When Aaron Udler, president of OfficePro Inc., decided to pursue his master of business administration, he took a two-pronged approach to finance his degree.
“At the advice of my accountant, who is risk averse, I covered the cost by taking out a private student loan and a HELOC, or home equity line of credit” says Udler, who graduated in 2013.
“The interest rate was less on the HELOC, so I’m paying the student loan off more quickly.” The interest on the HELOC is also tax deductible, which is another advantage.
Like many MBA students, Udler decided the benefits of an advanced degree outweigh the costs. Though an MBA degree can run from $60,000 to $100,000, many decide to pursue the degree because of the high salary potential. According to the Wharton School at the University of Pennsylvania, the median starting income was $125,000 for the MBA class of 2016.
MBA graduates are also in demand. The 2016 Year End Poll of Employers Report by the Graduate Management Admission Council found 79% of employers plan to hire MBA graduates in 2017, and 58% will increase those annual salaries from current rates.
Several options exist for financing an MBA. Considering the expense of higher education, you may find it necessary to use a variety of means to pay for your schooling.
Some employers will even pay for a part of your MBA costs. Ask management or your company’s human resources department if such a program exists and for the details.
There are federal and private student loans available to MBA students. Each have their benefits. Here are the specifics on each type.
Federal student loans
Federal Direct Unsubsidized Loans are available to graduate students enrolled at least half time. The amount of money you can borrow is based on the cost of attendance at your school and any other financial aid you receive. Usually, students are able to receive a total of $20,500 each academic year. These loans currently feature a fixed interest rate of 5.31%, according to the office of Federal Student Aid.
One you leave school, you have a six-month deferment period before you must start paying off your federal student loan. Repayment can also be adjusted based on current income, and if you work in certain occupations, you may be eligible for loan forgiveness.
Although the direct unsubsidized loan interest rate is low, interest begins accruing as soon as you get the loan. If you don’t pay the interest while you’re in school and during the six-month grace period after graduation, the interest will accumulate and be added to the principal of the loan. There are no prepayment penalties with federal student loans.
With subsidized loans, which are only available to undergraduate students, the Department of Education pays the interest while you’re in school, for six months after graduation and during deferment.
To apply for a federal Direct Loan, you first fill out and submit the Free Application for Federal Student Aid (FAFSA). Your school uses this application to determine how much aid you’re eligible to receive.
Private student loans
If you still need more money for tuition after getting a federal student loan, there are private student loan lenders willing to finance your education. These include banks, credit unions and online lenders.
Private student loans require credit checks to determine whether you’re eligible. When you don’t have good credit of 670+ and/or a steady income, you’ll need a co-signer. Other drawbacks of private student loans include the fact that many don’t have a grace or deferment period. You must start making payments as soon as you get the money. Some private student loans also feature prepayment penalties.
Depending on the lender, private student loan interest rates can also be high. Some private student loans feature interest rates of 18% or more. Many private student loans also have variable interest rates. This means the interest rate will go up or down, depending on the market. If your required payment skyrockets when you’re still in school and living on a shoestring, this can wreak havoc on your budget.
Best private student loan lenders
Some private student loan lenders offer reasonable interest rates. For instance, SoFi currently has interest rates from 2.255% to 6.280% APR for variable loans and 3.375% to 6.74% APR for fixed loans. They also make some concessions when it comes to repayment. For up to 12 months, SoFi suspends payments if you lose your job. They also provide job placement assistance to help you find another job, including teaching you interview techniques and offering resume assistance and career development advice.
The following student loan lenders offer competitive interest rates and varied repayment terms:
HELOC to fund your education
If you find that you’re still short on financing your MBA and you have equity in your home, a HELOC may enable you to cover the rest of your educational expenses. Equity is the difference between what your home could sell for and what you owe on the mortgage. If you have a substantial amount of equity, you may even decide that a HELOC provides the easiest and least expensive way to pay for school. A key attribute is that the interest you pay on a HELOC is tax deductible if you itemize.
With a HELOC, you can withdraw as much money as you need for your MBA up to the amount of the credit limit. These accounts usually feature a variable interest rate based on a prime rate, plus a margin. Some HELOCs have an introductory fixed rate that usually only lasts for a limited time. Because this type of credit line is variable, your monthly payments could fluctuate greatly. You also need to make these payments, even when you’re still in school.
Besides the potential for paying more because of rising interest, the main drawback of a HELOC is the fact that you’re putting your house up as collateral. If you’re unable to pay, you risk losing your home. For that reason, it’s important to make sure you can make the payments and that the MBA education is worth putting your home on the line.
Earning an MBA can improve your chances of making more money and securing your ideal job. Don’t let a lack of funding keep you from pursuing your dreams. Look at all the options for financing a MBA and you’re likely to find a solution. Take a look at SuperMoney’s student loan lenders for the right match for you.
Julie Bawden-Davis is a widely published journalist specializing in personal finance and small business. She has written 10 books and more than 2,500 articles for a wide variety of national and international publications, including Parade.com, where she has a weekly column. In addition to contributing to SuperMoney, her work has appeared in publications such as American Express OPEN Forum, The Hartford and Forbes.