MBA FROM PREMIER INSTITUES : YOU GET QUALIFICATION FOR JOB AND LOAN FOR REPAYMENT
MBA FROM PREMIER INSTITUTES
Graduating MBAs are shouldering more debt than ever, so much so that a record number of the leading business schools now decline to even share the embarrassing burdens they have put on their students. The cost is anywhere between USD 75000 to USD 200000
AT MORE THAN A DOZEN SCHOOLS, SIX-FIGURE DEBT IS NOW ROUTINE
Despite ever-increasing amounts of scholarship aid, MBA grads are pouring on student debt at levels never seen before. A new Poets&Quants study shows that MBAs are leaving campus with six-figure debt loads from at least 13 prominent business schools, up from only two schools in 2011. The six-figure burden ranges from a high of $122,370 at the University of Pennsylvania’s Wharton School to $100,083 at the University of Virginia’s Darden School of Business.
Or think of it this way: Wharton’s Class of 2015 borrowed roughly $47.5 million alone for the privilege of gaining the MBA degree. For a Whartonite borrowing the money on a standard 10-year repayment plan, the debt amounts to about $1,408 in monthly payments, assuming a 6.8% interest rate and a total of $46,618 in interest charges.
MBA programs that no longer disclose the data and whose students are well into six-figure holes include the Southern California’s Marshall School of Business, Dartmouth’s Tuck School of Business, Northwestern’s Kellogg School of Management, and Georgetown’s McDonough School of Business. Estimates of their average debt burdens range from $118,088 at USC Marshall to $104,424 at Georgetown.
Even public university business schools aren’t much of a refuge from student debt. Six of the 25 schools whose MBAs graduate with the highest average loans are publics, including Kenan-Flagler Business School at the University of North Carolina, where the average debt burden is $93,898 and 61% of all graduates are in hock. MBAs out of UCLA’s Anderson School of Management, with an average burden of $88,654, now owe roughly $5,000 more than the grads out of private Stanford Graduate School of Business.
GRADUATE DEBT IS CAUSING SOME TO POSTPONE MARRIAGE
Though the payback on an MBA degree is typically three to four years, it’s unclear how long it will take graduates to work off their interest-bearing graduate debt. Yale SOM tells applicants it typically takes about six and one-half years, but it could be much longer. “Lately there has been a robust refinancing market, where many top MBA graduates have found that they can refinance a student loan with a new loan with more favorable terms,” explains Cory Pollock, co-founder of M7 Financial, a firm focused on the student loan requirements of students and alumni. “So technically the original student loan is being paid back early, but it is also being replaced with new a loan.”
Still, debt is having profound implications on many life-changing decisions. Among other things, students in debt are more likely to postpone getting married. Dora Gicheva, an economist at the University of North Carolina, found that for every $10,000 that young people carried in student debt, the likelihood of getting married in the seven years following graduation dropped by some 3 or 4 percentage points.
“Students are often surprised at how fast their money gets spent and how it will affect their job and life choices over the next 10 years,” says Betsy Massar, founder of Master Admissions, an MBA admissions consulting firm and a Harvard MBA. “What people forget is how expensive the whole proposition is, not just tuition, room, and board. There are a lot of great international experiences and they are expensive. People tend to say, ‘I’m already in heavy debt, why not go to Germany for Oktoberfest?’ It all adds up. There is a danger of forgetting that your student debt has to be repaid.”
Another consequence of the rising costs of an MBA is that an increasing number of admitted students are apparently turning down more highly ranked schools in favor of others where tuition is lower. A new survey of applicants by Stacy Blackman Consulting found that more than 50% of business school applicants claim they would attend a less-desirable program if awarded a scholarship. “The cost of a business school education is a significant concern,” says Stacy Blackman, president of the admissions consulting firm that bears her name.
AVERAGE MBA DEBT AT HARVARD: $79,667
Of course, not all graduates are leaving business school with debt. Hefty increases in scholarship aid have helped to dampen down some of the pressure on students to take out loans, and a good portion of graduates return to pre-MBA employers who are willing to foot the tuition bills. Company sponsorship of students ranges from one in five at INSEAD in France and Singapore to one in 10 at Stanford. As a result, the percentage of MBAs who graduate with debt varies widely across the schools, from an estimated high of 70% at Yale to a low of 41% at the University of Michigan’s Ross School of Business.
B-schools with deeper pockets, such as Harvard and Stanford, have managed to keep both their student debt loads and the percentage of the class having to borrow relatively low. At Harvard, which now pays out $36 million in scholarship money annually, the average MBA debt was $79,667 for the Class of 2015, with 55% of graduates shouldering debt. At Stanford, average debt for graduating MBAs totals $83,762, but more than half the graduates have no debt at all. Only 47% of Stanford’s grads borrowed money to fund their MBA education in 2015.
For graduates of these leading schools, of course, debt is relative. At Wharton, the first-year median compensation package for a graduating MBA was $146,303 — a pre-tax sum that exceeds the average $122,370 in debt borrowed by the 45% of the class that financed their education through loans.
And there also are plenty of schools where MBA debt is a mere fraction of the totals at the elite business schools. At the University of Wisconsin’s Business School in Madison, the average debt burden for graduating MBAs was a mere $15,481 — $106,889 less than Wharton’s average — while the first-year median comp package was $114,694, just $31,609 below the median pay for a Wharton grad.
First: what do you want an MBA for?
Make no mistake: an MBA is a huge investment. It generally requires two years of study and usually a big ($100k+) financial obligation. These are some key assumptions about my advice. If you are one of those lucky enough to get a full ride to a great school, the calculus could change dramatically. Similarly, while there are “accelerated” MBA programs that take less time, they generally do not offer the same level of quality, nor are received equally in the job marketplace.Any investment of this scale demands that you begin with a clear rationale about how to justify it – financially and career-wise. This means being very clear about why you want the MBA. I find that most people’s rationales fall into one of three categories:
- You want a job that requires an MBA. Since there are very few types of jobs that require an MBA, this usually means something like management consulting or investment banking. These two industries alone recruit a huge swath of MBA grads, particularly from the top schools. (Deloitte took 15% of my graduating class at Fuqua.) If you want to break into this industry, an MBA is indeed an excellent way to do it. But there are some caveats. Outside of the top 10-15 schools, and for some firms, even outside the top 5, it becomes significantly more difficult to break into those industries. If this is your goal, then matriculating to the school with the highest ranking/best brand possible is key.
- You’re switching careers. This is one of the most common reasons for going to business school. People are often tired of what they fell into after college and want to move into, or search for, a new career. An MBA often acts as sort of a stand-in for the now-requisite 2-3 years of experience for many intermediate-level jobs, and gives you the time and access to explore new sectors with limited risk. Another side benefit is that the MBA also acts as a sort of anchor on the higher side for salary negotiations.
- You want to “find yourself.” This is a somewhat puzzling, yet frequent, rationale that I’ve heard. In my opinion, it’s also one of the worst reasons to invest in an MBA. It’s fine if you’re not completely sure where your professional interests lie in your mid-twenties, and I’m always a supporter of greater self-exploration, but there are many, much less expensive (and probably more effective) ways of going about the latter than business school.
Second: understand the economics at work
Here is a somewhat controversial, but nevertheless accurate, statement: business schools are much more like profit-seeking companies than they are institutions devoted to higher learning. It helps to think of a business school less as a “school” than as a firm.
Universities do not open business schools altruistically. In fact, b-schools are usually cash cows for universities. Much like law schools, business schools have low overhead (no specialized equipment or licensing needed, like a medical school), can accommodate large class sizes (high student/professor ratios), and insofar as the MBA commands currency in the job market, it is a highly sought-after credential that raises applicants’ willingness to pay. This dynamic has fueled the rapid expansion of MBA programs throughout higher education – compared with ten or twenty years ago, it seems every college and university offers an MBA program now. This is why even obscure institutions get away with offering MBA programs at the going rate of $30,000 per year – and why they can fill their classes at the same time.
Business schools have several competing objectives. First and foremost, they need to fill seats with tuition-paying students. But in order to draw high-quality applicants, they also need to protect and improve their rankings, which has a lot to do with class profiles and placement statistics. (Schools dole out grants and discounts to build their desired class mixes of gender, race, professional background and so forth.) Graduating class salary statistics plays strongly into all the various ranking systems. Most business schools will do almost anything for the companies that come to recruit there, because producing successful candidates for high-prestige, high-income industries only improves that school’s desirability in the eyes of applicants, which in turn gives the school greater pricing power.
This speaks to the joke that MBA students aren’t the customer, but rather the product. This has a pithy appeal to it, but is an incomplete way of looking at the situation. A more accurate understanding is my number one piece of advice to matriculating MBA candidates:
Never forget that you are a customer. Make your business school meet your needs, not the other way around.
Schools, predictably, hate this idea. It’s culturally anathema to much of academia, and in fact isn’t a good way to think of other parts of the university system. (For example, I received a highly subsidized undergraduate education at the University of Virginia, a public institution, for which I am a grateful, contributing alum. Darden MBAs, by contrast, are in no way subsidized.) In business schools, most students are paying full or partially discounted tuition, which means they’re forking over an awful lot of money to the school for a service to be rendered – namely, a business education and credential. That is fundamentally a customer-merchant relationship.
Of course, schools are eager to encourage a completely different form of relationship with their students. They want to recreate the kind of sentimental aura of institutional loyalty and affection that many Americans build for their undergraduate alma mater. (Wahoo-wa!) Essentially, they work hard to build school (read: brand) loyalty, through means of memory-building activities like quasi-mandatory bonding, network building, collective hardship (exams, study groups, etc.), sports, and so forth. (By the way, few schools do this as aggressively as Duke.)
The reason? One classic B-school abbreviation: LTV. Business schools see their students not just as sources of tuition revenue while in school, but as future financial contributors to the institution. If they can make you *love* their school, it’s much easier to ask you to send in those annual fundraising checks – all incremental revenue – to support it after graduation. After all, as a group of relatively high-income professionals, MBA graduates have a particularly high lifetime value (LTV) as contributors. Indeed, the institutional fundraising efforts at almost every school are some of the best-organized activities around.
Third: Make the most of your degree
If you decide that business school is for you, then go for it. But make sure you do it the right way.I am of the opinion that except for special situations (like a full-ride scholarship), it makes almost no sense to go to an MBA program that isn’t ranked in the top 15 (and preferably in the top 10). The brand recognition and recruiting access afforded to MBAs by national firms definitely does not apply to all MBA programs equally, and outside of the top schools, the ROI on your investment will become much harder to realize. So if you aren’t accepted to a school within that top bracket, my advice is to hold off and try again next year.
But assuming you’ve made it into one of those institutions – congratulations! Now, make sure you take control of your graduate school experience. (After all – you’re paying for it!)
Remember, any good MBA program fundamentally wants to do two things: make you employable by high-value/prestige companies, and create the warm-and-fuzzy feelings of sentimental attachment to the institution (as discussed above). You should mainly focus on the first, and stay aware of the second.
Be clear with yourself about what YOU want out of this degree and your time in business school. Do you want to develop your leadership capacity? Build new skills? Are you laser-focused on a job as a management consultant, or in private equity or high tech? Then make a specific plan about how you’re going to accomplish these things during your time in business school. If you don’t have some specific goals like this, then start making them. Now. Preferably before you sign that first student loan agreement.
When pursuing your own goals in business school, resist institutional inflexibility whenever you encounter it. Business schools are often run wholly separately from the larger institutions they’re affiliated with, and while this often helps them operate more smoothly, it creates a big barrier to students who want to take advantage of all of the resources the main campus has to offer. If you’re at a Stanford, Berkeley, Michigan, Duke or elsewhere, you’d be crazy not to at least try to take advantage of the wealth of academic resources these universities have to offer in their graduate and undergraduate campuses. If the business school administration throws up barriers, remind them that you’re a paying customer, and raise a stink. For as much as you’re paying, don’t take an easy “no” for an answer.
On that same note – make sure you’re getting the best deal possible. If you’ve already been offered admission, with or without an aid package, ask for more money before accepting. No school is going to revoke an offer simply for asking (politely, of course). Mention what peer schools you’re deciding between. Remember: offering admission, and accepting, is a negotiation. If you’ve already been offered money, ask for more. The worst they’ll say is “no thanks” – in which case, you’re still left with their offer of admission.
Fourth: consider the alternatives to the MBA
A lot of this post has focused on the huge investment the traditional MBA represents – two years, $100,000 in student loans, and the opportunity cost of lost income. So it’s worth considering: what else could you do with that kind of investment?It’s almost a cliché now on the web that knowledge itself is free and abundant. Between MOOCs, easily Google-able course syllabi, Amazon and your local library, literally all of the content you would encounter in business school is accessible online. But business school is only vaguely about that stuff. The most important elements of the MBA experience today are really the personal connections you make there and the teamwork you engage in for classes. For some, there is also some element of technical training involved, but this is rare (and relatively easy to find by other means).
But let’s say you didn’t care so much about the interpersonal stuff. What you might really care about is the professional networking, recruiting and career advancement opportunities. In that case, something else you could consider: what if you spent the next two years aggressively networking, and conducting lots of informational interviews with people working in the fields you were interested in?
This might sound awkward, even painful, but consider: what if you used your existing network, undergraduate alumni connections, and potentially LinkedIn (or other social means) to identify individuals with interesting jobs that you could learn more about? With the right approach, many of these folks would likely be willing to at least give you 20 or 30 minutes on the phone. Some would probably be willing to get coffee or a drink. If you’re located in a large city, all the better. What’s more – all of that costs an awful lot less than an MBA.
How about an “executive” or part-time program? Most of these programs are structured to allow students to keep their full-time jobs while pursuing a degree. This certainly cuts down on the lost income (and potential two-year hole in the resume), but interestingly, these degrees are rarely substantially cheaper than full-time programs, even though they involve far less actual class time. It’s also worth noting that the actual degree executive program grads receive is usually 100% identical to that the full-timers get (depending on the school).
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