4 Disadvantages of MBA Loans

MBA loans allow graduate students, looking to specialize in business, the opportunity to return to school. The goal of any MBA program is to increase knowledge in a specific area; such as finance, marketing or entrepreneurship. The cost of an MBA ranges from $50,000 to $200,000, depending on the type of program and school. Due to the high costs associated with the program, a student should consider some of the disadvantages of the program...

#1 Take Years to Pay Back

The first major disadvantage of an MBA loan is how long it will take to repay. Loans can be upwards of $200,000 and have an APR that adds to the total cost of the loan. This means graduates will be buried in debt after the program is completed. This is true of both private student loans and federal student loans, though federal loans tend to have slightly lower rates if you qualify for them. Most MBA graduates are between 25 and 35 years old. This means they may be in debt well into their 40s. Consider the financial position you would like to be in when you turn 40 years old and weigh the benefits of the loan.

#2 May Not Account for Living Expenses

Most MBA students have financial responsibilities many undergraduate students do not have. They are, on average, older and pay their own car loans, car insurance and medical bills. A number of MBA candidates will also have mortgages. MBA loans may cover the cost of tuition, books and other school expenses, but many do not cover living expenses associated with the life of an adult.

If you have bills to pay each month, in accordance with a salary you used to make before entering school, it will be very difficult to make ends meet on loans alone. Working full or part-time, while attending an MBA program, can be difficult because the programs are designed to be extremely rigorous and competitive. MBA students are also expected to take internship opportunities which may not pay well, or pay at all. 

#3 Put Pressure on Graduates Immediately

If your loan does not have a grace period, you will be expected to start making payment immediately upon graduation from your program. Many MBA programs promise job placement and high incomes, but the reality is not every student will see these benefits. 

#4 High Opportunity Cost

The cost to enter an MBA program cannot be factored by just the loans alone. You must take into account everything you could be doing if you did not attend school. This means you must include the cost of lost salary you could be making at work, multiple raises and bonuses you would gain during that period of time and other opportunities. Taking a loan of this size will set you back years in home ownership and income, and it should only be done after considering all of the costs involved.

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