My MBA costs $120,000. Let that sink in. How long to pay off MBA debt depended on implementing my 6 step debt pay off strategy. This is how I did it.
I paid off my MBA debt in 3 years following this 5 step framework.
How long to pay off your MBA debt depends on the amount of debt when you leave school, repayment plan length, and your financial ability to refinance and make extra payments. The standard time frame is 10 years for graduate student loan repayment terms. Extended or graduate repayment plans can be 12 to 30 years, depending on the total amount borrowed.
I didn’t panic when I got the bill for my MBA because I knew how to attack my student loan debt.
My hope is that, whatever your situation, sharing my approach will give you a few ideas for creating a strategy that enables you to pay off your MBA or grad school debt quickly.
Day 1 of paying off my MBA debt
During my final weeks of business school, every single person in my graduating class had to meet in our auditorium. Sadly, this wasn’t a fun talk by Coach K, Duke’s famous basketball coach who often gave talks and always packed the house. It was a seminar on our student loans and how long it would take to pay off our MBA debt.
As we filed in we were handed a personalized folder with a printout of how much we owed. And we were gently reminded that not even bankruptcy would relieve us of our student loan payment obligation. The cost of attending Duke was—and still is—astronomical.
Most people sitting in that room had six figures of debt waiting for them on the other side of graduation.
This is when my MBA debt got real
When I opened up my folder to see $120,000 staring back at me and the date I needed to start repayment, I didn’t panic. I had a good job that was going to pay a healthy salary.
I could do this! Live my life with a $1,500/mo loan payment…for the next 10 years.
A few months into the real world with my new job, my healthy salary (that was less than the total amount I owed on the loan, btw) wasn’t going as far as I needed.
I was living in LA—a pretty expensive city—feeling a little panicked by my MBA debt. I didn’t know what my options were but decided I could not spend the next decade making that $1,500 payment every month. It was time to figure out Plan B for loan repayment.
Context on my astronomical MBA debt
Before we get into the details, a note: I know debt numbers and how long it took to pay off my MBA debt like these are unrelatable for many people.
For context, my payment was more than 25% of my monthly income and more than my rent. Yes, I was paid a lot, but I was also living with a heavy debt load in an expensive city.
That said, I was privileged to be able to make my payments, period. As funding for higher education decreases and the cost of tuition rises, more graduates face daunting debt, regardless of their degree or job prospects. My hope is that, whatever your situation, sharing my approach will give you a few ideas for creating a strategy that works for you.
Why did I prioritize paying off my MBA debt?
I have a lot of friends from business school who didn’t prioritize their debt. Their decision wasn’t wrong and my decision to pay it off wasn’t right.
When deciding whether to pay off debt, invest, or save, there are two components: mathematical and psychological.
Mathematical component to debt pay-off
The mathematical component is data-based. Where can you earn more—paying off debt or investing?
Can you afford to make higher payments?
Do you have at least a small emergency fund set aside?
Are there opportunities to start a side hustle or ask for a raise? Or could you negotiate in other areas to free up cash for higher payments?
Psychological component to debt pay-off
The psychological component is based on the individual. How much risk can you handle? How does this affect your life decisions and future spending? Does having high debt weigh heavily on you?
For me, the psychological toll was too high.
Even though the math said it would likely be better to live with the debt and throw as much as possible into investments, there were three reasons I wanted to pay off my MBA debt quickly.
1. Career choices
While I was making enough to afford the debt payments and still squeak by (though it was by no means a glamorous lifestyle), I didn’t want to feel chained to a certain paycheck amount.
I really wanted the freedom to pursue other career avenues, some of which might pay less. Jordan and I ended up moving to London two years after graduation and salaries are lower there, so having my loan under control made taking a pay cut easier to manage.
2. Pride (or guilt?) in paying off my debt
Jordan and I got married soon after I graduated. He was still in his MBA program at Duke. His employer covered most of the cost and he used his savings to pay the rest. He didn’t have loans and I didn’t want to be the only one with a loan burden in our relationship. I just couldn’t handle knowing that my loans were going to keep him from the things he wanted to do.
3. The best of both.
Finally, I realized that paying off my debt quickly wasn’t an either/or approach. It was a balancing act, but I could do both. Sure, if I had skipped saving for retirement for four years, my debt would have been paid off a year earlier. But I also wouldn’t have that nest egg sitting there waiting for me.
Plan of Attack to Pay Off MBA Debt: 5 Step Framework
Once I got serious about my loan payments, I decided to sketch out a plan. I didn’t have the suggested six months of expenses in an emergency fund and hadn’t started saving for retirement. Where to start?
Here’s exactly what I did. This isn’t meant as a step-by-step plan for every situation, but a framework to help you think about where to focus your energy.
Step 1: Stabilize your debt
I knew that I didn’t want credit card debt on top of my student loan debt. No, thanks. So I decided to keep an “emergency pillow” savings account. I didn’t have enough for six months of a cushion, but I was able to put away $3,000 for dire emergencies. I used it a few times over the years—most memorably when my tire was slashed by a lunatic in my LOCKED apartment building parking garage. Ugh.
Step 2: Save to have a strong financial foundation
My employer didn’t offer retirement accounts or matching contributions, so I was tempted to forgo retirement savings entirely to focus on extra loan payments. Instead, I decided I wanted to take advantage of the great tax benefits of contributing to an IRA. You can contribute a maximum of $5,500 per year ($6,000 in 2019!), so I only saved that amount for retirement each year and focused the rest of my cash—every last spare dollar—on my loan payment.
I tracked all of my money—my student loan debt, savings, and investments—with Personal Capital. Their free tool made it easy to login to one place and see everything: my remaining loan balance, how much I had in my savings account, and how my retirement balances were growing.
I’ve previously shared how I paid off my loans so quickly, but I wanted to get more specific with my numbers and tactics because it’s a question I get often. The next 3 steps are more tactics you can and should use to shorten how long it takes to pay off MBA debt.
Step 3. Negotiate your salary
The single best thing I did was negotiate—twice. While I had arranged my lifestyle choices around paying off loans, you can only cut back so much. Sometimes you need to make more.
So that’s what I did. I didn’t negotiate because I had loans, though. I negotiated because I truly deserved to be paid more. Having the loans was an extra push that I needed in order to get me to speak up and ask for more. But I didn’t use that as a reason why I deserved more money.
Faster debt pay off by negotiating my salary
I negotiated two signing bonuses and one raise, which cumulatively knocked out 20% of my debt. Let me say it again for the people in the back: twenty percent of my debt was knocked out in two 10-minute conversations. My original loan term was 10 years and by putting this money toward it, I shaved off more than two years of payments.
The first negotiation was for a cost of living adjustment as I was moving across the country to a city with a high cost of living. It was a one-time bonus. Rather than use this money to rent a nicer apartment, I found cheap digs and put this entire bonus toward my loan.
The second negotiation was as I was accepting a new position in London. We had just moved and the salary they were offering was okay, but not great. I tried to get them to budge on base salary, but they’d only go up $2k. Frustrated, I moved on to my backup ask: a signing bonus. They had a lot more flexibility with the signing bonus and were able to offer $10,000. As soon as that bonus check hit my bank account, it went straight to my loan.
Step 4. Student loan refinancing
The second most important thing I did was refinancing my loans. While there are pros and cons to refinancing, to me, the lower rate was worth it.
When I graduated and had federal graduate student loans, my rate was horrible. I was paying a blended rate of more than 7.5%. I had a 10-year term on a loan of $120k, which meant that over the life of the loan, I was going to pay $51,000 in interest. My monthly payment was roughly $1,500.
When I began looking at refinancing, I discovered there were benefits I would be foregoing, but what I’d get in return made up for them.
Refinanced with SoFi to pay off my MBA debt faster
I refinanced my loan with SoFi to get my interest rate below 5%. While the difference between 7.5% to 5% doesn’t sound that big, it ended up making a significant difference.
Had I stuck with a 10-year payoff, my monthly payment would have decreased to $1,272 and the total interest paid would have decreased to $33k. That would have saved me $228 a month and $18k over 10 years.
Not bad.
Had I refinanced but kept making the larger monthly loan payment of $1,500 a month (rather than the decreased amount of $1,272) I would have paid off my loan 22 months faster. Nearly 2 years sooner! And I would have only paid $26k in interest.
At the same time that I refinanced my loan down to 5%, I also received a raise at work that boosted my income by around $500 a month. So while my monthly payment was lowered, I ended up increasing what I paid each month to $2,000 ($1,500 that I was previously paying + $500 raise).
After refinancing and getting a raise, I was making serious progress on the loan. At this pace, I would have had it paid off in 6 years.
Step 5. Create small goals to shorten the debt pay-off
The third and final thing that I did was to create small goals for myself and spend on only the things that made me the absolute happiest. I did this in the last year or so of my loan.
At this point, I decided that while I was on a good track with my loan, I was completely miserable having it hang over my head. A switch flipped in my head and I wanted it gone, quickly.
I started playing a mental game. Rather than think about how I could pay off the enormous balance, which was still overwhelming, I started to think about how I could double my payment.
Still overwhelming? Yes, but somehow not quite as bad.
Example of shortening debt pay off with small goals
After I had that goal of paying $4,000 each month, I started looking at every dollar I spent as a tradeoff. Did spending that money make me happier than paying off the loan? Honestly, sometimes yes. Taking a trip or going to a museum was still really important to me (though I looked for deals). But the box of freshly baked cookies from the bakery down the street? The spin class? I stopped spending on the things like that which made me less happy than paying off my loan.
To see immediate results from not buying that thing (whatever it was I decided to skip), I would log into my loan account immediately from my phone and make a payment. So if I decided to not go to a spin class, I’d transfer $25 immediately. If I skipped the bagel and coffee, I’d transfer another $5.
To be honest, I rarely made that double loan payment. But seeing all of those small little tradeoffs add up over the month gave me a huge sense of accomplishment.
With all of these tradeoffs and strategies, I ended up paying off my loan in 3.5 years. While not having the debt is amazing, the best part is that I gained some amazing skills (hi, negotiating) and adopted a really healthy money system that has helped both Jordan and I use our money to live to the fullest.
Paying off student loans is a journey, but it can be smoother—and faster!—if you make smart decisions along the way. Make your first smart decision by signing up for the weekly newsletter- Make Me Smart-ish. Everything you need to know about money delivered straight to your inbox.
Oh hey there. One quick note. I used and love both SoFi and Personal Capital. The links I included in here are both affiliate links, which means if you decide to use them I may receive a small commission for recommending them. You can read more how we make money here.
This article was originally published on March 9th, 2018 and updated on October 15th, 2019.
