Should I Use Private or Federal Student Loans for My MBA?

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If you’re considering going to school for your MBA, paying for it can be one of the biggest obstacles. The average borrower will walk away with $42,000 in combined undergraduate and graduate student loans when they finish their programs.

When it comes to student loans for MBA programs, you have multiple options. Depending on your needs, you may stick with federal loans, but private lenders with MBA loans designed specifically for your needs can be attractive, as well.

Find out about different MBA loans below and learn what factors you should keep in mind as you compare options.

Interest rates for MBA student loans

Federal loans generally have lower interest rates, so for many people, getting a federal loan is the cheaper option. However, if you have excellent credit, a private lender may approve you for a low interest rate, which can save you money in the long run.

If you take out a federal loan for your MBA program, you will receive either Direct Unsubsidized Loans or Direct PLUS Loans.

A Direct Unsubsidized Loan has a current interest rate of 5.31%. Because it is unsubsidized, the loan builds interest, even while you’re in school. A Direct PLUS Loan has a current interest rate of 6.31%

For borrowers that prefer to use a private lender, there are several options available. For example, Citizens Bank and College Ave all offer loan designed for business school students.

If you opt to go with a Citizen’s Bank MBA loan, you can choose between a variable and fixed interest rate. While a variable interest rate is often lower at first, it can fluctuate and rise with the market.

Right now, Citizen’s Bank variable interest rates range from 3.51% to 9.26%, depending on what payment plan you choose. The fixed loan interest rates range from 5.10% to 10.60%.

Finally, College Ave also offers fixed and variable interest rates. If you opt for a variable rate and sign up for the autopay discount, your starting interest rate could be anywhere from 3.94% to 8.78%. If you instead sign up for a fixed-rate loan, your interest rate would range from 6.73% to 11.35%.

MBA student loan origination fees

If you take out Direct Unsubsidized or Direct PLUS Loans, there are some fees associated with your loans. 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 1.069%. If you take out a Direct PLUS Loan, your fee will be 4.276%.

Private loans tend to work very differently. Most private lenders do not charge application, disbursement, or origination fees. In fact, Citizen’s Bank says that borrowers save $925 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.

With 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.

Repayment plans

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.

If, after graduation, you lose your job, you can defer your federal loans or ask your loan servicer to put you on forbearance. That means you can stop making payments without going into default. With private loans, you typically do not have this option.

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.

Finally, 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 can end up making payments on a loan even after the borrower has passed away.

Choosing between federal and private student loans for your MBA

In most 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.

For more information on managing graduate school loans, check out the ultimate student loan repayment guide for MBA grads.

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* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.

1 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through either Firstrust 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.

(1)All rates shown include the auto-pay 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.

(2)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.

(3)As certified by your school and less any other financial aid you might receive. Minimum $1,000.

Information advertised valid as of 11/4/2019. Variable interest rates may increase after consummation.


2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

3 Important Disclosures for Discover.

Discover Disclosures

  1. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions.
  2. View Auto Reward Debit Reward Terms and Conditions at DiscoverStudentLoans.com/AutoDebitReward.
  3. Aggregate loan limits apply.
  4. Lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments. The interest rate ranges represent the lowest interest rate offered on the Discover Undergraduate Loan and highest interest rates offered on Discover student loans, including Undergraduate, Graduate, Health Professions, Law and MBA Loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable Margin percentage. The margin is based on your credit evaluation at the time of application and does not change. For variable interest rate loans, the 3-Month LIBOR is 2.50% as of July 1, 2019. Discover Student Loans will adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Please visit discover.com/student-loans/interest-rates for more information about interest rates.
Discover's lowest rates shown are for the undergraduate loan and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.

4 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restrictions. Loans are offered through CommonBond Lending, LLC (NMLS #1175900).

  1.  Rates are as of July 1, 2019 and include auto-pay discount. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment. Variable rates may increase after consummation.

5 Important Disclosures for Citizens.

Citizens Disclosures

Undergraduate Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of November 1, 2019, the one-month LIBOR rate is 1.80%. Variable interest rates range from 2.90% – 11.16% (2.90% – 11.01% APR) and will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a co-signer. Fixed interest rates range from 4.72% – 12.19% (4.72% – 12.04% APR) based on applicable terms, level of degree earned and presence of a co-signer. Lowest rates shown requires application with a co-signer, are for eligible applicants, require a 5-year repayment term, borrower making scheduled payments while in school and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of the loan.

Citizens Bank Student Loan Eligibility: Borrowers must be enrolled at least half-time in a degree-granting program at an eligible institution. Borrowers must be a U.S. citizen or permanent resident or an international borrower/eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For borrowers who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank- participating school. 

Please Note: International Students are not eligible for the multi-year approval feature.

2.84%
10.97%
1
Undergraduate, Graduate, and Parents

Visit College Ave

3.12% – 10.54%*,2Undergraduate and Graduate

Visit SallieMae

3.37%
11.87%
3
Undergraduate and Graduate

Visit Discover

3.52% – 9.50%4Undergraduate and Graduate

Visit CommonBond

2.90% – 11.16%5Undergraduate and Graduate

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Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print to help you understand what you are buying. Be sure to consult with a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time.

Published in Career & Jobs, Paying for College, Student Loan Repayment

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