For MBA graduates, student loan debt is all too common. In fact, nearly 70 percent of all graduate students finish school with some level of MBA student loan debt. For business school grads, the average amount of debt is $42,000, according to The Graduate Student Debt Review. Whether you’re still studying or already graduated, let’s see how you can get your debt paid off as fast as possible.
Pay Off Private Student Loans First
Even though trends are changing, private student loans carry higher interest rates vs. federal loans. If you’re still in school, try to avoid private loans if you can. In any case, paying off these loans first will lower your overall interest rate.
One way to lower your rates on nearly any loan is through refinancing. This basically means that you trade one loan for another to get a lower annual percentage rate (APR). Free services like Credible can help you find lenders with lower interest rates. It’s not unusual for graduates to save over $10,000 from refinancing alone.
Keep in mind that private loans also come with fees. So even though a lower interest rate is a good thing, make sure a high fee doesn’t wipe out any savings.
Start School Early
For those who have not yet started studying, don’t put it off much longer. For any two MBAs, the one that starts school two years earlier can generate up to $100,000 more in earnings by age 30. This extra cash cushion can go a long way towards paying down debt.
Federal Loan Income Driven Payment Plans
If your outstanding debt on federal student loans is greater than, or a large percentage of, your annual income, you may qualify for an income driven repayment plan. For example, for Income Based Repayment, you pay 10 to 15 percent of your discretionary income each month. The repayment period lasts 25 years, and if you make all the qualified payments, then the rest of your debt is forgiven (you will have to pay tax on this amount). However, if your salary goes up quickly, you might find yourself paying off your entire debt before the 25 year period expires.
The loans eligible for income driven repayment plans are:
- Direct Subsidized and Direct Unsubsidized Loans
- Direct PLUS Loans
- Direct Consolidation Loans
- Stafford Loans
- Federal Perkins Loans (if consolidated under Direct Consolidation)
Requirement and eligibility may vary, so it’s best to check with the Federal Student Aid website for details.
Part Time Or Full Time?
While in school, you might consider going part time so you can work and have an income. Be careful, however, since part time MBA programs generally cost more. If you can get away with studying full time, it might be better to get that degree as quickly as possible, get a job, and begin to pay off your debt. Remember, the longer you wait to start paying, the more interest accumulates. One caveat to this obviously, is if your employer agrees to pay for your MBA education.
MBA student loan debt is common, but there are various methods that can help you reduce your debt.
Be sure to check out Credible to compare rates across multiple lenders by filling out just one simple form.