Around 200,000 people graduate with an MBA every year. According to a Bloomberg Businessweek survey, 18% of them borrow more than $100,000 in student loans, with the bulk of those people attending top 25 business schools. Seventeen percent borrowed between $50,000 to $100,000. When adding in undergrad loans, many MBA program graduates end up with six figures of student debt!

Unlike graduating as a doctor, veterinarian or dentist, MBA grads have a bunch of different career options to choose from. The Bureau of Labor Statistics cites 21 different business and financial occupations with their median salaries. But even a list of that size isn’t comprehensive. For example, it doesn’t list entrepreneurship, business executive and many other career options.

The MBA is the most versatile graduate degree, which means the optimal loan repayment strategy could be all over the map, depending on the career path the MBA grad decides to take. Before we dive into solid repayment strategies, it’s important to note the differences between student debt and other types of debt.

What makes MBA debt different than standard debt?

Student debt has two nuances that make loan repayment different from other unsecured debt. First, student loan interest is simple interest. If monthly payments don’t cover the loan interest, it simply accrues in another bucket. It doesn’t compound. This means when comparing an investment with a projected return of 6% compounded with paying off 6% of student loan debt, the investment with compound interest would be the better option from a financial optimization standpoint (without accounting for risk, of course).

Second, student loans have plans based on income, not the amount owed, with either taxable or tax-free loan forgiveness at the end of the repayment term. Let’s say two individuals are working as financial analysts making the exact same income. But one owes $150,000 for their MBA and undergrad and the other owes $300,000. Their payments would be different if they were on plans where the payments were based on the amount of debt, such as the standard, extended or graduated plan. The one who owes $300,000 would have payments virtually twice as large the one who owes $150,000.

So, based on these factors you can come up with two different forms of repayment:

Aggressive Payback

For people who owe 1.5 times their income or less, their best bet is usually to throw every dollar they can into paying back their loans as fast as possible for no more than 10 years. Income-driven repayment doesn’t typically come into the picture.

Pay the least amount possible

For people who owe more than twice their income, the goal is to get on an income-driven repayment plan that will keep their payments low and maximize taxable loan forgiveness. This can be optimal due to simple interest, as well as the difference in paying off the debt in full compared to having 20 to 25 years to save and invest for the tax portion.

Best ways to repay your MBA loan

Now that you have a fair idea of how your student loan will work, it’s time to explore repayment options.

Use student loans to cover your tuition costs

Student loans are actually less intimidating than you might imagine. Usually, student loans are specially designed to cover study costs. Some cover only tuition fees, while others cover living expenses as well. A student loan has a much lower interest rate compared to regular loans and you’ll only start repaying it a certain period after your MBA graduation. This way, you’ll have time to find a good job and have a stable income to start paying back your debt.

Loans are provided by many banks in partnerships with governmental institutions, so make sure you inquire about those as well once you have decided on a certain MBA program. Federal student loans available to graduate/professional students are all unsubsidized loans. You should just take note of the fact that in the U.S. and in many other countries, international students who want to take out loans will usually require a citizen or permanent resident to co-sign. Some European banks don’t charge any up-front commissions or early-payment redemption charges for student loans, so they require no security or guarantee from the student.

Combine an MBA degree with part-time work

Around a third of all MBA candidates consider taking a part-time MBA degree. While some consider that a part-time MBA doesn’t offer the same benefits as a full-time MBA course, for some prospective students, this is the most convenient choice, not to mention a great solution to lower the costs of your studies.

However, it seems that part-time MBA students are less focused on networking since they are already employed and are not so interested in building business contacts.

Choose an online MBA degree

Specifically dedicated to working professionals, many universities and business schools offer online MBAs. Yes, they will take longer to complete, but you’ll already have an impressive job experience to show for it. However, one possible future advantage would be that your effort is bound to be appreciated and rewarded by your current or future employer.

Teach or take a research assistant job

If graduating from your MBA as soon as possible is your priority, then you can try to get a teaching assistant or a research assistant job at the same university where you are doing your MBA. This solution might not cover your costs completely, but it is definitely worth considering, as you would save both time and energy by having your workplace where you study.

Refinance

There are many online lenders today that make it easy to apply for a rate quote on student loan refinancing without a credit check. When choosing a refinancing lender, know that all of the reputable companies don’t charge origination fees or include a prepayment penalty. Lenders typically have a range of rates they may charge with excellent credit being required to access the lowest rates.

You’ll generally have the option to apply for a fixed or variable rate loans. In addition to rates, you’ll want to consider whether the lender allows periods of forbearance of academic deferment. And depending on your credit standing, you may also want to consider each lender’s cosigner and cosigner release options.

Conclusion
Bloomberg Businessweek surveyed more than 10,000 2018 graduates of MBA programs from 126 schools about the amount of debt they piled on earning their degrees. The survey found that almost half of students at leading business schools around the world borrowed at least $100,000 to finance their MBA.

So, don’t be worried about taking that huge loan amount. Rather, spend that time planning on repaying the loan and the steps you need to take!

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