Financing Your MBA

In an era of exceptionally low interest rates, it’s annoying that the rates are so high on these federal loans. After all, you’re getting a very marketable degree, and the government is at low risk because it has greater power to collect on these loans than lenders have on most other kinds of loans.

But the government does what the government wants, and we all gotta deal. Many other MBAs will use these borrowing options, so don’t feel as though you are alone in feeling the burn. None of these federal loans penalizes you for prepayment, so if you make big bank on your summer internship or first job, you can take swipes at the federal debt loan without penalty. If you can’t get cheaper private loans, the federal loans are a sturdy backup.

To start figuring out your options, you first need to fill out the FAFSA, the Free Application for Federal Student Aid. (Unlike business school, you don’t have to pay to apply—the title guarantees it!) The FAFSA becomes available on Jan. 1st for the school year that begins the following fall. You must have completed your tax return for the year before you can submit the FAFSA, so you might have to wait until after April 15th. Check the due date; you will probably have to submit the FAFSA no later than July 15th prior to enrollment.

Your FAFSA should be processed in three to five business days, at which point you will receive an email Student Aid Report, detailing how much aid you are eligible and in what forms. The same form should show up in about seven to ten days via snail mail.

That July 15th date also applies to a number of different things, including the date by which you must file a Master Promissory Note if you are taking out any federal loans. These loans, if approved, also require that you undergo counseling. Not on-the-couch, talk-about-your-mother kind of counseling. But you do have to do an online workshop before they will cut you a check for tens of thousands of dollars.

The key to this process is to follow the suggestions and recommendations of your school. And definitely remember to pay attention to deadlines, since that’s what they are. Just like with that whole April 15th deal we American citizens have come to know (and not love), when the federal government wants something on a particular date, it means it.

If you are approved for loans, they will come in two chunks, one for each semester. As we’ve mentioned, this means that you will be starting the semester very, very flush and finishing it substantially less so. Be sure that you always have enough cash on hand if your loan checks are late or you incur unexpected expenses at the end of the semester.

Your loan amounts may also be adjusted if you decide to take on additional education-related expenses. Most schools are able to increase your federal loan amount to cover school-sponsored, educational trips, such as those to visit businesses in other countries. Trips to Rio for Carnival, though perhaps highly educational in a variety of ways, are not considered legitimate reasons to increase loans. Sorry.


While having money to pay your tuition is lovely, some day you will have to think about repaying those loans. As described before, most federal loans have a six-month grace period from the time that you complete your degree or drop below a half-time enrollment. After that, payments must be made. So, what does that look like?

Funny you should ask, The chart below is a simple model based on Wharton’s 2010-2011 budget of $84,000. To compute two years, we simply doubled all of the numbers, even though we know that the likelihood is that the second year will be more expensive than the first, given both increases in tuition and cost of living. (To insert your own numbers, use this model.)

Ten-Year Repayment Estimate

$20,500 Direct Loan$63,500 Direct PLUSSum of two loansDoubled to cover 2 years
Loan Balance$20,500$63,500$84,000$168,000
Loan Fee1%4%
Adjusted Loan Balance$21,970.84$74,018.32$95,989.16$191,978.32
Loan Interest Rate6.8%7.9%Effective 7.65%
Loan Term10 years10 years10 years10 years
Monthly Payment$252.84$894.14$1,146.98$2,293.96
Cumulative Payments$30,340.94$107,294.82$137,637.75$275,275.51
Total Interest Paid$9,840.94$43,796.82$53,637.75$107,275.51


  • KE

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

  • IMD Applicant

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

  • 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. 

  • 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?

  • Nancy John

     cool  post about Financing your MBA

  • b-school guy


    When you the new P&Q rankings come out for MBA and EMBA?

  • Michael,

    Thanks for letting me know. I’ll track down the authors and see if they can provide a working link.


  • Michael

    On page 2 there is a link for a model to insert your own numbers in a loan payback chart. However, the link doesn’t work.

    Could you get me a working link please?


  • Alok,

    We’re working on that. Check back soon!

  • Thanks Jane!

  • This is a great article. I will appreciate if P&Q come up with a similar article for international applicants (including those who do not have US co-signer).


  • Jane, great to know that it’s so helpful!

    We’re on Facebook. Please stop by and ‘like’ us 🙂!/pages/Poets-Quants/117025308342232

    All the best,

  • Jane

    Kudos John!

    This website answers questions, and produces comparisons and infomation that are most interesting to Pre/current and Post MBA folks.

    It releases my thoughts on schools and rankings of all sorts…..debt, GMAT, top MBA…..MBA advice.

    I love this website. You should create a facebook page……for us all to ‘like’!

  • Saleem and Cristian,
    We’ll check into that. I think an article on international student scholarships is a great idea.

  • Cristian Vasquez

    I am wondering the same thing. Is there any type of private fellowships or scholarships available for exceptional International Students? Information on this would be greatly appreciated. Thanks!

  • Where can I find financing information for International students in US? Is it easy for international students to get loans, if gets admitted in one of top 20 US business schools?


  • Chris – Kellogg

    I’d also suggest considering doing a part-time program, allowing your normal income to pay for (at least) your living expenses and (hopefully) some of your tuition. Most schools have evening and/or weekend programs available.

    The immediate problem with an evening program is that you might not live in the city where your first choice school is. You can check to see if your company will allow you to relocate to a new office or work remotely. The weekend program at Kellogg has a significant portion of the students who travel to Chicago by car and plane, from as far away as Seattle and NYC.

    Most programs offer career services to their part-time students also, so the opportunity to jump to into Consulting from Engineering is still an option.

    I’d caution those considering accepting employer sponsorship. Other than the usual agreement to work at a company for a couple of years after graduation, many schools will not allow you to participate in their formal placement programs. It is considered an ethical conflict for the school to take your employer’s money, then help you find a new job. I’d recommend only taking their assistance if they’re offering enough to offset that opportunity cost, and there’s some type of growth plan being discussed.

  • tim

    Yeah, the actual GI Bill terms are far more complex. For those commissioned through the OCS college option are also a special case – I believe they only have to serve their 3 year active commitment post 9/11. For ROTC, it also depends whether they were on scholarship or not.

  • With respect to the 9/11 GI Bill: “You must serve beyond your four-year military commitment.”

    Not true. This only applies if commissioned from a service academy or ROTC (in other words, the government paid for undergrad). Otherwise, the four-year commitment fulfills the 3 years of active service after 9/11/01 required by the GI Bill.