Financing Your MBA

I'll start, here's a model from a guy whose never done any financial models.

I assumed you make one payment at the end of each year, paying off the interest for the entire year and 20% of the principle. This has the following implications:

- total interest paid is pretty low, no matter the type of loan, since you pay it off in only 5 years.
- the effect of a very rapid increase in interest rates is not reflected well because you are paying off the principle so quickly
- the total interest paid is actually higher than it would be, since a normal payment plan would have you making principle payments monthly

Five scenarios based on a $10K loan.
1. You get a private loan at prime (3.75) and it never goes up (v. unlikely)
2. You get a Grad Plus at a fixed 8.5% rate.
3. You get a private loan at prime (3.75) and it goes up 100 bps each year. This is reasonable since prime was 5.00 last year.
4. You get a private loan at prime (3.75) and it goes up 200 bps each year. Not unreasonable in the current economic climate.
5. You get a private loan at prime (3.75) and it goes up 300 bps each year. Probably a worst case scenario.



RF