A Master of Business Administration (MBA) is a valuable and versatile degree that can help take your career to the next level. According to the U.S. Bureau of Labor Statistics (BLS), business careers can cover positions in everything from management to sales, finance, and beyond. Whatever niche you end up in, an MBA can open up a greater diversity of prospects and more senior, higher-paying positions.
Before you can reap the rewards of your MBA, however, you have to pay for it. Although the average MBA program only takes two years to complete, it isn’t cheap. Students can anticipate costs totaling anywhere from $100,000 to $200,000 when they take into account tuition, books, and housing costs. Students who take a break from their careers to pursue an MBA must also consider the lost earnings during this time.
If you’re currently pursuing an MBA or thinking of enrolling in an MBA program, you’re probably wondering how you’re supposed to afford it. Student loans can help cover the costs, alleviating financial worries and freeing up your mind to concentrate on school — not your bank account. A Federal Direct Student Loan is the primary option for graduate students, providing aid directly from the U.S. Department of Education. Such federal loans are widely available, have limited eligibility requirements, and don’t require a co-signer. They also have competitive interest rates.
Alternatively, graduate students’ parents can support their children’s academic ambitions by taking out a Federal Direct PLUS Loan. Finally, diverse private loans are available. Below, we explain how you can use loans to pay for an MBA and explain your student loan options.
Can You Get a Loan for an MBA?
You can look to federal student loans or private student loans to fund your MBA. Discover the differences between the two categories below.
Federal Student Loans
Federal student loans are administered by the U.S. Department of Education. A Federal Direct Student Loan is generally the first choice among graduate students, followed by Federal Direct PLUS Loans. In general, federal student loans are preferable to private student loans. Federal loans offer lower interest rates and more flexibility, for example, when it comes to student loan forbearance or deferment options.
Additionally, federal student loan forgiveness programs can save you significantly in the big picture. The Public Service Loan Forgiveness (PSLF) program is one example. Under this program, the remaining balance of your loan may be forgiven if you work full-time for the government or an eligible non-profit and make 120 qualifying monthly payments in that time period (10 years).
Private Student Loans
Private student loans are administered by a diversity of private lenders, including CommonBond, Earnest, College Ave, Sallie Mae, and SoFi. This is another option you can turn to for MBA funding if a federal student loan doesn’t meet your needs. For example, most federal student loan eligibility requirements include being a U.S. citizen or eligible permanent resident (e.g., a green card holder, I-551C). International students may not be eligible.
Alternatively, you may opt for a private lender if your federal loan simply isn’t sufficient for covering all of your tuition and living costs to complete your MBA. If you qualify for a federal loan, it’s generally best to take out the federal student loan (for the aforementioned benefits, like lower interest rates) and then supplement your funding with private loans as needed.
Should You Take Out a Loan for an MBA?
It is possible to secure an MBA student loan. That doesn’t necessarily mean that you should do it, however. When considering whether an MBA loan is for you, assess the value of an MBA. Ask yourself these questions:
- Is an MBA required in your chosen career path?
- Will an MBA open up additional job opportunities for you?
- Can you expect higher-paying and/or more senior roles with an MBA?
Your personal career path aside, there are some broad advantages and disadvantages to taking out a loan for an MBA.
Benefits of Business School Loans
One of the biggest benefits of business school loans and financial aid is that this funding allows you to focus fully on your MBA studies. This is especially critical if you are interested in full-time programs, which will make working simultaneously difficult or impossible. Even if you have savings to help cover the cost of your school, you may want to hang on to this nest egg for other purposes (and possible emergencies) in the future.
Challenges of Business School Loans
The main challenge of a business school loan is usually the sheer size. As mentioned, loans for business school run upward of $100,000. That’s just the principal; it doesn’t factor in interest. You will likely have this debt hanging over your head for years to come. For this reason, it’s important to realistically assess how an MBA will (or won’t) boost your career. Also, it’s worth noting that you can often reduce the burden of monthly payments later through student loan refinancing or consolidation.
What Are the Best MBA Loan Lenders?
The right loan for you will depend on your circumstances, from how much money you need to borrow to your credit history and current credit score. It’s important to do your research to determine which loan option is most favorable for you (e.g., offering the lowest rate). Below, we review some of the more popular options for MBA loans.
Federal Direct Student Loans
A Federal Direct Student Loan is the primary federal loan for graduate students. Graduate students can access a Direct Unsubsidized Loan with an annual limit of up to $20,500 to help fund their studies. This is the total limit you can take out throughout the entire course of your studies. However, once you reach that limit, you’re allowed to take out more federal loans after paying down your existing debts.
Graduate students are capped at borrowing a maximum of $138,500 total, including federal undergrad loans. The interest rate for Direct Unsubsidized Loans disbursed from July 1, 2020, to July 1, 2021, was 4.30% for graduate students. Note that interest rates can change annually. Since Federal Direct Student Loans are capped at $20,500 per year, after this, you might consider a Grad PLUS or a private student loan.
Federal Direct PLUS Student Loans
Direct PLUS Loans, or simply PLUS Loans, are available to parents of undergraduates and graduate students or professional students enrolled in at least a half-time program. A Grad PLUS Loan can cover up to 100% of your total cost of attendance. Your MBA school determines the cost of attendance.
As of February 2021, interest payments for Grad PLUS Loans were fixed and set at 5.30%. Repayment requires paying back the principal plus interest and a loan fee, which is deducted from each disbursement. You can defer your loan up to six months after completing graduate school, dropping below half-time enrollment, or leaving school. Interest will continue to accrue in this time, which you can pay immediately or add to the principal balance to pay later.
To be eligible for federal student loans, you must be a U.S. citizen or qualifying permanent resident. Further, you must be enrolled at least half-time. Finally, the school you attend must be authorized to receive federal aid. Also, note that a Grad PLUS Loan requires a credit check. While there is no minimum credit score requirement, you may not qualify if you have an adverse history. You can get a co-signer with good credit (such as a parent) to co-sign the loan.
CommonBond (a private lender) offers MBA loan amounts of up to $110,000 per year. You can choose from a fixed interest rate of 6.04% to 7.25% if you set up automatic payments or a variable interest rate of 6.15% to 7.11% (also with automatic payments). These rates are applicable as of February 2021. The terms for loan repayment options are 10 to 15 years.
To be eligible for a CommonBond loan, you must have a credit score of at least 660. No co-signer is required as long as the underwriting criteria are met, and there are no prepayment penalties. CommonBond also offers MBA borrowers a forbearance option, allowing you to postpone payments for up to a year over the life of the loan. If you have strong credit, this is a solid choice.
Earnest (a private lender) offers MBA loans starting at $1,000 and going up to 100% of the total cost of attendance. You can choose from a fixed or variable interest rate. Fixed rates start at 3.49% when taking an autopay discount into account. Variable rates start at 1.05% per month with autopay (as of February 2021). Earnest doesn’t specify terms for repayment plans upfront.
Earnest requires a credit score of at least 650 in order to issue a loan. You can skip one payment per year. There is also a nine-month grace period, which is longer than the industry standard of six months. If needed, you can invite a co-signer onto the loan as well. Earnest is also notable for its efficient online application process.
College Ave (a private lender) offers MBA loans covering up to 100% of a business degree’s costs. You can choose from a fixed or variable interest rate. Variable interest rates range from 1.89% to 10.97% APR, while fixed interest rates range from 4.24% to 11.98% APR. This is taking into account an autopay discount for the interest rate reduction. Repayment terms can range from five to 15 years.
To qualify for the College Ave MBA loan, you must be enrolled in a formal Master of Business Administration program at an eligible school. Your credit score also impacts eligibility and how large of a loan you can take out. Generally, a score in the mid-600s will make you creditworthy.
Sallie Mae is another private loan possibility. This lender offers MBA loans starting at $1,000 and covering up to 100% of your total cost of MBA attendance. As with most private student loans, you can choose from a fixed or a variable interest rate. Variable interest rates run from 2.12% to 11.64% with an auto-debit discount. Fixed interest rates run from 4.75% to 12.11% (again, with an auto-debit discount). Sallie Mae repayment periods are set at 15 years.
Sallie Mae doesn’t specify a minimum credit rate for eligibility. You get a six-month grace period, and eligible borrowers may also qualify for 12 interest-only payments. Sallie Mae does give you the option to take on a co-signer for your loan.
SoFi is one more private lender worth mentioning when it comes to MBA loans. SoFi loans start at $5,000 and can cover as much as 100% of the total cost of MBA attendance. As with the other private lenders mentioned, you can choose from a fixed or variable APR. Fixed rates (with autopay) range from 4.30% to 11.52%. Variable rates with autopay range from 1.94% to 11.89%. Terms range from five to 15 years.
SoFi doesn’t specify a particular eligibility credit score. You don’t have to make principal payments while in school and can make a $25 fixed monthly payment during this time. You also enjoy the standard deferment period of six months following graduation. You can add a co-signer to your loan if desired.
Let CollegeFinance.com Help You Find the Best Student Loan for Your MBA Program
You have a number of options available to fund your MBA, including both federal and private lenders. Before you take out a loan, check out scholarships and grants that may be helpful to offset the cost of your education. If you still need to take out a loan to cover your MBA expenses, prioritize federal loans (they offer lower interest rates and greater flexibility). Then, take a look at private lenders for added funding options if you’re still strapped for cash.
At CollegeFinance.com, we are committed to helping students and their parents understand the student loan environment. Through educational resources, we aim to provide potential and current borrowers with a better understanding of loan terms and conditions, interest rates, refinance possibilities, and more. Consult our guides to diverse lenders to get the knowledge needed to make smart decisions about financing your education.
FAQ: MBA Loans
Do MBA Loans Cover Living Expenses?
MBA loans can cover the total cost of attendance for your business degree, which includes tuition and fees like books and day-to-day living (e.g., housing). Exactly how large of a loan you can take out and what it will cover depends on various factors, including the lender, your financial profile, and the type of program you are attending (e.g., full-time versus half-time).
How Much Should You Pay for an MBA?
MBA costs can run upward of $100,000 for a standard two-year program. There are many ways to pay for an MBA, including personal savings, grants and scholarships, and federal or private loans.
Can You Get an MBA for Free?
In rare instances, you may be able to get your MBA for free — for example, if you win an exceptional scholarship award. Many students rely on some form of external funding to finance their MBA degree, however. Nearly half of students at the top five ranked MBA programs in the U.S. borrow at least $100,000 to fund their studies. You can help reduce your debt burden by securing grants and scholarships and prioritizing federal over private loans. Federal loans tend to feature lower interest rates and offer greater flexibility and loan forgiveness programs.