How to Quickly Go Debt-Free While Pursuing MBA With a Loan
With increasing globalization and the persistent demand for skilled managers, the MBA remains one of the most sought after degrees globally. However, such courses can be expensive. In 2020, the average cost of pursuing a two-year management programme from a US institution clocked to $1,95,416, and the number is only expected to go northward in future as well.
It is, therefore, natural for interested candidates to finance their MBA dreams with loans. However, the absence of proper planning can lead to a situation where most of your adult life is spent on repayment of your education loan.
This, however, shouldn’t mean that you opt for a less expensive institute. A few years ago (still valid), I wrote a post on how ISB is actually more expensive than the top 10 US MBA schools. Read it where I make a point by point comparison.
So coming back, let’s discuss various methods through which you can quickly close your student loan account. Your preparation should begin by choosing the right financing options that can help you in a trouble-free and fast closure of your debts.
MBA Financing Options
- Scholarship or Student Aid
International students who want to pursue MBA from US universities can apply for scholarships where most of their course fees will be paid by the scholarship programme, reducing the financial burden.
For instance, the Fulbright foreign student program aids graduate students who are non-US citizens to research and study in US universities provided they fulfil the eligibility conditions.
Top US universities, such as Harvard University, also help deserving international students with different types of financial aids.
Read this post on how to get scholarships despite a low GMAT score.
- Student Loans
Almost all the reputed banks in India offer student loans subject to the candidate satisfactorily meeting the eligibility criteria. While most public sector banks can provide anywhere between Rs 10 lakh to Rs 20 lakh (USD 12,000 to 27,000) as a student loan, private banks can provide you up to Rs 40 lakh (USD 52,000) as a collateral-free student loan.
It is always advisable to look for such student loans at first as your loan liability would be in your country of residence, and you may feel more comfortable with local debts rather than debts in a foreign country.
- Loans with a US Guarantor
You can consider securing a loan from a US bank if you have an NRI sibling, friend, or a family member there. Such an NRI person can become a co-signer to your loan, which means the person guarantees to pay back the loan if you can’t.
If you can find such a co-signer with a good credit score, then you may be able to secure the loan at a relatively lower interest rate.
- Loans without a US Guarantor
Even if you don’t have a US co-signer, you can try to get your institution to co-sign a loan on your behalf. Top US institutions like MIT Sloan School of Management, Harvard Business School, and many other institutions have their respective credit unions through which they offer such services.
- Pursuing a Job
You can try to create an income source while pursuing your course. You can look for a part-time job near the college campus that can fund your living expenses which in turn can help you in lowering your borrowing amount.
Alternatively, you can go for admission to colleges that provide flexible college shifts that allow you to continue working without hampering your studies. For instance, the Peter J Tobin College of Business at St John’s University in New York offers a 36-credit FLEX MBA that has a mixture of onsite and online classes that can help working professionals to pursue the course along with their profession.
Benefits of Paying Back your Loan Early
- Lowers Your Debt-to-Income Ratio
The debt-to-income ratio (DTI) is a ratio between your monthly debt payments and your monthly income. Therefore, a lower DTI means that you have a greater amount of disposable income left every month after paying off your debts.
Furthermore, lenders consider a lower DTI ratio as a positive sign, and it suggests that the borrower can repay the new debt on time. Therefore, it can help you to apply for new credits. A DTI ratio of 30 to 35 per cent is considered to be good for the borrower.
- Lowers the Interest Payment
Student loan interest is usually charged on the current outstanding loan balance. For example, suppose that you have originally taken a student loan of Rs 30 lakhs at an interest rate of 10 per cent. Now consider that you have already paid off Rs 10 lakhs as loan repayment. Therefore, now the interest rate will be charged on the remaining Rs 20 lakhs instead of the original principal amount that was Rs 30 lakhs.
Therefore, the faster you pay off your loan, the lesser will be your interest liability in the long run.
- Increases Financial Stability
Having the burden of loan repayment for a long time can seriously hamper your growth potential. You can hesitate from taking risks or plan for your retirement if you constantly worry about the pending EMIs.
Alternatively, clearing your loan account at the earliest can result in
- Lesser financial stress
- Lower anxiety for future planning
- Freedom to explore different career opportunities
- A greater amount of personal savings
Tips to Pay Back MBA Debt Quickly
- Make Additional Payment
While it might not be possible to make more payments than the required EMI regularly, it helps if you could manage to regularly pay a little extra amount every month toward your loan repayment.
If you are unable to make extra payments, then at least try to avoid falling into the trap of paying the minimum amount. Instead, always pay the due amount in full.
If you have already secured a well-paying job and have maintained a very good credit score, you can consider refinancing your student loan, where you can get a single loan that replaces your multiple student loans.
However, refinancing works only if you can secure the new loan at lower interest rates.
- Enquire About Auto-Pay Discount
Many US lenders can offer you a discount on your interest rates if you activate automatic deduction of the loan amount from your bank to the lender’s account. Find out whether you can avail of this facility from your lender. Even a small discount in interest rates can go a long way in making you debt-free sooner than expected.
Different types of financing facilities and loan repayment options have made life easy for students seeking higher education, especially MBA, from foreign universities. However, once the euphoria of achieving the much-coveted MBA degree subsides, the reality of a long-awaited long repayment period sets in.
The good news is you can make prior plans as discussed herein so that you can quickly settle all your loans and move on. The whole exercise can be tiresome, but it is achievable for someone poised to manage greater challenges in life.
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