Student Loans for an MBA: Which Is Better, Private or Federal?

 June 23, 2020
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If you’re considering going to business school, you know it can be a big expense. MBA students can accumulate $100,000-plus in student loan debt, depending on where they go to school. You can look into scholarships, grants and employer-sponsored programs to help finance your MBA. If you still need help, there are also multiple student loan options for your MBA.

You might stick with low-interest, easy-to-obtain federal loans, but private lenders can be tapped as well, and may even offer better interest rates if you have excellent credit.

Find out about different MBA loans below, and learn which factors to keep in mind as you compare options.

Student loans for your MBA: Federal interest rates

If you take out a federal loan for your MBA program, your options are direct unsubsidized loans and direct PLUS loans. Graduate students aren’t eligible for subsidized federal student loans.

The annual limit for direct unsubsidized loans for graduate school is currently $20,500 (you may be able to borrow more if you are enrolled in an eligible health profession program). A PLUS loan may be an option if you max out that limit and still need financial aid.

A direct unsubsidized loan has an interest rate of 6.08%, as of the writing of this article. Because it is unsubsidized, the loan builds interest even while you’re still in school. A direct PLUS loan has a current interest rate of 7.08%.

Direct unsubsidized loans do not take your credit into account, while PLUS loans do.

Student loans for your MBA: Private interest rates

Federal student loans generally have lower interest rates than private loans. Federal loans are also typically fixed for the life of the loan, and private loans can have a variable rate, or a range for fixed rates going from low to quite high, depending on your credit.

If you have excellent credit, however, a private lender may approve you for a lower interest rate than you would get for a federal loan, which may save you money over the long haul.

You might consider a private loan from the start, or you might take out a private loan if you have exhausted all of your federal loan options. There are several options available for private student loans, including banks, credit unions and online lenders.

Citizens Bank and College Ave are just two lenders that offer student loans for your MBA. Both allow you to choose between a variable and fixed interest rate. While a variable interest rate is often low at first, it can fluctuate and rise with the market, so it can cost you more later.

Here you can read more about our picks for the 8 best private student loans available.

MBA student loan origination fees

If you take out direct unsubsidized or direct PLUS loans, there are fees to consider. The government takes out the fee before they disburse your loan, so the amount you receive is slightly less than the loan you take out.

If you take out a direct unsubsidized loan, the government will charge you a loan fee of 1.059% if taken out on or after 10/1/19 or before 10/1/20. If you take out a direct PLUS loan, your fee will be 4.236% if taken out during the same time period.

Private loans tend to work differently. Many private lenders do not charge application, disbursement or origination fees. Citizens Bank, for one, says borrowers save over $900 on average in fees.

Refinancing options for MBA loans

There is one downside to federal loans: If interest rates go down, you cannot refinance your loans through the federal program. In that instance, you must refinance through a private lender instead.

Keep in mind that if you refinance from a federal loan into a private loan, you lose the benefits that come along with having federal loans, including flexible repayment terms, federal forgiveness programs and options for forbearance and deferment if you are unable to make payments for a certain time period.

If you already have private MBA loans, you can refinance them to a lower interest rate as the market and your credit improves. By refinancing, you could save hundreds or even thousands of dollars over the length of your repayment term.

You can go here to read about the five best banks through which to refinance your student loans. And here are 10 key questions to ask before refinancing your student loans.

Repayment plans for MBA loans

Federal loans offer unique benefits when it comes to repayment — benefits that can make managing your debt much simpler.

First, you do not need to start making payments on your federal loans until you graduate from school. With private loans, you may be required to make payments right away, which can be a lot of pressure while you are trying to get your MBA, though you may get a lower interest rate if you go with this option. You also may have the options of deferring your payment until you’ve graduated or dropped below half-time enrollment, or making interest-only payments while still in school.

If your income is relatively small after you graduate, your federal loans may be eligible for an income-driven repayment plan (IDR). Under an IDR plan, your payments are capped at a percentage of your income and can be as low as zero. With private loans, IDR plans are not available and you have to keep up with your payments, even if you have a small income.

Additionally, in the case of death or total disability, your loan servicer will discharge your federal student loans. For private loans, that may not be the case. And because many private loans require a cosigner, that means a loved one could potentially end up making payments on a loan even after the borrower has passed away.

Other options for financing your MBA

While loans can be a good way to finance your MBA, keep in mind that there are other options that could help you slash the debt.

  • Consider grants and scholarships: Scholarships for MBAs are competitive, but you may be able to get one from an outside organization or from your school. For example, the University of Florida has offered full tuition scholarships for eligible MBA students. And Harvard has an MBAid program that offers needs-based tuition assistance and summer fellowships.
  • Talk to your employer: Some employers offer tuition reimbursement plans for graduate school that can put a real dent in your debt load. Talk to your employer about your plans for getting an MBA, and see what kind of programs they might offer.
  • Look into loan forgiveness: You may qualify for a federal loan forgiveness program depending on how you plan to use your degree, and you may qualify for a forgiveness program through your school as well. For example, Stanford has offered forgiveness for MBA students who work in government or at approved organizations designed to improve society, such as a section 501(c)(3) or a 501(c)(4).

Choosing between federal and private student loans for your MBA

In many cases, it makes sense to take out as many federal loans as you are eligible for before turning to private student loans to pay for the rest of your education.

Federal loans typically have lower interest rates and more generous repayment terms. However, some borrowers with excellent credit and steady incomes may benefit from going through a private lender.

You can look deeper into the differences between federal and private loans by consulting our comparison guide. And for more information on managing graduate school loans, check out the ultimate student loan repayment guide for MBA grads.

Rebecca Stropoli contributed to this report.

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0.98% – 11.90%4Undergraduate

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1.69% – 11.98%5Undergraduate

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1 Important Disclosures for College Ave.

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College Ave Student Loans products are made available through Firstrust Bank, member FDIC, First Citizens Community Bank, member FDIC, or M.Y. Safra Bank, FSB, member FDIC.. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a first year graduate student borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.10% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $141.66 while in the repayment period, for a total amount of payments of $16,699.21. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 7/1/2022. Variable interest rates may increase after consummation. Approved interest rate will depend on the creditworthiness of the applicant(s), lowest advertised rates only available to the most creditworthy applicants and require selection of full principal and interest payments with the shortest available loan term.

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3 Rate range above includes optional 0.25% Auto Pay discount. Important Disclosures for Earnest.

Earnest Disclosures

Actual rate and available repayment terms will vary based on your income. Fixed rates range from 3.49% APR to 13.03% APR (excludes 0.25% Auto Pay discount). Variable rates range from 1.19% APR to 10.14% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. Although the rate will vary after you are approved, it will never exceed 36% (the maximum allowable for this loan). Please note, Earnest Private Student Loans are not available in Nevada.

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Ascent Disclosures

Ascent loans are funded by Bank of Lake Mills, Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit:

Rates are effective as of 07/01/2022 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes income-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit:

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5 Important Disclosures for SoFi.

Sofi Disclosures

UNDERGRADUATE LOANS: Fixed rates from 3.75% to 13.30% annual percentage rate (“APR”) (with autopay), variable rates from 1.89% to 11.98 % APR (with autopay). GRADUATE LOANS: Fixed rates from 4.75% to 13.30% APR (with autopay), variable rates from 2.59% to 11.98% APR (with autopay). PARENT LOANS: Fixed rates from 4.48% to 13.55% APR (with autopay), variable rates from 1.69% to 11.98% APR (with autopay). For the SoFi variable-rate product, the variable interest rate for a given month is derived by adding a margin to the 30-day average SOFR index, published two business days preceding such calendar month, rounded up to the nearest one hundredth of one percent (0.01% or 0.0001). APRs for variable-rate loans may increase after origination if the SOFR index increases. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 06/17/2022.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Variable Rate Disclosure: Variable interest rates are based on the 30-day average Secured Overnight Financing Rate (“SOFR”) index, as published by the Federal Reserve Bank of New York. As of July 1, 2022, the 30-day average SOFR index is 1.02%. Variable interest rates will fluctuate over the term of the loan with changes in the SOFR index, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable interest rate is the greater of 21.00% or the prime rate plus 9.00%.
  • Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
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7 Important Disclosures for Funding U.

Funding U Disclosures

Offered terms are subject to change. Loans are made by Funding University which is a for-profit enterprise. Funding University is not affiliated with the school you are attending or any other learning institution. None of the information contained in Funding University’s website constitutes a recommendation, solicitation or offer by Funding University or its affiliates to buy or sell any securities or other financial instruments or other assets or provide any investment advice or service.

8 Important Disclosures for Edly.

Edly Disclosures

1. Loan Example:

  • Loans from $5,000 – $20,000
  • Example: $10,000 IBR Loan with a 7% gross income payment percentage for a Senior student making $65,000 annually throughout the life of the loan.
    • Payments deferred for the first 12 months during final year of education.
    • After which, $270 Monthly payment for 12 months.
    • Then $379 Monthly payment for 44 months.
    • Followed by one final payment of $137 for a total of $20,610 paid over the life of the loan.

About this example

The initial payment schedule is set upon receiving final terms and upon confirmation by your school of the loan amount. You may repay this loan at any time by paying an effective APR of 23%. The maximum amount you will pay is $22,500 (not including Late Fees and Returned Check Fees, if any). The maximum number of regularly scheduled payments you will make is 60. You will not pay more than 23% APR. No payment is required if your gross earned income is below $30,000 annually or if you lose your job and cannot find employment.

2. Edly Student IBR Loans are unsecured personal student loans issued by FinWise Bank, a Utah chartered commercial bank, member FDIC. All loans are subject to eligibility criteria and review of creditworthiness and history. Terms and conditions apply.