So you want to get an education, and who can blame you? Boning up in your desired field makes you more likely to get a job you love, and it can lead to greater opportunities and a more stimulating life overall.
Unfortunately, as you well know, getting a college or graduate education is expensive. According to the National Center for Education Statistics, an average year at a 4-year institution costs more than $37,000. Multiplied over the course of a university education, this totals about $148,000, and that doesn’t even take into account the cost that many students pay if they want to continue to graduate school – in which cases, funds can climb to $50,000 a year or more. While some families or independent students can afford to pay their way, most are not so lucky and will need to borrow.
That’s not to say that you need to fear school, however. The many benefits it can bring very frequently outweigh the burdens created by the cost, so if you’ve decided you want to go to business school, it’s time to figure how to fund the trip. In this article, we will focus on student loans, which most people do need to leverage in order to get through school. However, it’s important that you make the smartest possible financial plan, which is why we’ll also take a look at other ways to pay for school and how to manage debt upon graduation.
If you’d like to skip to more specific topics, you can navigate through them on the left. You’ll learn about alternatives to loans that you have to pay back, different types of loans, loan options for different degree levels and for online education, qualifications and applications, and how to avoid getting into unmanageable debt.
Before we go any further, it’s important to stress that taking out loans is not ideal. Wherever possible, you should try not to borrow anything at all. Some students are able to accomplish this by working all through school, living with their parents, being supported by a spouse or taking the majority of their classes at a community college before finishing their degree at a 4-year institution. Even if it means taking longer to graduate or attending a slightly less prestigious institution, it can be well worth it if it means avoiding debt.
If you aren’t able to accomplish this due to your particular circumstances – which many students are not – that’s okay. But before you take out loans, the next step is to start hunting for money that doesn’t require repayment and interest.
One option is to find employers that will pay for your education. Perhaps you already work for a company that would be willing to pay for your school in exchange for a promise to work there a certain number of years afterward. Some employers will even hire you with the agreement that you can get educational funding at a later date.
If you’re so inclined, you can explore military options that grant education in return for a certain amount of service. However, since most business school students are graduates looking for MBAs, this usually isn’t as feasible. If you, however, don’t yet have an undergraduate degree, this might be an option.
You can also apply for grants and scholarships, but since neither of these requires repayment, they don’t fall under the heading of “loans.” However, for the same reason, they should be your go-to before borrowing. You can search for these online, through government institutions, through private institutions, through the school you have been accepted to, and more. Anything you can do to minimize your debt burden is wise.
Again, though, most students can’t get through school without taking out at least some loans, so let’s turn our attention to those now.
Many types of loan exist. Before you pick one, make sure you’ve considered all of the options so that you get the best deal with the best repayment terms. The two basic loan types are:
- Government Loans: The government offers two types of loans, subsidized and unsubsidized. The latter results in significantly higher interest rates over the length of your repayment period. We will explore different types of loans by degree level in the following sections. You may apply for government loans through the Free Application for Federal Student Aid, more commonly referred to as the FAFSA.
- Private Loans: You can obtain these types of loans from banks, lending companies such as Sallie Mae and other privately owned institutions. While these are necessary for many students, the repayment terms are not as generous.
The main difference between these two types of loans is interest rate and flexibility. It is often more difficult to get flexibility with repayment from private institutions – though by no means impossible – and interest rates are almost always higher. Even unsubsidized government loans have more lenient rates than private loans, which is why you should always complete your FAFSA to the best of your ability before exploring options in the private sector.
Because private loans are much the same regardless of your degree level, there isn’t much more to be said on the topic. However, federal funding varies significantly depending on degree level, so let’s address that next.
While “business school” often refers colloquially to the MBA, or Master of Business Administration, you may attend business school as an undergraduate. In fact, many business students begin and end their careers with a 4-year degree, so if you have not yet completed undergrad and want to work in business, this is a smart way to go about it.
Most (though not all) students attending colleges and universities for undergraduate degrees have parents who still claim them on their tax returns for some or all of their college experience. This is one of the deciding factors in how much money you will get, as the calculations for how much aid you’re eligible for depend heavily on the income of the person claiming you.
If you claim yourself – i.e. you are independent – then the amount for which you qualify will be different than if your parents claim you. Typically students make less than their parents, so being independent can lead to more favorable loan terms. However, if your parents are able to help you out with the costs of education, it is by no means worth it to become independent for that reason alone. Just know that this factors in to the government’s determination of your level of need.
How much you can actually borrow depends on a variety of other factors, including your school’s rules, what year in school you are, whether you qualify for subsidized or unsubsidized loans. If you qualify for the former, the government will pay the loan interest for you while you’re in school or your loan is in deferment; that is not true for unsubsidized loans. Your borrowing amount will also depend on whether or not your parents are eligible for a Direct PLUS Loan, an additional unsubsidized loan amount.
Luckily, you don’t need to figure out these factors beforehand. Just fill out the FAFSA and the government will let you know how much you qualify for. You do not have to accept it all if you do not need it, and it’s a good idea to take the absolute minimum amount. If you still need more, on the other hand, you can turn to private loans.
Master’s and Doctoral Degrees
Getting funding for a Master or Doctorate of Business Administration is similar in some ways, and different in others. For one thing, almost all graduate and doctoral degree students are independent from their parents, so their income no longer need be included on the FAFSA, which is still the document you will use to apply.
However, if you are married filing jointly, you will have to report your spouse’s income as well as your own. The government will then determine from there how much you’re eligible for.
The main programs for graduate degrees include the William D. Ford Federal Direct Loan (Direct Loan) Program. At the graduate degree level, the loans are all unsubsidized. If you need more than the amount offered, you can apply for additional Direct PLUS Loans, though again, you shouldn’t take out more money than necessary. If you have exceptional need, you may qualify for the Perkins Loan, which offers up to $8,000 per year depending on your financial situation.
You may opt to take business classes online as well as at a physical institution. Though this isn’t always the case, both undergraduate and graduate degrees are likely to have an on-campus requirement at some point in the program, so make sure you get the details before you apply.
Either way, many online programs are eligible for federal and private financial aid. They must be accredited, however, so make sure whatever school you apply to has its accreditation and is eligible for government funding. An easy way to check is to contact the school’s financial aid office. If they don’t have one, that’s a red flag right there.
It’s not enough simply to have financial need. In order to qualify for loans, you must meet basic eligibility criteria. These are different for all private institutions, financial and otherwise, so you’ll need to check with them individually.
For federal loans, the basic requirements are that you:
- Have an actual financial need
- That you be a US citizen or meet the requirements for eligible non-citizenship
- Have a valid social security number
- Be registered with the Selective Service if you’re a male between 18 and 25
- Be accepted into a qualifying program
- Meet academic requirements
- Have a high school diploma
You can check the eligibility requirements in more detail on the US Department of Education’s Federal Student Aid website.
To apply, complete FAFSA and all the requirements that come with it. This often includes such steps as completing entrance counseling, filling out a loan agreement, and taking a financial awareness seminar or class. Beware of all deadlines, which are hard, and follow rules regarding transcripts and tax reporting to the letter, or you risk disqualifying yourself without meaning to.
Beware of Debt
The average student came away from both public and private colleges with more than $30,000 worth of debt in 2015, which represented a 4 percent increase from 2014. Student debt is only increasing, a scenario that becomes more concerning when considering the fact that many people want to continue on to graduate education.
Debt is a reality, and unfortunately, so are catastrophic results of failing to repay it, such as bankruptcy. Once you graduate, you will have to pay back your loans. Even if you drop out of school, you will still be responsible for those loans even if you have not achieved your degree.
Of course, most people accrue debt when going through school, and that’s normal. But some students get in trouble upon graduation if they have not put a solid plan in place for paying it back. There are several options to help you make sure this is less likely.
- Work Study: Federally funded work programs that offer you money in exchange for working on campus.
- Loan Forgiveness: Funding that you may not have to pay back if you spend a set number of years upon graduation doing qualified work, usually federal or nonprofit.
- Income-Based Repayments: Repayment plans based on the amount of money you’re bringing it rather than strict repayment schedules.
- Grace Period: A period of time, usually 6 months, after school in which you do not have to pay back loans and, if they are subsidized, do not accrue interest.
If you want to earn a degree in business, loans are a great tool to help you accomplish that. But it is crucial you do not treat them lightly, as they can quickly pile up and become an uncomfortable or even dangerous burden in later life. Instead, take them seriously and use them to accomplish your business dreams, then move on to a life of career fulfillment and success.