How to Pay for an MBA

(page 2 of 2)

Borrow Intelligently

Once you know how much you need, you can start looking for the money. Free money, the kind you will not have to pay back, should be on the top of your list. This includes scholarships and grants. Talk to the financial aid services staff at your school to determine what, if any, scholarships and grants are available. But keep in mind that it is more difficult for graduate business students to get such offers. "People don't have as much sympathy for MBAs," says Dan Thibeault, co-founder of Graduate Leverage, student loan consolidation and debt management company, in Boston (BusinessWeek.com, 1/27/05).

Most experts suggest that you look to exhaust federal loans, with fixed interest rates, after you have collected all the free money you can and before you turn to private lenders. Graduate business students can take out up to $8,500 in subsidized Stafford loans, which are based on need, do not accrue interest on the loan while your are in school, and come with a fixed interest rate, currently 6.8%. An unsubsidized Stafford loan is the same loan, but interest accrues while you're in school. Since 2006, graduate business students have also been able to consider the Graduate PLUS Loan, which comes with a limit of $20,500. In the past, says Paul S. Garrard, vice-president for student financial services for Sallie Mae (SLM) graduate and professional programs, grad students typically used private loans after they had exhausted the Stafford loans and scholarships. Now they can continue to turn to the government with the PLUS loan.

Not all the experts agree that this is the way to go. Thibeault says students should take advantage of the sudden and dramatic drop in interest rates because they could find a better deal with private lenders than with the government. About 65% to 70% of MBAs can get private loans at a lower rate, he adds. Garrard argues that these private loans have variable interest rates with no caps, which means you could have a great rate when you apply for the loan, but it could skyrocket while you're in school or when you're ready to pay. Whatever you do, at least apply for the federal loans. All U.S. citizens are eligible for Stafford loans, and you might choose to use them simply to keep from tying up your assets, say experts.

Students with a bent for nonprofit work might qualify for loan forgiveness. The College Cost Reduction and Access Act of 2007 has the government completely forgiving your federal loan balance if you go into the nonprofit sector or government after graduation and stay there for at least 10 years, says Thibeault. Only federal loans apply, and after graduation you'll have to consolidate into one direct loan program, he adds.

Live Like a Student

The rise of private loans, says Rob Rex, managing director of OTO Networks, which runs the Student Finance Domain in Baltimore, tempts students to live above their means while they're in school. Business students are especially vulnerable because many of them had good salaries before the MBA program and had become accustomed to a certain lifestyle.

Your best bet, however, is to return to living like a student. Get a roommate if you can stand it, refrain from big purchases, and watch your pennies a little more closely. Rex suggests using online loan calculators to see how much budgeting can really save you and how much you'll have to pay each month after graduation. It just might scare you into accepting pizza and beer instead of caviar and champagne during business school.

Business Exchange related topics:
Business School
Saving for College
Higher Education
Recession Spending & Investment
Career Change

Di Meglio is a reporter for BusinessWeek.com in Fort Lee, N.J.