Thanks Uncle Sam – Earning An MBA Just Got More Expensive

Major changes recently occurred to major federal student loan programs and anyone interested in pursuing an MBA should take note.  These changes will have dramatic effects on borrowing costs, and should be taken into consideration before one starts down the MBA path.  I’ve written on this blog before about the importance of choosing an MBA program best suited to one’s financial situation.  I selected CSUF because it allowed me to earn my degree part-time, continue working full-time, and still be able to graduate without carrying any student loan debt.

That last factor has become more challenging for students considering MBA programs.  Student loan debt has been rising, and these federal student aid changes will do little to improve that situation.  These major changes to Stafford loans and the Graduate Plus Loan Program will force most students to more carefully consider the costs of MBA programs they are choosing.

Stafford loans have been a popular financial aid vehicle for students funding their education.  Students are allowed to borrow up to $20,500 and don’t need to begin making payments until after they’ve graduated.  In the past, the interest on those loans didn’t start accruing until the student graduated as well.  In addition, the student was granted a 6-month grace period following graduation before repayment needed to start.  Here’s the problem – interest now begins accruing on the loans immediately.  What kind of effect can that have on a one’s borrowing costs?  According to Bloomberg Businessweek, a student who borrows $8,500 a year would pay an additional $1,773 in interest!  To put that $8,5000 in perspective, that’s approximately my yearly cost in CSUF’s part-time MBA program.  That seemingly slight change to the lending rules can add 20% to the cost of attending school – a hefty sum to pay in a particularly challenging job market.

Another major change affects both Stafford and Graduate Plus Loans.  The government has increased the origination fees one must pay when borrowing from these programs.  Stafford origination fees rose from 0.5% to 1%, and Graduate Plus fees have increased from 2.5% to 4%.  What does this mean for MBA students?  Mainly, it begins to make private student loans more competitive.  They historically haven’t been the first financial aid choice for students because they tend to have higher interest rates.  These recent changes now make public and private student loans more competitive.  However, that isn’t saying much.  Students may now have more lenders to choose from, but they still end up paying more for their education.

My advice – pay careful attention to the total cost of earning an MBA.  And that doesn’t just include the costs of tuition, books, and loan interest.  Be sure to weigh the opportunity cost of lost wages (if you’re earning a full-time degree and can’t work), and be sure to consider costs like moving expenses if you’ll be going out-of-state.  Making the decision to earn an MBA is a huge decision.  The recent changes to federal student aid don’t make that decision any easier, and illustrate just how weighty a financial decision it can be.

What’s your experience with federal student loans?  Are you concerned about having to take out loans for school?  Leave your comments below or send me a message on Twitter @orangecountymba.  I’d love to hear your thoughts on this topic.

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