MBA Graduate & Business School Student Loan RefinancingApril 6, 2020
By Kat Tretina
Kat Tretina is a writer based in Orlando, Florida. Her work has been featured in publications like The Huffington Post, Entrepreneur, and more. She is focused on helping people pay down their debt and boost their income.
If you decided to get a Master of Business Administration (MBA) degree to advance your career, you know just how expensive business school can be. According to the Princeton Review, the average cost of tuition can exceed $130,000, so it’s no surprise the average MBA student graduates with $66,300 in debt between their undergraduate and graduate loans. Many top MBA programs’ high tuition costs drive students to borrow over $100,000.
To pay for your advanced degree, you may have taken out Grad PLUS Loans or private graduate school loans, which tend to have higher interest rates than other forms of education debt. As of 2020, Grad PLUS Loans have an interest rate of 7.08%. With such a high rate, your balance can quickly grow due to interest charges.
However, earning an MBA can have a significant impact on your earning potential. The National Association of Colleges and Employers projected that the average starting salary for MBA grads in the class of 2020 will be $79,043, which is far higher than the average salary for all Americans.
With a higher-than-average income, you’re a good candidate for student loan refinancing. By refinancing MBA debt, you may be able to secure a lower interest rate and save money over the life of your loans.
How student loan refinancing works
To refinance your student loans, you take out a loan from a lender like Education Loan Finance for the total amount of your current debt. The new loan has different terms than your old ones. You’ll have a new interest rate, repayment term, and minimum monthly payment. And, you’ll have just one monthly payment and one loan servicer.
For MBA graduates, there are several benefits of refinancing student loans.
Should You Refinance Your MBA Loans?
Refinancing your student loans gives you the chance to modify your repayment conditions to best fit your financial goals. For example, you can reduce your interest rate and adjust your repayment term to save on your total balance. Additionally, you can consolidate multiple loans into one monthly payment.
Here are a few reasons to consider refinancing your MBA loans:
1. You can save money over the course of your loan repayment
By refinancing your student loans, you can qualify for a lower interest rate. With a lower rate, less interest will accrue on your debt, allowing you to save money over the length of your repayment term. Depending on how much debt you have and your current interest rate, the savings can be significant.
For example, let’s say you had $100,000 in student loan debt at 7.08% interest and a 10-year repayment term. By the time you paid off your loan, you would have repaid a total of $139,825. Interest charges would cost you nearly $40,000.
If you refinanced your debt and qualified for a 10-year loan at 5% interest, you could save thousands. Over the course of your repayment, you’d pay a total of just $127,279. By refinancing your loans, you’d save over $12,500.
Loan Balance: $100,000
Interest Rate: 7.08%
Loan Term: 10 years
Minimum Monthly Payment: $1,165
Total Interest: $39,825
Total Repaid: $139,825
Loan Balance: $100,000
Interest Rate: 5%
Loan Term: 10 years
Minimum Monthly Payment: $1,061
Total Interest: $27,279
Total Repaid: $127,279
2. You can pay off your business school loans earlier
When you refinance your debt, you can get a lower rate. That means more of your monthly payment will go toward the principal instead of interest charges. If you keep making the same minimum payment that you had before you had refinanced your loans, you can pay off your student loans months or even years ahead of schedule.
For instance, let’s say you had refinanced the loan mentioned above. After refinancing, you had a 10-year loan at 5% interest and a minimum monthly payment of $1,061. But instead of making that monthly payment, you continued paying your old monthly payment — $1,165 per month.
By keeping your old payment, you’d pay off your loan in under nine years — eliminating your debt over a year ahead of schedule — and save $3,250 in interest charges.
3. You can reduce your monthly MBA loan payments
If you have trouble affording your monthly payments after graduation, student loan refinancing can still be an effective solution. When you refinance, you can opt for a longer loan term, reducing your monthly payments.
By lengthening your loan term, you’ll likely pay more in interest charges. But you’ll have more breathing room in your budget right now, helping you pay your bills when money is tight. As you progress in your career and earn more money, you can make extra payments to reduce interest charges.
4. You can reinvest in your business or yourself
If refinancing your MBA loans leads to greater monthly savings, you’ll have earned the financial freedom to pursue both your personal and business goals. You may choose to reinvest some of your savings to start your own business or to broaden your worldview by taking an international trip.
Have fun with your new savings! While it’s important to spend them responsibly, don’t forget to enjoy the flexibility they provide. This is the perfect opportunity to cross a few things off your bucket list and achieve more of your goals.
Considerations before refinancing your MBA loans
Before you refinance your business school loans, however, let’s look at a few situations in which this financial move might not be your best option.
If you have a significant number of federal loans, refinancing will mean losing any deferment or benefits you’re currently receiving. Additionally, if you’re using an Income-Driven Repayment (IDR) plan, you’ll be required to opt for a standard monthly payment if you refinance your MBA loans.
A stable, steady income stream is also important in receiving the best possible refinancing rates. If you’re starting a new business and are funneling most of your income back into business growth, you may have difficulty achieving the type of rate you’re interested in. That said, there’s no reason not to look into refinancing to explore the types of rates you may be eligible for.
How to refinance your Grad PLUS or MBA debt in 4 steps
Refinancing your student loan debt takes just a few minutes, and you can complete the entire process online in four easy steps.
1. Check your eligibility for a loan
Every refinancing lender has their own requirements, so double-check their criteria to make sure you qualify.
At ELFI, borrowers must meet the following standards:
- You must be a U.S. citizen or permanent resident
- You must be the age of majority or older in your state (18 in most states)
- You must earn at least $35,000 per year
- You must have earned a bachelor’s degree or higher
- You must have a credit score of 680 or higher
- Your credit history must be 36 months old or older
- You must have received a degree from an approved post-secondary institution
If you don’t meet the requirements on their own, you can add a co-signer to increase your chances of qualifying for a loan and getting a lower interest rate. Please see our eligibility requirements for refinancing student loans for more information.
2. Get an interest rate quote
Use the prequalification tool to get a rate quote and choose loan terms that work best for you.
It has no effect on your credit score, and you can use it to see what interest rate you’d receive, pick between fixed and variable rates, and decide how long of a term you’d like.*
3. Gather your documentation
To speed up the application process, gather necessary documentation ahead of time. To complete the application, you’ll need:
- Government-issued Identification
- Pay Stub or proof of employment from within the last 30 days
- W-2 Form from the most recent tax year
- Tax Returns (if self-employed)
- Account Information you’ll use to make electronic payments
- Current Billing Statement or Payoff Letter for each eligible loan
4. Submit your loan application
Once you find a loan that works for your needs, you can complete the full application. You’ll be asked to enter your full name, address, Social Security number, and employment information. If you plan to add a co-signer, you’ll be prompted to enter their name and email address.
MBA Student Loan Debt Repayment
While refinancing can be helpful for some MBA grads with student loans, it may not be right for you. If that’s the case, there are other ways to manage your debt.
1. Use your signing bonus to pay down your loans
Depending on where you went to school and where you end up working, you could be eligible for a signing bonus.
Some MBA employers use signing bonuses to recruit top candidates. According to U.S. News, the average signing bonus for graduates from top-10 business schools was $30,703. Using that amount to pay down your debt could make a significant dent in your balance
2. Apply for an income-driven repayment plan
If you have federal student loans and can’t afford your payments, apply for an income-driven repayment (IDR) plan. If you qualify for an IDR plan, your loan servicer will extend your repayment term and reduce your monthly payment based on your income. After 20 to 25 years of making payments, your remaining loan balance will be forgiven.
3. Pursue student loan forgiveness
According to U.S. News, MBA grads who work in the consulting industry usually earn $55,000 to $65,000 more than their peers in the non-profit or government sectors. If you decide to forgo a higher salary to pursue a career in public service, you could qualify to have some of your loans forgiven through Public Service Loan Forgiveness.
To qualify, you must have federal student loans and work for a government agency or non-profit organization. You must be employed by an eligible employer for 10 years, and make 120 qualifying monthly payments.
4. Wait for a better opportunity to refinance
In some cases, it makes the most sense to focus on boosting your credit score or increasing your income before refinancing.
For example, if you need to make consistent credit card payments for a few months or set up autopay to stay on top of your bill payments, these smart money moves may lead to a better interest rate in the future.
Waiting may also be the best option for entrepreneurs launching new businesses. Consider holding off until your income increases to receive the best possible interest rate during refinancing.
Regardless of when you choose to refinance, keep it in mind as a way to lower your interest rate and adjust your repayment term when the time is right.
Refinance your MBA student loans with ELFI
While an MBA can be a significant expense, the return on investment can be well worth it. If you have education debt, student loan refinancing can be an effective way to tackle your balance and save money.
ELFI has some of the lowest student loan refinance rates available and flexible terms to fit your goals. Use ELFI’s student loan refinance calculator to see how much you can save over the life of your loan repayment.*
*Subject to credit approval. Terms and conditions apply.
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