MBA Student Loan Repayment and Forgiveness Options

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MBA students finish school with an average debt of $66,300, according to the most recent data from the National Center for Education Statistics. The best MBA student loan repayment option for you will depend on your job, financial outlook and business school you attended.

If you’ll qualify for MBA student loan forgiveness — likely by working for the government or a nonprofit — prioritize receiving it. Otherwise, many MBAs will likely have large enough salaries to aggressively repay loans. If you won’t, options are available to keep payments manageable.

Here’s how to determine which MBA student loan repayment strategy is right for you.

» MORE: How to pay for an MBA

Qualify for MBA student loan forgiveness

Best for: MBAs who work in public service

You may have all or part of your MBA student loans eliminated via Public Service Loan Forgiveness, a business school-specific loan assistance program or income-driven repayment:

Public Service Loan Forgiveness forgives federal student loans after you make 120 eligible payments on them while working full-time for an eligible employer. Your job at the employer does not matter — executives with MBAs can qualify, for example.

If you worked for an eligible employer, returned to school for your MBA and then worked for an eligible employer again, all of your years working can count toward PSLF. Just remember that you have to make 120 payments on each loan, so MBA student loan forgiveness would likely happen after your undergraduate loans are forgiven.

Many top-tier business schools help alumni pay off their loans. For example, Wharton Business School at the University of Pennsylvania provides up to $20,000 annually to eligible alumni, and the School of Management at Yale University covers up to 1/10th of a loan’s principal annually for eligible MBAs.

These programs often require MBAs to work for a nonprofit or provide some kind of public impact and meet specific income requirements, though requirements vary. Amounts provided and qualifying loans also depend on the loan assistance program. Contact your business school for details.

Federal student loan borrowers can enroll in income-driven repayment plans that forgive balances after a certain number of years. The most widely available income-driven plan is Revised Pay As You Earn, or REPAYE; borrowers with graduate student loans receive forgiveness after 25 years under this plan.

Income-driven repayment is best for borrowers who can’t afford their payments (more on that below), not those aiming for forgiveness. These plans extend your repayment period, costing you more overall. And because payments rise with your income, MBAs may be more likely to repay their loans before forgiveness kicks in.

The government doesn’t tax amounts forgiven under PSLF, but it does for income-driven forgiveness. You may pay taxes on money received from a business school loan assistance program. Check with a tax specialist for more details.

Pay off MBA student loans fast

Best for: MBAs with strong finances

The median starting salary for new MBA hires is $105,000, according to the Graduate Management Admission Council. If you have money left over after setting aside funds for an emergency and retirement, consider prepaying your MBA loans to reduce interest costs.

If you have money left over after setting aside funds for an emergency and retirement, consider prepaying your MBA loans to reduce interest costs.

Roughly half of business school graduates also receive a signing bonus, with a median amount of $10,500, according to GMAC. Let’s say you applied that entire bonus to the average MBA student debt of $66,300. That would reduce your repayment term by two years and save you close to $6,700 in interest, assuming a 10-year repayment plan and current federal interest rates.

Use a student loan payoff calculator to see the effect extra payments can have on your debt.

Most MBA students work before going to business school. If you repaid some of your undergraduate loans while you were working, use a student loan calculator to determine which loans to prepay.

You’d likely save more interest paying graduate loans first because they have higher interest rates and more remaining payments than undergraduate loans. But actual savings will depend on your loans’ balances and terms.

Refinance at a lower interest rate

Best for: MBAs with strong finances who don’t need federal benefits

Refinancing replaces your existing student loans with a new private loan. If you won’t qualify for loan assistance or forgiveness — and don’t need federal options like income-driven repayment — consider refinancing MBA loans if you’ll save money.

If you’ve repaid undergraduate loans for a few years, use a student loan refinance calculator to make sure you won’t pay more by refinancing them to a longer repayment term. You can refinance just your MBA student loans if that’s the case.

How much would refinancing save you?

Opt for income-driven repayment

Best for: MBAs who can’t afford payments long-term

Based on the average MBA student debt, business school graduates could expect to pay roughly $716 a month. While a six-figure MBA salary should cover that amount, some may need to pay less — for example, an entrepreneur starting a business.

The best way to reduce federal student loan payments long-term is to enroll in an income-driven repayment plan. These plans set payments as a percentage of your discretionary income — generally 10% — stretch your repayment term to 20 or 25 years and forgive any amount left on your loans after that point.

As your income rises, your payments will as well. Earn enough and you could eventually pay more than the standard amount, depending on which income-driven plan you choose. At that point, options like aggressive repayment or refinancing might make more sense for you.

If you took out private MBA loans, talk to your lender about options for paying less if you can’t afford your monthly payment.

This article originally appeared on NerdWallet