The world of financial aid can be a confusing one. It’s tough when you really need financing to help pay for school, but don’t want to make a financial decision you might regret later.
With that in mind, here are some tips for choosing the right MBA student loans.
Federal Versus Private Loans: What’s the Difference?
When looking for any kind of student loan, there are two basic options for providers: government-backed and private lenders. The federal government is the largest lender of student financial aid, with about $1.5 trillion in loans currently outstanding. There are two main options for MBA loans from the federal government: direct unsubsidized loans for graduates and Grad PLUS loans.
The first thing you should notice about graduate loans through the federal government is the lack of a subsidized option, which don’t accrue interest until after graduation. It’s essential to understand neither federal MBA student loan option comes with that. Instead, loans will be accumulating interest while you’re still in school, which is an important feature to take into account.
Once you dig down into the details of the two main federally offered loans, there are some clear discrepancies between the loan terms. Here are the formulas for how federal MBA loan rates are calculated:
- Direct unsubsidized graduate loan: 10-year Treasury yield + 3.60%, capped at 9.50%
- Grad PLUS loan: 10-year Treasury yield + 4.60%, capped at 10.50%
Another thing that needs to be considered when looking at federal student loans for MBAs is the fact they come with an origination fee.
Moreover, the terms for Grad PLUS loans are even less appealing. Direct unsubsidized loans for graduates carry about a 1% loan origination fee, but this bumps up to over 4% for Grad PLUS loans. That’s over $400 for every $10,000 borrowed via Grad PLUS just to get the loan. With much less appealing options for federal student loan financing for graduates than undergraduates, many will seek out private loans to fund their MBA.
So, what makes private MBA loans different than federal ones? The most obvious difference is the fact that you’re entering an agreement with a private lending organization as opposed to the government. But there are some further differences that are worth understanding before embarking on a finding a private MBA loan:
- Your credit score can matter more: You might not be used to your credit playing a critical role in your ability to secure student loans. But this is standard operating procedure when dealing with non-government lenders. A lending company wants to understand the risks involved with giving someone money. Your credit score can play a big part in not just your interest rates, but your ability to get a private loan at all. You might even want to improve your credit score before applying for MBA loans.
- There are huge variances between lenders: With the federal government, you know what you’re getting, as everyone is offered the same deal. This is not at all the case when it comes to getting a private loan for your MBA. Different lenders have their own criteria for risk assessment, which means offers will vary greatly between different organizations.
- You have to think about variable rates: Federal loans come with fixed interest rates, while many private student loans have a variable rate. It’s important you understand how variable rates differ, and how they can lead to you paying more than expected on your loan if economic conditions change over time.
Where to Get the Best Private MBA Loans
Even though there’s more to keep in mind when looking for private versus federal loans, doing so can still be worthwhile. Attractive borrowers (those boasting high credit scores) can often get better terms through a private lender than the federal government for their MBA loans.
One company making it easier to find the right private loan is Juno. Rather than lending, Juno negotiates with a big pool of lending organizations to find the best possible deal for its members. These are then passed along without charging a fee to borrowers. Usually offered with lower interest rates than Grad PLUS loans, plus no origination fee, it’s unlikely you’ll find a better deal on a private MBA loan.
While it’s not as important as choosing the right MBA program, finding the right loans can make a huge difference in your long-term success. Striking the right funding balance will allow you to finance your graduate studies with confidence.