Financing Your MBA

This is a great resource. Sounds like I have some comparing to do! Thank you!



Also great information. To move a little into realm of best practices, from the little I've come to the following conclusions (correct me if I'm wrong):

Fed vs. private : In general, it seems like Fed are slightly more forgiving in terms of economic hardship, deferral options, etc. Unfortunately, given that PLUS loans have a 4.288% origination fee, it sounds like you pay a premium for this. Something I'm not really planning to take advantage of (If I am unemployed post-MBA, I have bigger problems).
Fixed or variable - Seems like interest rates are low now but will likely rise over the next few years (they really can't get lower). Seems like a gamble, and for the sake of having consistent payments, fixed seems to make sense for those of us who are more risk averse / like to plan (variable rates are evaluated quarterly). The downside being that variable rates seem to be a few points lower initially than fixed.
Deferral options - Seems like this depends largely on your means. If possible, it seems like paying off interest while in school is a good bet (otherwise you'll end up paying interest on your interest), though dollar-wise I'm not sure how much of a difference this makes.
Rate discounts or graduation reward $ - Haven't read anything about this... not sure how important it is?
Cosigner vs. none - Seems like having a cosigner (if you can find one) might lower the interest rate you pay... finding one if possible seems like the way to go if you have a family member with good credit.
Any fees (Rare. CommonBond has origination though) - If Federal didn't have such a high fee (highest I've seen from the few possibilities that I've looked at), I probably would just go with the default option. Working to avoid these (with the rate as high as it is, you're effectively paying another year of interest right out of the gate).
Repayment length and flexibility - Seems like lengths go from 5-30 years. I plan to live like a pauper for a few years after I graduate and although I'm planning to pay for tuition almost entirely with loans, I'm hoping to pay off my loans within 5-7 years. Federal seem to be the most flexible in terms of repayment, though again, it seems like you pay a premium for it.

There also seems to be the option to refinance or consolidate after you graduate (it seems like SoFi mostly exists to allow you to refinance interest rates at a lower rate). Again, not sure how often this is done in practice.

Am I on the right track?

My thoughts on your comments.

Fed vs. private : Pretty much on the right track. If you're going the Fed route, start with Stafford. I haven't checked current rates, but as of last year interest/origination was 5.41/1.051% on Stafford and 6.41/4.24% on PLUS. Stafford graduate loans are capped at $20,500/yr and unsubsidized.

Fixed or variable - Again, you're pretty much spot on. For me, I figured a payback between 2-4 and felt that raising rates were unlikely to catch up with the savings. It sounds like I'm a bit more risk-neutral than you. You're reasoning is sound.

Deferral options - You could calculate the impact pretty easily. It's probably in the $5-10k range. The big difference is in the interest rate on a private loan. I found a 1-1.25% rate difference between full deferral and interest-only. I'm sure full repayment would have been lower still. Of course I would have had to borrow more to make those payments, which doesn't make sense. I opted to defer about 75% and go interest-only on 25% of the COA through two different private lenders.

Rate discounts or graduation reward $ - Rate discounts make a direct impact. Typical discounts might include .25% for having other accounts with the lender or .25% for setting up automatic repayments. Discover offers a 2% graduation reward. Some of the other too. You could calculate these back in to the APY if you wanted apples-to-apples.

Cosigner vs. none - Yup. You're rate can only be lower with a cosigner. I'm married, so my wife was a pretty safe bet.

Any fees (Rare. CommonBond has origination though) - Good points. Don't forget the relatively low fee Stafford's though.

Repayment length and flexibility - For private lenders, you'll typically get a better rate for committing to shorter repayment terms (.25-.5% per 5 year term reduction). Whereas, I was aggressive in figuring my repayment term for the fixed/variable decision, I was conservative here. Just in case something awful happened, I didn't want to be under the gun on a 5 year repay. I didn't consider anything less than 15, just to cover my ass.

I'll figure out refi when I get out, but there are definitely options. I also took the entire COA this year and will pay down the last of my higher-interest rate u/g loans with the money I have leftover. Call it a personal consolidation.

One final note on credit reporting. The FICO formulas generally consider all hard inquiries for the same type of loan (student, auto, etc) within a 30-day period to be a single inquiry. To reduce your credit score hit while loan shopping, apply to all potential lenders at the same time.

Once you've applied, the lender emails will come hot and heavy for you to accept your loan. Really, you probably have 30-90 days to accept. Just get to the point where you can compare your specific terms and then make a decision.

The reality of paying for school is now setting in and what was pure joy earlier this week has turned into a bit of stress...

Somehow I managed a fairly sizable scholarship but even so I'm looking at 50k+ in loans with my meager savings to date (~$30k). Should've saved more these past few years

I'm in the exact same boat. I had to call them to make sure they weren't mistaken... When I realized they were serious I let out a laugh. I wonder what you have to do to get the 2.5% from Sallie Mae...

Discover and CharterOne (Citizens Bank) were far more reasonable.

^yup. Mine are split between Discover (4% var. after discounts, full deferral) and CharterOne (3.25 var., interest only in school). CharterOne's servicer FirstMark is a PITA, but the rate makes it worthwhile. Discover is easy all around.

Sterling credit, good income at time of app, wife co-signed.

If you're shopping loans, keep in mind all apps for student debt within 30 days only count as a single hard inquiry for credit scoring purposes. Apply everywhere at once.

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Would you mind sharing why you selected two instead of going with either only CharterOne or only Discover?
Also, what makes CharterOne a PITA? (had to google to find out what this meant)

Sorry for the mysterious acronym. PITA = pain in the butt.

I split the loans, because I wanted to minimize my total interest costs. Lower rates are typically available for shorter repayment terms and less flexible deferment options (full pay or interest-only in-school). I applied to 7-8 or different lenders and each offered 3-10 combinations of rate/term/repayments. I think my repayment will be relatively short, but didn't feel comfortable locking myself into a 5-year plan on the whole amount. I took about 25% of the COA in a very low-rate, short repayment, interest payments in-school loan. But I took the rest in a moderately low rate, long repayment, fully deferred loan to provide flexibility.

CharterOne was great during the application process. A bit pushy when it comes to signing, but that's true for all lenders. After I signed, they turned my account over to a 3rd party servicer, which is pretty typical for many loans (student, auto, mortgage). The servicer, Firstmark, is lower-tech and much less responsive. They were supposed to have a 30-day turnaround on my autopayment setup (hardcopy form via snail mail) and they kept screwing it up. In total, it took 4 months and several hours on the phone to establish autopay and I lost out on the interest rate discount in the meantime. My emails and phone calls were completely ignored during the process.

Anyone familiar with Federal Perkins Loans?

My EFC is decently low at 3000 (yay children!), but I wasn't offered any. How low do I need to get my EFC to qualify for Perkins?

Check with your school to see if they participate in the Perkins Loan program. Not all do. Others (like Booth, I think) offer Perkins for 2Y only.

This is good to know - thanks.

Sallie Mae and Discover both quoted me variable interest around 7%, which seems ridiculous to me considering my credit score, income/debt ratio, etc. My undergrad loans were ~3.5%. I'm not sure if it's a sign of the economy getting better or if grad loan borrowing is more stringent from private lenders.

At this point I'm better off doing Federal Stafford loans with the origination fee and the 5.41% interest. I'll have to check out Charter One.

Thanks again - please keep me in the loop if anyone finds rates more competitive than Federal Loans.

Don't forget you can only get Staffords for $20,500/year.

Did you apply with a consigner? I think that contributed quite a bit to my low rates.

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I applied for the Sallie Mae loan with a cosigner (was quoted the same rate with and w/o). Discover was quoted w/o cosigner. I'll try to get a cosigner for the others. Thanks again, good info to know that competitive rates are out there.

Definitely check out Citizens Bank (CharterOne). My variable loan rates for Sallie Mae/Discover/CitizensBank were about 7/4/2 %. And as Brandon mentioned, definitely try to find a co-signer - they can only help (in terms of interest rates).

It's also possible the landscape has shifted in the 10 months or so since I've applied. I'm waiting until July or August to apply for next year to see how some scholarships and my full-time employment offer shake out, so I won't be able to update until then.

Great advice! Thanks for sharing!!

Wanted to share this article I just read from the CEO of SoFi on taking out fed loans vs private loans

https://www.sofi.com/blog/still-school- ... -graduate/