Submitted by Nicole Lindsay, a career development expert who is working on her first book about women and business school. She is a former MBA admissions officer, MBA recruiter and non-profit executive. Connect with Nicole at @MBAMinority.
Taking on student debt can be scary, but for many, it’s a necessary step in earning an MBA. Weighing the pros and cons of taking on debt and making sound financial decisions as you prepare to return to school can make all the difference in forging a realistic plan to earn your degree.
If you’re thinking about going to business school, you’re probably wondering how you are going to pay for it. Between tuition, fees, books, and other expenses, getting an MBA requires a significant financial investment. Hopefully, scholarships, fellowships, employer tuition reimbursement benefits, and your personal savings will help you offset the costs. If that’s not enough, then taking out student loans is likely your next option. The idea of borrowing money to pay for school can be pretty daunting for potential MBA candidates, especially considering that it might take twenty years to pay the loans off. It’s like having a mortgage on your brain! Here are three steps that you should take to get comfortable with using student loans to finance your MBA:
Understand the Pros and Cons of Student Loans
A strong case can be made for taking out student loans to pay for graduate school. Borrowing money to pay for tuition and other expenses can provide you with access to an educational opportunity that you might not have been able to afford otherwise. Like MBA candidates before you, taking out student loans to attend school can be a means to further your career. By making this investment you have the opportunity to significantly increase your earning potential and boost your salary after graduation.
While student loans can open up tremendous educational opportunity, they are not without drawbacks. You are responsible for repaying the loan with interest. Each month for ten or more years, you will pay a loan bill for a degree that you have already earned, reducing the money that you have to spend on other things. Aware of your student loan burden, you may feel pressured to accept a job in a higher-paying field rather than in your field of interest. You may also feel like you can’t take certain risks or pursue other opportunities because you have to repay your student loans.
Borrow As Little As Possible
While student loans can be easy to obtain, the money you receive is not free. Minimize the impact of your student debt on future financial situations by borrowing as little as you possibly can. There are two ways to lower the student loan that you’ll need, reduce your costs, or increase funds from other sources. Unfortunately, you won’t get a 20% off coupon on your tuition, but you can pare down your spending and take action to lower your cost of living while you are in school. This might include getting rid of your car in favor of a bicycle for transportation or opting to live with a roommate to cut housing costs.
You can also limit your student loans by securing funds from other sources. Apply for every scholarship that you can – even a $250 stipend can offset the costs of books for a semester. Save money in advance to cover your living expenses during business school. Set specific and attainable savings goals by developing a monthly budget and being more mindful of your spending habits. Shop around for deals and explore ways of getting things for free (for example, checking out books and DVDs from the library or swapping clothes with friends).
Formulate Your Loan Strategy
As you prepare for business school, develop a student loan strategy that accounts for your debt comfort level and for future financial flexibility. We each have different comfort levels with borrowing money so formulate a student loan strategy to fit your borrowing philosophy. If you only buy something when you have the cash to immediately pay for it, you might decide to avoid student loans completely or opt to pay off your student debt as quickly and aggressively as possible upon graduation. On the other end of the debt spectrum is someone who thinks nothing of borrowing money. In this case, you would feel very comfortable spreading your loan repayment over a ten- to thirty-year period. Most of us are someplace in between – we’re not opposed to debt, but would rather not have it if possible.
In a perfect world you would have complete financial flexibility to do or buy anything you want, but in reality the decisions that you make now will impact your future financial situation. As you formulate a loan strategy with an eye to the future, consider the maximum amount of loans that you are willing to borrow in light of your personal and professional goals. Determine how you will repay any student loans that you secure. Understand the loan repayment and forgiveness options; for example, some schools offer loan forgiveness to alumni who choose traditionally less financially lucrative career paths, such as non-profit. Finally, put yourself in a position to get the most favorable loan terms, by strengthening your credit history and reducing consumer debt.
Visit mba.com for more information about financing your graduate business school degree.