MBA Financing 101: Important Things to Consider

I was in your shoes not so long ago, navigating the same challenges you’re facing now. Five years ago, I was ecstatic when I received the admit call from my dream school.

If you are like me, after a few days of celebration, the next thing that comes to mind is — how am I going to pay for this? Here are some tips I wish I had known and the lessons I’ve learned working in the student loan industry. 

Maximize free sources

First, the obvious. Find scholarships, grants, fellowships, and other free resources that can reduce the price tag on your degree.

By far, the largest amount of scholarships (for most MBA schools) are awarded at the point of admission. There are two main types of scholarships given by schools: need-based and merit-based.

Need-based scholarships are based on your personal financial situation and the school’s assessment of your financial need. If you were earning a good salary before business school and don’t have dependents, chances are you will receive less than someone earning a fraction of your salary and coming to school with their family.

Merit-based scholarships are based on your school’s criteria. Merit could mean multiple things — the school’s assessment of the strength of your profile, a specific fellowship that targets a specific demographic (like the Forté Fellowship), etc.

Schools have some discretion on how these funds are allocated, and some schools may be open to negotiating scholarship offers if you can politely provide them with a strong reason. Just be honest about your situation. Bonus points if you have an offer from a peer school that includes a bigger scholarship!

Remember, they won’t take away your admission offer just for asking.

Weigh whether to use your personal funds

If you are in the fortunate position of having savings — congrats! Having savings will give you flexibility. These are the things I’d encourage you to consider:

1. Keep an emergency fund. You don’t want to end up with nothing in your bank account at the end of your MBA program.
2. Consider the return on your investments. If you are investing in assets that you expect will return higher (after tax) than the cost of your loans, it may be worth taking loans even if you have the cash on hand.
3. Make a realistic budget. Unfortunately, most MBA students end up spending more than their school’s published budgets. Juno has a tool with some historical information that may help. Consider your unique circumstances and what you want to get out of the MBA.
4. Consider the cost of your loans. We have seen some students getting rates below what the money market or high-yield savings accounts pay, so they end up making money by taking a loan.

Explore student loans

The next most common piece of the funding puzzle is student loans. The options differ significantly depending on whether you are a domestic or international student.

Domestic Students

If you are a U.S. Citizen or a Permanent resident, you have two main providers of loans: the U.S. Government and private lenders.

Federal loans are originated by the U.S. Government. They are standard — all the students who qualify get the same terms, independent of individual credit scores. Federal loan rates are fixed (with no option for a variable rate). The rate is set annually in May and does not fluctuate for the life of the loan.

Federal loans do come with certain perks, like the potential for forgiveness if you work in public service for a number of years or special payment plans if you are unemployed. They’re definitely worth considering depending on your specific profile and goals.

Private loans are loans made by a private company and are underwritten to your specific credit profile. A student with a strong credit history will likely have a better rate than someone with a poor one. Moreover, they allow the opportunity to add a cosigner that can potentially improve your rate even further.

Most private lenders do not charge an origination fee. The main cost to focus on is the interest rate. You should only consider private student loans if they are cheaper than their federal loan alternatives. If the total cost is going to be the same or more, it’s usually better to stick with federal loans.

However, there is one more thing to consider with private loans. Do you plan to pay them off faster than the standard schedule? While it’s important to focus on the interest rate when comparing private vs. federal loans, don’t disregard the origination fee. This fee can substantially add to the cost of the loan, especially if you are likely to refinance or pay your loans ahead of schedule.

International Students

The student loan market works differently for international students. On one hand, international students are not eligible for federal loans. On the other, international students are (in most cases) not eligible for the same private lenders as domestic students.

That leaves international students to choose between a few options.

Specialty lenders: There are a handful of lenders that offer loans catered toward international students. Unfortunately, their rates tend to be significantly higher than what domestic students can get. Also, these lenders may have origination fees and caps on how much you can borrow (typically less than the cost of attendance).

Home-country lenders: There are a handful of countries that have local lenders that offer student loans. Many of them require an asset as collateral (like a house). If your goal is to stay in the U.S. after your program, you may face some limitations in the future (like difficulty refinancing them).

School-based lenders: A small number of schools have agreements with certain U.S. lenders that offer a special program to their students. Ask your financial aid office or reach out to us. We can tell you if we know of one.

Usually, the most affordable way of getting a loan for an international student is through a cosigned loan. The cosigner is a U.S. Citizen or Permanent Resident currently making an income who has an adequate credit history willing to guarantee your loan.

Nicolas Echegaray is a 2021 Wharton MBA grad and General Manager at Juno. Juno uses the power of collective bargaining to help students save money on financing. Please note: This article should not be used as personal financial advice. 

Exploring student loans to help pay for your MBA? We know deciding between your many options can be confusing. That’s why we created this guide specifically for grad students.