Holding An MBA Degree And A Lot Of Debt?

Three years back, the graduating class at Darden School of Business (the University of Virginia) exited the school’s campus holding an MBA degree and a little over $66,200 in median debt. A year ago, the median in MBA loans at Darden increased to an astonishing $90,949. This is a 37.2% increase in debt in merely two years…

The financial debt load that comes along with the MBA degree is unparalleled, and the most significant level of borrowing to acquire an MBA degree takes place at Wharton School of Business (the University of Pennsylvania). This past year, the median debt load for an MBA graduate from Wharton soared to approximately $114,340. Check also our Guide to MBA Programs that don’t require the GMAT, organized by state.

There are some students, however, who also blame the “MBA lifestyle”. An MBA student recently indicated that one of the most frustrating issues about going to business school is the fact that a lot of students at these institutions very often not at all act, or spend their money like other students. Nearly all activities consist of going out and shelling out money, you will find quite a few expensive excursions abroad every weekend, and Mercs and Beemers are more common than Hondas

These serious sums widely overshadow the student loan debt compiled by a lot of these students in the course of their undergraduate years, and often they are still repaying these loans. In 2013, the average debt for all undergraduate student borrowers was already around $24,400, although ten percent of these students are obligated to repay more than $58,000, as outlined by the Federal Reserve Bank of New York. Still, at the ten best business schools, the students’ MBA debt varies from Wharton’s $116,340 to Chicago Booth’s $75,840, and the average MBA student debt for a top ten school is around $92,550.

Larry Mueller is director of financial aid at Darden and he ascribed this significant jump in student debt to a number of aspects, such as, what he calls the devaluation of resources held by students when they enroll. The school has quite a few international students who exploited the loan market for financial assistance. They borrowed a median $118,000 in the MBA Class of 2014, and in 2010 this was only $87,000. Surprisingly, we saw a drop of 20% in the number of credit seekers between the Class of 2010 and the Class of 2014. But the majority of the students who dropped out, were borrowing smaller amounts of money, said Mueller.

At Nine Business Schools MBA Students Graduate With Over $96,000 In Debt

This year we can find nine business schools in America where MBA graduates leave the school holding more than $96,000 in debt. The past year, we could find only five business schools that attained this threshold. In 2012 there were only two schools that met this level, Wharton and Yale University’s School of Management. But today, due to the Great Recession, which caused a significant reduction of the savings’ worth of new applicants and also the increase in the schools’ tuition bills, we see that more and more MBA candidates need to borrow more and more money to acquire their MBA degrees.

It is not only the amount of debt that is increasing, the price tag of borrowing money is increasing as well, though this is not shown in the debt numbers. Fact is that MBA graduates who got student loans will also be paying back more for these loans. Darden’s Mueller explains that in 2009, student loan interest rates for all students (both domestic and international) were cheaper due to the fact private lenders still could take part in the Federal Family Education Loan (FFEL) Program (for example the Stafford Loan and the PLUS loan providers). The advantages that they provided in repayment resulted in far cheaper loans, so those students who did not feel like they should sell possessions in a low market just borrowed more money.

The MBA degree still is a clever lifetime investment decision, particularly when it is obtained from a top-tier business school, but the academic degree more and more includes building up a staggering amount of debt.In 2006, a GMAC survey (labeled Value Added by Graduate Management Education) demonstrated that MBA graduates from the top-ten business schools need almost 6 years to make back their investments, against some 4.5 years for graduates from other schools’ programs

The Financial Debt Load Is Extreme Even When You Attend A Business School At A Public University

These financial burdens affect both MBA students who go to public and private universities. Seven out of the top 25 American business schools where MBAs graduates leave the school with the highest debt are actually state schools. These include the University of Michigan’s Ross School (with a median MBA debt of $95,600 last year) and Minnesota’s Carlson School (reporting an average MBA debt of $63,470)

There is actually only one business school that reported a substantial decrease in debt of MBA graduates. Booth School of Business (the University of Chicago) received the most significant pledge ever made to a US business school of $300 million and tripled its scholarship grants.

As a result, last year Booth MBA graduates left the school holding a median debt of $70,840, and this is quite less than in 2013 ($79,539) and 2010 ($86,750), a stunning 22.5% drop in only two years. Students who graduated from nearby Kellogg School of Management (Northwestern University) reported a median student loan debt of $94,200, and this is almost $25,000 more than MBA graduates at Booth.

At Harvard Business School the average debt of MBA graduates is comparatively modest, particularly when we consider the value of the Harvard MBA degree. The school’s MBA graduates last year reported an average student loan debt of $79,880 (up from $77,110 the previous year). Harvard is really trying hard to keep its student borrowing as low as possible by offering substantial scholarships to nearly all of the school’s students.

Over the past  year, Harvard (probably the school with the least need to hand out funds to applicants or students), spent around a stunning $30 million on scholarships and grants to the school’s MBA students, and almost half of the students in every class received an average of $31,000 on a  yearly basis in need-based Harvard Business School fellowships. In 2012, the average student that graduated from Harvard Business School at age 27 was holding over $105 K in MBA debt.

As we will see, though, even Harvard MBA graduates are not protected from the student loan problem. A Harvard MBA graduate who completed his degree in 2012 when he was 27 had a student loan debt of a little over $105,000, and he quickly found out how challenging it was to pay back his enormous student loan. He found reasonably good employment as a product line manager at a Fortune 50 technology company in Austin, Texas, and after 21 monthly payments of $1,087, his debt balance was still an enormous $90,720. Even after he paid back almost $23,000, the balance surpassed his yearly after-tax salary.

Motivated to pay off his student loans, the Harvard MBA proceeded to go on a stringent financial diet, and for over half a year he did not go for any dinner dates and didn’t go to any movie. He gave up on adding to his 401K plan, decided not to go to his relatives for Christmas and skipped his friends’ celebrations and weddings.

During that period he didn’t buy any clothing, and to make some extra money, he got rid of his second car and his motorcycle, rented out his spare bedrooms to strangers on Craiglist, and began to get extra income by doing landscaping work. In that period of little over six months, he was able to make his final repayment and he got rid of all his student loan debt in March of this year.

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