5 Ways for MBA Candidates to Get the Best Graduate Student Loans

Refinancing student loans can be a great strategy for saving money when you’re done with school, but you can also take steps before even applying for loans that will pay off over the longterm.

However, getting accepted to an MBA program is challenging.  So much so that by the time graduate students are admitted to a program, many of them want to secure the first funding options available without pausing to thoroughly assess all the options.

Under-thinking your education financing strategy can have negative consequences, according to Rice University Associate Director of Financial Aid Salomon Medina.  “I usually ask students to treat their student loan planning like part of their coursework,” says Medina.  “Take your time, pay attention to the details, weigh your options and make thoughtful decisions from day one – or you could be paying for mistakes later on down the road.

Treating graduate student loans like an afterthought isn’t the only potential pitfall for incoming MBA students.  In his 4 years counseling prospects and students at Rice University’s Jesse H. Jones Graduate School of Business, Medina has seen more than a few mishaps that can cost borrowers both time and money.  Here, he shares five important actions you can take to avoid the most common mistakes, and get the best graduate student loans available.

Action #1: Be proactive in your education finance planning
“I take a holistic approach to advising our prospects and students about education debt, and I encourage them to do the same.  It’s about more than just picking a loan off a list and doing the paperwork – your loan strategy needs to fit into your total financial plan. A graduate degree is not an impulse buy. Financial planning a year or two (or even further) in advance, will offer considerable payoff in the future.

For example, before they’ve even applied for the program, I advise prospects to set up a budget spreadsheet and start making cuts to their discretionary spending where possible. Something as simple as cutting back on eating out can free up funding that can then be used toward gaining ones degree.  Because here’s the thing – everything you finance with loans during grad school has an interest charge attached to it.  If you can reduce your budget now, you can borrow less later, which means you’ll end up spending less on interest in the long run.”

Action #2:  Understand your options and terms when applying for student loans
“In their rush to secure financing, I sometimes see students gloss over important loan information.  For example, they’ll hurriedly read some information about federal loans online, then mistakenly think that certain subsidized loan benefits (for undergraduates) also apply to their graduate level loans – Federal Direct Unsubsidized or Federal Graduate PLUS loans.  This is not the case, as terms vary considerably between undergraduate and graduate level loans.

As part of this, there is sometimes the misconception that federal loans are always the cheapest option.  Since many MBA candidates are relatively mature borrowers with a substantial credit history and financial foundation, they have private loan options available to them as well.  Sometimes those options can be less expensive – particularly if you have a strong credit score, which is one of the factors private lenders take into account when they offer you an interest rate.  Federal Graduate PLUS loans are currently at 7.21%, which is definitely possible to beat for some borrowers.”

Action #3:  Take factors beyond student loan interest rate into account
Many borrowers may not realize that Federal Direct PLUS loans carry a hefty origination fee of 4.292%.  That’s a sizable chunk off the top of your loans that you do not have access to, which, in addition to the interest rate, may make this loan type less desirable.  If you can qualify for a private loan with no or low origination fee at the same rate and term, that’s automatic savings right there.”

Action #4: Begin paying off student loan interest as soon as possible
“In most cases, interest begins accruing on the loan amount disbursed from the point of disbursement. In the case of Federal Student Loans, there is a repayment grace period for several months post-graduation.  At the end of that period, accumulated interest is usually capitalized (added to the principal) if you do not pay it off beforehand.  This means that, going forward, you’ll be charged interest on that interest, too.

A couple of thoughts here: First, starting to pay off some of your student loan interest while you are in-school is always a good way to go. Second, if you can focus on paying off your accrued interest before capitalization occurs, you can cut costs considerably.  Many borrowers take advantage of their grace period by not making payments on their accrued interest.  But I see “taking advantage of your repayment grace period” much differently – because what the lender is doing is giving you a chance to get ahead on your interest.  If you have the means, take them up on it.”

Action #5: Talk to an expert sooner rather than later
“When is it time for you to talk to your program’s financial aid office?   I would argue that it’s rarely too early.  I think of it as a pipeline, and I’m there to help from beginning to end.  I frequently attend our events and speak with prospects about whether the program is the right investment of time and energy for them, as well as whether it’s financially viable and what steps they might take to assure they are on the most optimal footing to pursue their educational dreams.  When candidates are accepted, I help them look at their big financial picture and come up with a financing strategy that meets their needs in the most cost-effective way possible.  And at graduation, as needed, I help them craft a repayment strategy based on their changing financial situation.

The bottom line is that education is a partnership, and your financial aid office is an important element in that relationship.  We’ve seen it all before, and we can help you make good decisions as well as avoid the bad ones.  Because getting an MBA is a challenging thing – we try to make the financing part less challenging where possible.”

*Editor’s note: This post has been updated from its original version in September 2014.