses are currently providing sizable cash bonuses.
This article was contributed on Jul 31, 2022
