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

Written by Kat Tretina

June 23, 2020June 23, 2020Paying for CollegeCareer & Jobs, Featured, Student Loan Repayment1340Kat Tretina

Updated on June 23, 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, commissioned or otherwise endorsed by any of our network partners.

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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
Student loans for your MBA: Private interest rates
MBA student loan origination fees
Refinancing options for MBA loans
Repayment plans for MBA loans
Other options for financing your MBA
Choosing between federal and private student loans for your MBA

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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