Whether you’re studying in the US or internationally, student loan debt is something you’ll likely need to wrestle with as you pursue a higher education. Although the US leads the world in student loan debt, students globally are grappling with the reality of rising educational costs.
There are a few strategies you can use to both reduce that debt over the long term and keep your finances from becoming overwhelming.
Here’s four tips for reducing your MBA student loan debt:
1. Start Early
Although many choose to take some time off between their undergraduate and postgraduate degrees, jumping back into your studies right away can actually save you hundreds of thousands of dollars in the long term.
This is because the job you get with a completed MBA is likely to pay far more than the job you’ll have during that gap period, and those extra years of higher pay can really add up. In a Journal of Education for Business study, findings suggested that beginning your MBA just two years earlier can earn you an extra $100,000 by the age of 30.
2. Pay Off Private Loans First
As a general rule of thumb, it’s better to pay off the debt with the highest interest rate first, as this will save a significant amount of interest payments over the long term. While most federal loans come with interest rates that range from 4-8% and are usually fixed, private loans can be variable and range as high as 18% or more.
Private loans also tend to come with more disadvantageous terms. If possible, avoid private loans entirely, but if not, pay these off first. The less you pay in interest, the quicker you’ll be able to pay down your debt in total.
3. Pay More Than the Minimum
The payment term for student loans is generally 10 years. Making only the minimum payment each month means you'll pay the maximum amount of interest over the course of this decade. This is something you want to avoid. Each payment you make is applied to accrued interest first and the loan principal second. The more you pay each month, the more of the principal you’ll eliminate, which in turn will reduce the interest on your next payment. So, pay as much toward your loan as you can reasonably afford each month.
Consider putting windfalls, like tax returns or unexpected monetary gifts, toward that debt. You can also choose to make micro payments, such as weekly instead of monthly installments. Because most student loan interest is compounded daily, splitting a $200 monthly payment into four $50 weekly payments can reduce what you pay in interest by thousands over the full course of a loan.
4. Sign Up for ACH
Signing up for ACH, or automatic payments, comes with two big benefits. First, automatic payments ensure that you’re never late in paying, so you won’t get hit with any fees or penalties. Second, many loan providers offer an incentive of a reduced interest rate for signing up for ACH.
Typically, this is a 0.25% interest rate reduction. Although this seems small, this can actually create a significant saving in interest payments over several years, especially if your student loan debt is high.
Don’t let your student loans become an unwieldy source of stress and worry. Put these tips to use so you can take control of your student debt, and pursue your chosen MBA with confidence and enthusiasm.
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