Paying for B-School: Debt Matters

It’s a common perception that business students are better off financially than students in other professional programs. Even if an MBA student pays full tuition at an expensive school for a traditional program, he or she only has to finance two years of education, compared to three years for lawyers and four or more for doctors. Moreover, MBAs can count on post-graduation salaries that make debt repayment feasible.

But business school is, nonetheless, a sizeable investment. Tuition and fees at a top-ranked program easily top $110,000 a year. Housing, food, utilities, travel, insurance, textbooks, and class materials must be paid for as well. In addition, many b-school students, being in their mid-twenties or older, have family or property responsibilities to keep up. The actual cost of attending business school can wind up being more than twice that of tuition.

But does it matter so much if a student takes out loans to get through b-school? Aren’t educational loans “smart debt” – more an investment in your future earning potential than a drain on your finances?

Students should think twice before falling into that thinking, consultants say. Debt is debt, no matter what it was used for. Smart MBA students start thinking about b-school costs from the start.

Prospective Students Should Size Up Debt

A remarkable number of aspiring MBAs select programs on the basis of rankings or “brand name,” without giving serious thought to how good a fit the program is to their interests and goals – or to their personal and financial situation.

“People don’t always make careful decisions,” said Kent Harrill of AdmissionsConsultants. Kent is an MBA from Cornell who also served on the school’s admissions committee.

Harrill explained that while many students diligently research top business schools and dream of the boost a degree from one can give their careers, they fail to give enough thought to the sobering question of whether they can truly afford certain programs.

“It’s like being a kid in a candy store,” Harrill said. “But just because you like everything you see on the shelf doesn’t mean it’s all within your reach. School loan repayments can stretch out for years. Prospective students don’t always grasp the weight of that.”

The burden of a student loan, Harrill said, can be equal to that of a mortgage. “It’s like having a second house, with no house to live in.” Student debt can force someone to put off buying a house, starting a business, getting married, or having children.

Be Realistic

Students should start their MBA planning by taking a long, hard look at how well their school choices fit their career goals. One of the top ten b-schools in the country may not be a wise choice for someone who wants to run a modestly sized family business, or to move up in a company they’re already happily employed at, or to stay close to their rural home town. A less expensive local or regional business school might be a better choice.

“Be honest with yourself,” Harrill said. “Ask, ‘what do I want to do with my life?’ It’s important to choose a program that supports your goals without forcing you to take on excessive debt.”

Michael Machen, director of financial aid at the University of Chicago, agreed. “Be realistic,” he said.

Machen explained that students need to take a close look at their careers post graduation and ask themselves these questions: is the school you want to attend going to allow you to do the work you want to do? Is that work going to allow you to pay off your student loans?

Look at the Bottom Line

Students should also look at the bottom line cost of each program they are considering. These will vary considerably from one person to another. For example, a program that would require you to move to another city for two years will cost more, to you, than it would to someone already living in commuting distance of that school.

On the other hand, financial aid packages can make an enormous positive difference in the effective price of an MBA program.
AdmissionsConsultants founder and president David Petersam feels that many applicants underestimate the value of some very attractive grants and fellowships.

He cites Cornell University’s Park fellowships as an example. Cornell’s Johnson Graduate School of Management awards up to 25 Park fellowships to each entering MBA class, on a competitive basis. The award provides full tuition plus a living stipend for two years, in effect providing a top-flight MBA education for next to nothing.

“We work with well over 1,000 applicants a year and we have been in business since 1996,” Petersam says. “We can honestly state that the next client who chooses a Park Leadership Fellowship offer from Cornell over an offer from HBS or Stanford that includes only loans will be the first such client we have ever seen. To put some more perspective on this, we have had at least 3 such clients each year since 1999 and we had some additional such clients in our first few years in business.”

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