Financing Your MBA

by Carrie Shuchart and Chris Ryan on Print Print

An excerpt from the new book Case Studies & Cocktails by Carrie Shuchart and Chris Ryan

An excerpt from the new book "Case Studies & Cocktails" by Carrie Shuchart and Chris Ryan

Just thinking about the cost of an MBA is enough to give you a case of angina. But before you start searching for your insurance card and calling 911, remember that this is an investment in your future, an investment that should teach you the practical application of calculating an ROI (return-on-investment), which is almost certainly positive.

Funding for an MBA can come from a variety of sources. The most realistic ones are financial aid/loans—federal and private; personal savings, grants and fellowships, and work-study positions. The most unrealistic sources of money? Highly-paid part-time work, that really rich uncle, online poker, day trading, and insider trading (we’re kidding, of course).

And while everyone has to figure out how to pay, there is no universal approach. This part of MBA planning is unique to you. Your resources, school, citizenship, and credit history will all play major roles in defining your payment approach.

Don’t be afraid to ask for help. Check with your school for the latest in advice and resources; opportunities (particularly for international students) will differ from place to place. This is a massive undertaking, it’s complicated, and there are people throughout your school who have much more experience with this stuff. Just because it has to do with money and you’re in an MBA program doesn’t mean that you’re expected to know all of the answers.

Financial aid officers, as well as other students, are great resources. Ultimately, though, finding the right mix of loans will take time and effort on your part. At least there are a lot of free pizza lunches in your future.


The majority of funding for loans comes from the federal government. However, times (and terms) have most likely changed since you last applied for federal student loans. As of the 2010-2011 school year, many loan products will be appearing under new names:

The Stafford Loan is now called the Direct Loan.

The Grad PLUS Loan is now called the Direct Grad PLUS Loan.

These name changes are a result of changes in the law; all future Stafford and PLUS loans will come directly from the U.S. government.

Federal Perkins Loans, which are common for many undergraduate students, are much less useful for business school students since these loans require demonstrated financial need, are limited to $8,000 a year, and are capped by a $60,000 lifetime limit. If you have Perkins loans at this amount from your college days and/or are unable to show need, you need to look at the other loan products. However, one of us had a little Perkins loan for business school; he always felt good paying it since it was administered directly by the university and came with an old school booklet with tear-out coupons for payments. With a fixed five percent interest rate, Perkins loans are as safe as houses and cheaper than the Direct loans, so if you qualify and you want Uncle Sam’s money, take this type of greenback first.

Many students rely on a compilation of the two Direct loans for the bulk of their financing, since these loans, in theory, can get you all the way to the school’s estimated budget. How much you can borrow is limited by the government and varies from school to school. (Remember that the ‘student budget’ your school provides is computed in accordance with federal requirements that assume a ‘modest’ lifestyle. Your school is not trying to be disingenuous when its room and board figures seem to imply that you will live with an actual roommate.) The chart below lays out a few of the characteristics of the key federal loans:


Direct Loan (Stafford) Direct Grad PLUS Loan
Maximum Amount $20,500 per year The school’s student budget minus any other financial aid received (including a Direct Loan)
Interest Rate 6.8% (1.0% origination fee), fixed 7.9% (4.0% origination fee), fixed
Interest Accrual 

(how your overall bill grows while you’re in school)

Subsidized portions accrue no interest during enrollment, grace, and deferment periods 

Unsubsidized portions accrue interest over the loan’s lifetime.

Interest accrues over the entire lifetime of the loan, regardless of your student status
Eligibility Based on demonstrated financial need 

Available to U.S. citizens and eligible non-citizens enrolled with half-time or greater course load

School must participate in program 

Available to U.S. citizens and eligible non-citizens enrolled with half-time or greater course load

Repayment Terms Standard repayment is 10 or 25 years 

Repayment begins six months after graduation or when enrollment drops below half-time

Stanfard repayment is 10 or 25 years 

Repayment begins six months after graduation or when enrollment drops below half-time


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  • Liza Mae Villarante

    Thanks a lot for your guide.  I am a working professional, a project manager/administrative officer in the Philippines, with also a good scholastic records, and a barrister.  However, money is hard to find here for an MBA program.  What scholarship can you suggest for me?

  • Rackbar

    Great article, but a useful addition to this article would be to include the names of some of the better private loan organizations. Which banks are best and have the most favorable terms to students? Is Sallie Mae better than the major banks? Do credit unions have more favorable terms? Furthermore, some more details on the best way to obtain a credit score would also help. 

  • IMD Applicant

    Great! Looking forward to read one. Excellent work on the site, John. Many thanks.

  • KE

    This needs to be updated because the gov’t no longer provides subsidized grad loans.

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