Going to business school just got a little more expensive.
Each year, it’s pretty much a rite of passage that every school hikes its tuition and fees between 3% and 5%. But this year, there’s a less visible but far more enduring increase—in the cost of student loans to get the MBA.
The impact of those changes on an MBA borrowing $100,000 or more to finance her education could add more than $5,000 to the total cost of the degree. Average MBA debt currently ranges from Wharton’s $114,339 to Chicago Booth’s $71,839. The median for a top ten business school was about $88,500 last year. The minimum interest on the median debt would run to more than $40,000 if the loan were repaid within ten years.
ORIGINATION FEES ON STUDENT LOANS JUMPED ON JULY 1
The increases start from day one, with higher loan origination fees. Those fees on Stafford loans have doubled, from 0.5% to 1% as of July 1. In the past, students who took out Stafford or Federal Plus loans had to fork over a 0.5% origination fee on their borrowings. If they missed any of their monthly payments in the first year, the government would add an extra 0.5% onto their loans. Now the fees are 1% from the start, no matter what.
Of course, the lower interest Stafford loans are limited to a maximum of $20,500. Most students then pile on more borrowing by taking out a federal Graduate Plus loan. The origination fee for this loan increased to 4% on July 1, up from 2.5%. The interest charge on a Stafford loan is currently 6.8%, while the charge on a Graduate Plus loan is 7.9%.
GOVERNMENT ACCRUES INTEREST ON STAFFORD LOANS WHILE YOU’RE STILL IN SCHOOL
Besides the increases in origination fees, students also will have to begin paying interest on their Stafford loans immediately. In the past, no interest accrued on those loans as long as they were in school and for six months after graduation. That quickly adds up over a two and one-half year period: A student maxing out their $20,500 Stafford loan at the start of an MBA program, will rack up an additional $3,485 in interest.
Christopher Chapman, president and chief executive of Access Group, a national nonprofit lender focused on graduate and professional schools, told BusinessWeek he is worried about the impact the new loan regulations will have on people considering graduate programs.
“I don’t know whether that will [affect] a person’s decision to go and get an MBA, but it certainly adds to their debt burden,” he told BusinessWeek. “It is a meaningful increase in debt to what is already a fairly highly debt load coming out of an MBA program for most people.”