Student loans are a big financial burden on many students and graduates that are not able to meet the financial demands of their education. The average student loan debt is approximately $25,000. Often times, the initial student loan repayments are too large to afford, causing students to default on their loans.
The idea of a student loan is appealing, because the payments are usually much lower than the monthly mortgage payment. But there are a lot of hidden costs along the way that you may not be aware of. If you are in danger of losing your home, student loans can be a huge problem.
Earning a Master of Business Administration (MBA) can open doors for your career. This is especially true if you graduated from one of the best business schools. The only problem is that you’ll probably have to pay $70,000 or more a year for tuition. With such numbers, it is important to know the repayment strategies for MBA student loans. Refinancing MBA student loans is one way to deal with all these debts. But you may be surprised to learn that there are other possibilities.
Amount of outstanding MBA student loans
Since 2005, graduate students have been eligible for Grad PLUS loans up to the full amount of tuition. This has essentially allowed graduate programs, such as MBA programs, to be funded 100% by the federal government at no cost. In this context, it is not surprising that tuition fees have increased significantly in recent years, which has also led to an increase in graduate debt. According to a 2018 Bloomberg study, half of MBA graduates from top business schools have debt of at least $100,000.
According to PayScale, the average MBA graduate earns $90,125. It would be inaccurate to take this figure and talk about paying off MBA debt, as the career paths for this degree are too varied. For example, a financial analyst earns an average of $65,000 and a chief financial officer (CFO) earns $151,000. Refinancing an MBA loan may be appropriate for a CFO, but not for a financial analyst. Your student loan repayment strategy should fit your current salary and career goals.
MBA student loan refinancing versus federal loan consolidation
If you took out multiple student loans during your studies, there are two ways to consolidate them into one loan. The first option is to obtain a consolidated direct loan from the Department of Education. The second way is to refinance with a private lender. Each option has its pros and cons. If you just want to simplify your payments and change service providers, federal consolidation may be the right solution.
All direct borrowers are eligible, regardless of credit score. And by keeping track of your MBA credits with the Department of Education, you remain eligible for federal benefits. However, one of the disadvantages of federal consolidation is that it does not allow you to lower your interest rate. So even if you have a good credit history and a low debt-to-income ratio, you can’t get a better interest rate. That’s where refinancing comes to the rescue.
Private lenders may not offer all the flexible repayment options available with federal student loans, but they can offer significantly lower interest rates. For example, if you have six-figure MBA debt, refinancing can save you tens of thousands of dollars in interest payments over the life of your loan.
When refinancing an MBA student loan is a good option
You can refinance your student loan online or at your local bank or credit union. The lender pays off your student loan and gives you a new private student loan. Then you have a payment and new credit terms. When refinancing, the goal is usually to aggressively repay the loans. This means that not only can you get a lower interest rate, but you can also choose a shorter repayment period to pay off the loan as quickly as possible.
The hardest part is deciding if refinancing an MBA loan is for you. If you have private student loans, refinancing for a better interest rate is something you should always look into. But federal student loans are a different story.
Pros and cons of refinancing a federal student loan MBA
When it comes to federal student loans, there are general advantages and disadvantages to refinancing student loans. The benefits of refinancing the MBA loan are:
- You can save on interest payments. The interest rate for the Direct Unsubsidized Graduate Loan is 5.28%. The interest rate on the Grad PLUS and Parent PLUS loans is higher at 6.28%. Refinancing student loans can get you a much lower interest rate.
- You only need to make one monthly payment.
Better interest rates mean more money in your pocket. One payment means it’s easier to manage, but that doesn’t mean you won’t miss things. The disadvantages of refinancing MBA loans are:
- They lose the protections of government borrowers, such as deferred payment and repayment schedules.
- You cannot enroll in an income-driven repayment plan (IDR).
- You must pass a credit check, have a good credit history and meet other conditions to get better rates.
From these general guidelines, you can save even more money by refinancing your MBA loans into private loans. But there is a payment trick that only applies to federal loans that may better suit your career goals. Let’s take a look at how federal loans, even with higher interest rates, can save you money. Ask me questions about your MBA student loan
Don’t refinance your MBA student loan until you’ve checked this hack
As mentioned earlier, MBA salaries vary widely. Your income and the amount of your student loan will determine whether refinancing is a good idea or not. The solution is to keep your federal student loans and enroll in a revised Pay As You Earn (REPAYE) repayment plan. REPAYE is one of four IDR plans.
The advantage of REPAYE is that the government actually helps pay the interest. If your monthly payment does not cover the interest, the government pays the full amount of interest for three years for subsidized loans, and then half for another three years. With REPAYE, the government also pays half the interest on your unsubsidized loans.
Let’s look at how this could happen in two different scenarios using the numbers above. If you graduated from a top business school, have $150,000 in student loans outstanding, and are making $65,000 in your first year as a financial analyst, you might be better off with PAYE or REPAYE. If the average federal interest rate is 6% and you are single, your monthly payments will be about $415.
That’s over $1,100 less than you would pay on a standard 10-year repayment plan, and over $1,200 less than your monthly payment after refinancing at 4%. That’s a huge amount of extra monthly cash flow! From here, you have two options to proceed:
- Request cancellation of your student loan: After 25 years, the balance of your student loan will be forgiven under the IDR forgiveness program. You will have to pay tax on the amount you transfer, so be prepared for that.
- Refinance after you earn more: If you move up the career ladder in a few years, you can refinance your MBA loans. Since half of the interest is paid, the balance of your loan will not increase as quickly. With a higher income in the future, you will be able to actively repay your loans. This can be a good option for a graduate who is an entrepreneur or working in a startup.
If you’re going the traditional MBA route and starting your career with a salary of six figures or more, refinancing your student loan makes more sense for your cash flow.
Now suppose you become CFO with a salary of $150,000 and a student loan of $150,000. You can pay off your loans in 10 years and then reallocate those funds to future investments. With a refinance, you can pay off your debt faster and save tens of thousands of dollars in interest.
The general rule for refinancing is as follows: If your debt is less than 1.5 times your income, refinance and actively pay off your loans. However, if your debt exceeds this amount, you can enroll in an IDR plan to make your payments more affordable. There are exceptions to every rule. Most MBA graduates work in the private sector.
But if it’s not about you, you shouldn’t refinance at all. If you work for the government or a non-profit organization, your utility loan can be completely forgiven after you have paid your IDR plan for 10 years. If you qualify, this may be a better repayment option than refinancing or REPAYE.
Should you refinance your MBA student loan?
If you are considering refinancing your federal MBA student loan, you should analyze your cash flow needs and career goals. If you plan to work in the private sector and expect to earn a six-figure income in a short period of time, refinancing may be the right solution. If you decide to refinance, compare several private lenders before making a decision.
In any case, make sure the lender does not charge you an application fee or early repayment penalty. However, you should also consider other benefits, such as. B. an official system of deferred payment, a discount for automatic reimbursements and flexible reimbursement conditions. And don’t forget that many student loan refinance companies are also currently offering generous cash bonuses. Here are some of our favorite lenders for refinancing:
If you need help deciding how to refinance your MBA student loan, contact an advisor from our team. Student Loan Planner® specializes in helping people with student debt in excess of six figures. We can draw up a plan for you based on your individual situation and salary. A plan for a student loan Refinance your student loan and receive a bonus in 2021.
Frequently Asked Questions
What is a good student loan refinance rate?
If you’re currently repaying a student loan and thinking about refinancing, you may be wondering how much you can earn on a student loan refinance. Of course, there are a lot of factors to consider, including: the amount of your monthly student loan payment, your credit score and the current interest rate on your student loan. However, the interest rate is one of the most important factors to consider.
To help you figure out if refinancing your student loan is an option that’s right for you, we’ve compiled a list of the most common student loan refinance rates in the U.S. You might be surprised to hear that refinancing student loans isn’t as simple as signing a document or submitting a few forms online. In fact, student loans are complex, so if you’re planning on refinancing your student loans, you should probably take the time to understand the process.
What credit score do you need to refinance student loans?
When it’s time to refinance student loans, it’s important to get a good credit score to get the best interest rate. The best score to have is 760. However, there are many ways to get a 760 credit score and not everyone will qualify for the best interest rates. Some people have other credit, like credit cards, that are keeping them from getting a 760. Some people have poor credit because they didn’t pay their bills on time.
Your credit score can affect your eligibility for student loans, whether you are looking to refinance them or apply for the first time. Good credit can mean better loan terms. However, student loans are very different from other types of loans and require a different approach to applying for them. While the most common student loan refinancing options are based on income, there are several options based on credit scores.
How do you qualify for a student loan refinance?
Which student loans to refinance? That’s the million-dollar question, and one you can answer by answering another question: What is it you wish to achieve by seeking a student loan refinance? When getting a student loan, the first decision youll have to make is that of whether to have a student loan refinance or a student loan consolidation.
The primary benefits of a student loan refinance are that it offers a lower monthly payment, and also a fixed interest rate. Consolidation is less expensive than refinance, because youll be paying interest on both the original and the refinanced loan. However, this also means that youll have to pay more interest than you would if you were to refinance through a fixed-rate, or even a variable-rate loan.