August 5, 2022Read More
In a recent article in Entrepreneur, Cecilia Clark dives into recent trends in MBA program return on investment and student loan repayment. Historically, MBA programs are often publicized as one of the few graduate degrees that consistently provide a high return on investment.
A few recent data points support that perspective. Graduate Management Admission Council, for instance, projects 2021 MBA job placements to increase by nearly 20% from 2020. In addition, 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 are reporting class of 2021 job placement rates at 97% or higher 90 days after graduation. These 2021 data anecdotes are certainly helpful in the ROI argument for MBA programs.
However, Clark notes that business schools in recent years are becoming less forthcoming when it comes to reporting students’ average debt loads. She highlights a 2018 publication from the National Center for Education Statistics (NCES) that reported the average MBA graduate finished their schooling with over $66K in student loans. NCES highlights average debt loads from a few of the top schools including Northwestern’s Kellogg topping $106K, Duke’s Fuqua over $82K, and Chicago’s Booth at over $79K. Those debt loads all exceed the average $66K balance and are nothing to sneeze at when considering MBA ROI.
In terms of repayment plans, Clark highlights three options:
Standard repayment plan
The typical standard student loan term is 10 years, and all federal student loans come with 10-year terms as well as many private student loans. Clark argues that standard repayment plans are a good option for students who value stability and predictability as you will know your exact monthly payment and total interest cost. However, students with different debt balances need to factor in their financial goals as this kind of repayment plan ties up discretionary spending each month for a decade.
Extended repayment plan
These repayment plan terms allow longer payback times through a federal government program. For MBAs, extended federal payment plans through the Federal Student Aid Office called Income-Driven Repayment (IDR) offer several options that can lengthen repayment to 25 years. In addition, private lenders typically can provide more flexibility for customizing longer repayment terms. The advantage of extended plans is a lower monthly payment than the 10-year standard plan; however, students will need to check how the interest rate varies due to the extended length; the total interest on the loan will inevitably exceed the 10-year standard option.
Expedited repayment with refinancing
The third option is paying off student loans faster through refinancing with a shorter loan term such as five years. However, this option is not available through the federal government and will require refinancing with a private lender. For federal loans, you could pay extra each month to pay off the loan faster but there is no official program to shorten loan terms. Refinancing through a private lender could be more beneficial as there is a potential to shorten both the loan term as well as the interest rate. The downside to paying off a loan faster is it ties up even more of your discretionary monthly budget and will require a reassessment of financial goals.