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Mastering Your MBA Finances – Assembling Your Student Budget (Part 5)

Once you have been accepted to your target MBA program, things start to move very quickly, and you will need to begin planning for your transition to business school right away. Understanding the financial realities of your MBA education is an important first step, and we have created this comprehensive, five-part “Mastering Your MBA Finances” series to help you do so. In this fifth and final installment of the series, we bring the revenue and expense pieces together to round out our sample MBA student budget. (Be sure to read Part 1, Part 2, Part 3, and Part 4 of this series if you have not done so already.)

For individualized advice, sign up for a free, 30-minute budget planning session with an M7 Financial budgeting coach.

In the earlier parts of this newsletter series, we discussed the income MBA students can generally expect to receive via their summer internship salary and signing bonus. We determined that an MBA candidate could anticipate approximately $43,000 in income during business school and that other potential income streams may also be available, which would need to be incorporated into one’s projected budget.

Mastering Your MBA Finances – Assembling Your Student Budget (Part 5) - mbaMission

Next, we broke down various expected costs and adjusted the individual programs’ budgets to come up with an average tuition and living expenses figure. The following table presents ballpark estimates for the expenses you can generally expect at a top MBA program over the course of 21 months.

Mastering Your MBA Finances – Assembling Your Student Budget (Part 5) - mbaMission

Putting this all together—though without including opportunity costs—we find that an MBA student who is not sponsored and cannot count on receiving scholarship funds could need to finance approximately $160,000 in education expenses over a 21-month period. This reinforces how helpful a scholarship can be in mitigating an average MBA student’s expenses. To be fair, we must note that the average student is not this indebted, because many are sponsored by their firm or receive scholarship funds, and some have access to personal or family resources to finance their educations in part or in full. In short, we are again being conservative in our sample budget by assuming no other sources of funding.

Mastering Your MBA Finances – Assembling Your Student Budget (Part 5) - mbaMission

The somewhat good news here is that borrowing is not terribly expensive right now, because interest rates are relatively low. For example, the interest rate on the Federal Direct Stafford Loan (for which the annual borrowing limit is typically $20,500) is currently 5.84% with a 1.068% origination fee, and the interest rate on the Federal Direct PLUS Loan is 6.84% with a 4.272% origination fee. Furthermore, many MBA students at top schools have found that they can access even lower interest rates with absolutely no origination fees through the private student loan market.  

The interest rate you receive in the private student loan market will depend on the strength of your loan application in a process similar to that of obtaining a car loan or mortgage. The stronger your application, the more likely you are to receive a loan at a significantly lower borrowing cost than those offered by the federal loans available. Your FICO score plays a big role in this process.

To increase your likelihood of receiving the lowest possible interest rate, you could apply for a private student loan with a cosigner, such as a spouse, parent, or sibling. Although this is not required, we have seen that having a cosigner often makes a big difference—it enhances one’s chance of being approved for a loan as well as one’s eligibility for the best interest rates.

You now have the tools to construct a projected MBA student budget of your own, using your income and expenses and tailored to your target school(s). The prospect of tackling your MBA-related finances may be a little daunting, but for the vast majority of candidates, a real opportunity is waiting. These days, the average starting post-MBA salary is roughly $125,000, which should make earning your MBA a financially prudent choice.

For even more strategies for paying for your degree and minimizing your debt burden, download the free M7 Financial Student Loan (Reduction) Primer or sign up for a free, 30-minute, one-on-one budget planning session! And for more information on private student loans, including current interest rates for a number of options, check out M7 Financial’s Web site at www.m7financial.com.




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