Student Loans for MBAs: Bright Spots Amid Controversy

It’s challenging to find an educational issue that’s more controversial in 2023 than the student loan debate. At the moment, this topic appears all over both social media and legacy news outlets. What’s driving the coverage is the Biden Administration’s announcement in late August of student loan forgiveness for as many as 43 million borrowers.

The issue is divisive. Democrats were disappointed in the Administration’s initiative, saying it didn’t go far enough in fulfilling a campaign promise that helped win the primaries for the President.

And now we’re learning that Republicans just filed litigation to stop the new program, which has delayed its launch until at least October 17—right before the midterm elections.

However, amid all the controversy, three bright spots exist for MBAs. Before we look at these encouraging developments, first, here’s a summary of what BSchools readers need to know about the student loan plan announced by the White House.

Student Debt Relief: Understanding the Plan

Called the Student Debt Relief Plan or SDRP, the Administration’s approach targets low- and middle-income families, and provides federal relief from student loan debt to eligible borrowers on a one-time basis. In other words, this is a one-shot relief plan that isn’t designed to provide any ongoing compensation after a single reimbursement.

In early October, the Department of Education modified the original plan announced in August. The agency added an “opt-out” provision for individuals and excluded specific types of loans that had originally been covered. These restrictions were introduced largely as a defensive maneuver against court challenges after the Pacific Legal Foundation and six states filed lawsuits to block the plan, as we discuss further below.

Borrowers holding these loan types are ineligible:

• Private (non-federal) loans
• Federal loans consolidated into private loans
• Privately-held federal student loans, like Perkins and Federal Family Education (FFE) loans

Eligible borrowers hold federal loans, including Education Department (ED) loans, have a household income under $250,000 and an annual income under $125,000. For these borrowers, the plan will forgive up to $20,000 for Pell Grant recipients; these are federal grants to low-income undergraduates with the greatest financial need. The plan will also forgive up to $10,000 for other borrowers. Those with outstanding balances below these amounts will have their loans entirely canceled.

Furthermore, some defaulted loans held by the Education Department or commercially serviced for the federal government are also eligible. The list of eligibility comments about specific loan products and frequently asked questions on the agency’s SDRP web page is fairly extensive.

Borrowers holding eligible loans need to know that forgiveness is not automatic. They will need to apply online and can receive notifications by registering for email updates. At an October 11 press conference the Education Department gave the media a first look at the student loan forgiveness application but did not specify precisely when the online form would go live so borrowers could fill it out. A spokesperson said that borrowers should receive payments “in a matter of weeks” after they fill out the form and that the agency expected to process most claims by mid-November, with payments available by January 2023.

Other steps borrowers can take to prepare include updating their existing contact information on the studentaid.gov website or creating a new account if they don’t yet have one. This is crucial in expediting the application process because if the borrower’s information doesn’t match that in the ED’s loan file, the agency will need to ask for that information. Borrowers also need to make sure that their loan servicer has their current contact information as well.

Legal Challenges to the SDRP

Borrowers should also know that even though the Administration believes that the modified plan will operate without interruptions after the application process opens, significant legal challenges continue in federal court.

A federal district court denied the Pacific Legal Foundation’s motions for injunctive relief and a temporary restraining order after the Education Department introduced the opt-out provision. However, six states filed an additional challenge in a federal district court in Missouri, also asking for an immediate injunction to stop the plan. These states include Arkansas, Iowa, Kansas, Missouri, Nebraska, and South Carolina; Arizona filed in a separate action.

The states argued that the Administration lacks legal authority to introduce the plan. They also argue that the plan will deplete state tax revenues and injure student loan processors and state boards that manage public pension funds.

Good News on Student Loans for MBAs

Despite all the controversy that’s prompted these court challenges, three student loan bright spots exist for MBAs.

MBAs are Eligible for Debt Relief

Current MBA students and alumni carrying federal student loans are eligible for forgiveness. Earlier draft proposals circulated within the Administration limited forgiveness to undergraduate degree holders, but the announced policy benefits loan customers who are advanced degree recipients, along with those currently enrolled in graduate school. These include federal Graduate Direct and Grad PLUS loans, among others.

Prodigy Finance: Reopened Markets

A key loan facilitator for MBA students without U.S. citizenship who are studying in the United States has reopened markets it had to close because of the Covid crisis. This is Prodigy Finance, a company founded in 2008 by a group of INSEAD MBA students to secure financing for graduate school from nontraditional sources like alumni, qualified private investors, and institutions. During the past 13 years, Prodigy has helped 20,000 international students obtain more than $1 billion in student loan funding. But during Covid, the firm had to restrict markets for the first time in its history, and many of those students needed somewhere to turn.

International students find themselves caught in a dilemma when they try to obtain financing for MBA and other degrees. American banks, credit unions, and fintech firms generally won’t lend to students without U.S. citizenship attending universities within the United States. At the same time, American business schools typically won’t award scholarships to students who aren’t U.S. citizens.

Not many funding options exist for international students, so when Prodigy was forced to restrict markets because of investor concerns over the pandemic after the stock market crash early in 2020, MBA admits found that they couldn’t get Prodigy loans in the United Kingdom, France, China, Australia, Canada, Germany, and a long list of other nations. Even some borrowers from nations like India and Brazil that weren’t on the Prodigy’s official list of temporarily excluded nations couldn’t get loans, either. Plus, many funding options from financial institutions in these admits’ home countries suddenly ran dry as well.

Prodigy had mostly shut down operations in many of these international markets for almost 18 months because of Covid. However, starting in August 2021, when the firm began to reopen markets and encourage previously rejected applicants to reapply, the company started rebuilding its business. During mid-2022, the firm now appeared to be approaching pre-pandemic operation levels.

Juno’s New Rate Match Guarantee

Another leading loan provider for MBA students just enhanced their competitiveness in the marketplace. This provider is Juno, the startup founded by Harvard Business School students in 2018 who grew frustrated with the poor quality student loan products offered to MBA degree candidates at the time.

Since then, the firm has built a customer base of 100,000 students across America, even though it’s not a direct lender but a loan aggregator. How Juno works is that the firm sets up segmented groups of potential customers for private student loans. Then Juno uses the collective bargaining power of these groups to negotiate better terms on their behalf with loan providers like banks, credit unions, and fintech companies than the customers could ever obtain on their own as individuals. The firm claims to have negotiated almost half a billion dollars in student loans over the past four years while offering average interest rates 1.6 percent below those their customers would otherwise have received.

In what the firm calls its new Rate Match Guarantee Program, Juno’s executives announced a few weeks ago that if a potential customer finds a better deal, Juno will more than match it. Specifically, according to Poets and Quants, Juno’s lending partner Earnest will match any competing lender’s lower interest rate found by a Juno customer. Moreover, Juno will offer a cash-back rebate of 1 percent of the loan amount.

To our knowledge at BSchools, this is the first time any player within the student loan industry has ever offered a value proposition built around matching competing interest rates. It is also a unique competitive advantage in the marketplace. The firm’s head of strategy and business development, Pedro Russell, told Poets:

This is a negotiated agreement that does not exist anywhere else, and most people have said it was impossible. No one else is able to say definitively that they can offer the least expensive option for you and your family—and guarantee it.