When Dan Thibeault scanned the Sunday papers on his iPhone on May 22, he found a satirical cartoon that made him smile. A dean was handing a graduate her diploma, saying, “Best of luck realizing your dreams…” The girl had a ball and chain attached to her ankle, with “Student Debt” written across the ball. “It’s nice to see that the mainstream is catching up with the fact that higher education is not always a good investment,” he says.
As president and co-founder of Graduate Leverage, an eight-year-old company focused on reducing the cost of education through debt, Thibeault knows a thing or two about student loans. “Debt levels continue to increase at a frightening level,” he says of all graduate programs. This year, his advisors are trying to help MBAs (10% of his client base) who are accumulating more debt than ever before. “The debt among some of our MBA clients is $165,000… for a two-year MBA program. That wouldn’t have happened in 2004.”
That’s the year that Thibeault graduated from Harvard Business School, towing $87,000 worth of loans in his wake. But unlike most students, the economics graduate from Dartmouth had studied his debt agreements inside and out, and knew how to play the consolidation game to keep related fees and interest in check.
Such borrowing know-how was not the norm around campus – Thibeault recalls his Harvard classmates’ knowledge around loan consolidation as being “poor.” So he made a small presentation to help MBAs get their head around the topic. “I realized there was a true need” for information, he says. And that gave him an idea – to make a profit whilst helping students save money on their loans. “We believed this was possible due to the points of pain (needless costs) we saw in the marketplace.”
In August 2003, he loaded a website with information for graduate students looking to lower their debt costs. Then, he and five classmates enrolled in an Entrepreneurial Management course and wrote a business plan to bring the idea to market. The team earned 1s – the top marks on Harvard’s grading curve – but Thibeault wasn’t entirely convinced.
“You’re always shifting from complete confidence to total doubt in the early days of a new company,” he says. One early presentation erased his doubt. “On February 26th, 2004, I presented to about 70 Harvard medical students and 68 signed up for our service on the spot. We didn’t know if our message would resonate with non-MBAs and this proved it would. We went out to celebrate afterwards and from that point on we believed in it.” Today, medical and law students make up the bulk of Graduate Leverage clients.
The team started running the business from the Harvard dorms, going so far as to host a meeting with an executive from First Marblehead bank. After graduation, they moved to offices in Cambridge, and by 2005 had settled in Waltham, Mass. More than 65,000 students and graduates have used a Graduate Leverage service since.
With more debt than ever, his MBA clients are having a tougher time making their monthly payments in 2011. “It’s mostly due to liquidity,” he says. “They’re not necessarily at risk of default, but their monthly payments are cramping them. That may be due to (receiving) lower bonuses, or a spouse that was laid off.”
The relatively new appetite for so much debt is party down to ever-rising price tag of an MBA. In 2004, his alma mater reported a two-year tuition of $78,200. Harvard MBAs starting in September will pay $102,400. However, the ivy-league cautions that the true cost of just one year of study is closer to $84,000 – that’s $168,000 over two years – including required fees for health insurance ($1,186), program support ($6,390), as well renting a home, eating, and utilities. A married student with two kids can expect to pay closer to $116,800 each year.
While no debt is usually better than six-figures worth, Graduate Leverage advisors are not quite so conservative with some students and graduates. “If you’re making $150,000 a year, or you are an investment banker, you’ll be fine,” Thibeault says. “You’re taking on too much debt, but you’ll pay it off. It’s people who do a startup for four or five years, and it doesn’t work. Then they take another job, but those people will have had their (loan) burden prolonged with no payments. They’ll have to make payments from year six to 20, but that won’t pay off the loan.”
In such cases, Graduate Leverage’s 26 advisors – Thibeault aims to have 50 on board by year-end – steer graduates with federal loans into the U.S. Government’s new Income-Based Repayment (IBR) plan. It means “they won’t be suffocated by this debt,” he says. “Anyone earning less than $80,000 a year should look at IBR” to see if they’re eligible. Thibeault calculates that less than 1% of the people who should be in IBR are enrolled.