Is an MBA worth it? Here’s how long it could take to pay off the debt.

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This Article reprinted with permission of nerdwallet,

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MBAs are often praised for paying consistently among some undergraduate degrees, with many Master of Business Administration graduates starting salaries above $100,000.

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And top business schools, including Goizueta Business School at Georgia’s Emory University, the University of Michigan’s Ross School of Business and the University of Virginia’s Darden School of Business, posted jobs at 97% or more 90 days after graduation for the class of 2021 Report the hiring rate.

These higher job-placement rates follow projections reported by the Graduate Management Admissions Council, which predicts 2021 MBA placements to grow by around 20% from 2020.

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But the potential for higher salaries and career opportunities comes with a price that is becoming increasingly difficult to reduce. In 2018, the National Center for Education Statistics reported that the average MBA graduate dropped out of school with $66,300 in student loans, Since then, business schools have been coming in at about the average debt load of their students, making it harder to gauge your potential return on investment.

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Recent estimates suggest that the average MBA loan is $75,000.

Ultimately, your student loan repayment plan will determine how long you are debt-free. Here are three scenarios and the pros and cons of each.

standard repayment plan

The standard student loan term is 10 years. All federal student loans come with 10-year terms, and many private student loans have this option as well. So if you make your required timely payments every month, you will repay your MBA loan in a decade.

Pros: Sticking with the standard repayment plan will give you a stipulated repayment timeline and loan repayment date. It also allows you to know your exact monthly payment and total interest cost. It can be a good option for those who value stability and predictability.

Shortcoming: Depending on how much debt you have, and the interest rate on that debt, your payments could be very high. Tying your budget and credit with student loan payments for 10 years can also derail your financial goals.

Watch, How to Balance Saving for Retirement and Life in Your 30s

Extended Repayment Plan

You can lengthen your repayment period through a federal government program, such as income-driven repayment, or refinancing. Extended federal payment plans are typically 20 years for graduate loans and 25 years for graduate school loans. Private lenders can offer greater flexibility in long-term adaptation.

Pros: By increasing your repayment period, you can reduce your monthly payments. If you have federal student loans, you can do so through an income-driven repayment plan. These plans will set your payments to between 10% and 20% of your discretionary income and extend your term for your graduate school loan to 25 years. You can also extend your repayment plan on private and federal loans through refinancing with a private lender. Unlike choosing an extended federal repayment plan, which maintains your current interest rate, you can potentially lock in a lower interest rate if you Refinancing with a Private Lender,

Shortcoming: Extending your repayment period is likely to increase your total repayment amount as you will pay more interest. For example, if you refinance a $30,000 student loan with a 6% interest rate and a 10-year repayment term for a loan with the same interest rate and 15-year term, you would pay $80 less each month. , but $5,602 more in total.

Prompt Repayment with Refinance

You can pay off your loans faster by refinancing for a shorter loan tenure, such as five or seven years. This option is only available if you refinance with a private lender, and is not available through the federal government.

Pros: If you shorten your repayment period, you’ll pay off your loan faster and save money on overall loan costs. You can make extra payments on your federal loan each month to pay it off faster, but there is no official federal program that allows you to shorten your loan term. Refinancing Your MBA Loan However, through a private lender, you can shorten your loan term and lower your interest rate – which could save you even more. For example, if you refinance a 10-year, $3,000 student loan with a 6% interest rate plus 4% interest, you’ll save $6,817 in total loan costs.

Shortcoming: Shortening your repayment period is likely to increase your monthly payments. With the above refinance, you’ll save $6,817 in total, but your monthly payment will increase by $219. If you don’t have room in your monthly budget to cover more payments, consider another plan.

Read further: These 5 great, easy-to-read books about money will change the way you think about investing

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Cecilia Clarke writes for NerdWallet. Email: [email protected]


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