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MBAs are often lauded among the few graduate degrees to consistently pay off, with many Master of Business Administration graduates seeing starting salaries above $100,000.
And top business schools, including Goizueta Business School at Georgia’s Emory University, University of Michigan’s Ross School of Business and University of Virginia’s Darden School of Business, report job placement rates at 97% or higher 90 days after graduation for the class of 2021.
These high job-placement rates follow projections reported by the Graduate Management Admission Council, which predicts 2021 MBA placements to increase by nearly 20% from 2020.
But the potential for high salaries and career opportunities comes with a price that is getting harder to nail down. In 2018, the National Center for Education Statistics reported that the average MBA graduate left school with $66,300 in student loans. Since then, business schools have been less forthcoming about their students' average debt load, making it harder to gauge your potential return on investment.
More recent estimates show an average MBA debt of $75,000.
Ultimately, your student loan repayment plan will determine the amount of time until 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 also have this option. So if you make your required on-time payments each month, you’ll repay your MBA debt in a decade.
Pros: Sticking with the standard repayment plan will give you a set repayment timeline and debt payoff date. It also allows you to know your exact monthly payment and the total interest cost. This can be a good option for those who value stability and predictability.
Cons: Depending on how much debt you have, and the interest rate on that debt, your payments may be too high. Tying up your budget and credit with student loan payments for 10 years could also derail your financial goals.
Extended repayment plan
You can make your repayment term longer through a federal government program, like income-driven repayment, or by refinancing. Extended federal payment plans are typically 20 years for undergraduate debt and 25 years for graduate school debt. Private lenders may give more flexibility in customizing a longer term.
Pros: By extending your repayment term, you can lower your monthly payments. If you have federal student loans, you can do this through an income-driven repayment plan. These plans will set your payments between 10% and 20% of your discretionary income and extend your term to 25 years for your graduate school debt. You could extend your repayment plan on private and federal loans through refinancing with a private lender, too. Unlike choosing an extended federal repayment plan, which maintains your current interest rate, you could potentially lock in a lower interest rate if you refinance with a private lender.
Cons: Extending your payment term will likely increase your total repayment amount because you'll pay more interest. For example, if you refinance a $30,000 student loan with a 6% interest rate and 10-year repayment term to a loan with the same interest rate and a 15-year term, you’ll pay $80 less each month but $5,602 more overall.
Expedited repayment with refinancing
You can pay off your loans faster by refinancing for a shorter loan term like five or seven years. This option is available only when you refinance with a private lender, and isn’t available through the federal government.
Now is not a good time to refinance federal student loans, because you'll lose access to the interest-free payment pause and potential forgiveness. But you have nothing to lose when refinancing private student loans.
Pros: If you shorten your repayment term, you'll pay your loan off faster and save money on total loan costs. You can pay extra 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 debt through a private lender, however, may allow you to shorten your loan term and decrease your interest rate — which could save you even more. For example, if you refinance a 10-year, $30,000 student loan with a 6% interest rate to a five-year term with 4% interest, you will save $6,817 in total loan costs.
Cons: Shortening your repayment term will likely cause your monthly payments to increase. With the aforementioned refinance, you will save $6,817 overall, but your monthly payment will increase by $219. If you don’t have wiggle room in your monthly budget to cover the higher payments, consider another plan.