Getting an MBA is something you don’t’ decide on casually. It can eat up most of your waking time (and some of your sleep) and it can plug a hole in your pocket large enough for an elephant to pass through with enough room to spare.
You don’t take it because everybody else is taking it. You take it because it is an investment. And like any other investment, it must be anchored not on hope that things will come out as expected but by a specific ROI (return of investment).
An ROI? Yes, my dear John. And there are sites (finaid.org) to help you determine how much loan to take out and its estimated ROI.
Loan sources you can avail of:
Now that you have an estimate of the money you need to take you through your MBA, the next big question is, “Where will I get the money?”
Unless you have a rich aunt who is fond of you, chances are your MBA aspirations will be financed by any of the three:
1. Interest-free loans from charities and universities:
These are very limited loan opportunities and often come with conditions that may not be suitable to you – very much like foreign aid that can squeeze a recipient country bone-dry.
This is good as it spares you the burden of interest payments and your payments are used by the donor to finance the MBA aspirations of other students.
On the downside, this sometimes require extensive essays and interviews to qualify, they require adults of good standing to co-make the loans, payment is often immediate and there is no forgiveness for non-payment
2. Federal loans:
Roughly 70% of student loans are funded by the government. Application is easy. All you have to do is visit FAFSA (Free Application for Federal Student Aid) and apply either online or the traditional paper application (fafsa.ed.gov).
Once done, you can choose from any of the best (cheapest) federal grad student loans (usnews.com):
– Perkins loans:
This is the cheapest loan available only to students belonging to the low-income group. They can get $8,000/yr at an interest rate of 5%. This interest is not charged while the student is still in school.
There is a lifetime limit of $40,000 and even those with bad credits can take out a Perkins loan provide they haven’t defaulted on any previously granted federal loans.
The downside is that some b schools don’t have sufficient Perkins dollars to cater to all applicants.
– Subsidized Stafford loans
This is the second cheapest MBA student loan and is granted to students which, based on analysis of their FAFSA application, need help in their tuition fees.
The interest rate is 6.8% and 1 percentage point service fee. The loanable amount is $8,500 per year. It is called “subsidized” because the loan is interest-free while the student is in school.
The money is paid directly to the student allowing them to get the full amount and go to the school of their choice.
As in the Perkins loan, students with bad credit can still take aStaffordloan provided they haven’t defaulted on any previous federal study loans.
– Unsubsidized Stafford loans:
This loan type is available to all MBA students regardless of income provided he/she is a legalU.S.resident and has not defaulted on previous federal study loan.
Loanable amount is capped at $20,500/yer, $138,500 over a lifetime. Interest rate is 6.8% with 1 percentage point service fee.
This is called unsubsidized because the interest continues to accrue while the student is in school. He/she doesn’t have to make payments while enrolled at least half time (two courses or six credits per semester).
The loaned amount is also released directly to the student, hence, they get the full amount and enroll in the b school of their choice.
Just as in the other federal loans, students with bad credit can still take out a loan provided they have not defaulted on any previous study loans.
– Grad Plus
When all the loan packages have been availed of and money is still a problem, you can avail of this loan to take care of other basic living expenses like transportation, child care, etc.
Interest rate for Grad Plus is 7.9% with 4 percentage points in fees. It is paid directly to the student, hence, they get the full amount and the choice of b school to go to.
Applying, however, includes a credit check. So students with bad credit, defaulted student loans, and other financial woes, generally are not given the Grad Plus.