Graduating With An MBA & Lots Of Debt

Three years ago, the graduating class at the University of Virginia’s Darden School of Business left campus with an MBA degree and $66,272 in average debt. Last year, the average in MBA loans outstanding at Darden came to a whopping $90,949. a 37.2% increase in debt in a mere two years.

The financial burden that comes with the degree is unprecedented. The largest amount of borrowing to get an MBA degree occurs at the University of Pennsylvania’s Wharton School. Last year, the average debt load for a Wharton MBA climbed to an estimated $114,339.

The crippling sums vastly overshadow the debt racked up by many of these same students during their undergraduate years–loans that they are still paying off. For all undergraduate student borrowers, the average debt in 2011 was $23,300, though one in ten owe more than $54,000, according to the Federal Reserve Bank of New York. Yet, at all of the top ten business schools, MBA debt ranges from Wharton’s $114,339 to Chicago Booth’s $71,839. The median for a top ten school is about $88,500.

Larry Mueller, Darden’s director of financial aid, attributed the “significant jump” to several factors, including “the depreciation of assets held by the student upon enrollment.” The school’s international students who tapped the loan markets for help borrowed an average $111,000 in the Class of 2011, up from $85,000 in 2009. Oddly, there was a 20% drop in the number of borrowers between Class 2009 and 2011. But most of those who dropped out, added Mueller, were borrowing lower amounts of money.


But there are now nine business schools in the U.S. whose MBAs graduate with more than $90,000 in debt. Last year, there were only five schools that met this threshold and in 2009 there were just two–Wharton and Yale University’s School of Management. But the Great Recession, which help to deplete the savings of incoming students, and rising tuition bills are forcing MBA candidates to borrow more and more money to get their degrees.

Some students also blame the “MBA lifestyle.” As student blogger, known as “No Debt MBA.” recently noted, “One of the frustrating things about being in business school is that students here don’t act or spend like students a lot of the time. Most activities involve going out and spending money, there are plenty of expensive trips abroad each weekend, and BMWs are much more common than hand-me-down Civics.”

Not only is the amount of debt increasing, the cost of borrowing is going up as well. Though not reflected in the indebtedness numbers, MBAs who took out loans will also pay more for them. “In 2009, loan rates for both domestic and international students were lower because the private lenders were still allowed to participate in the Federal Family Education Loan (FFEL) Program as the Stafford Loan and PLUS loan providers,” explained Darden’s Mueller. “The benefits that they offered in repayment made the loans much less expensive, so those who did not want to sell off assets at the low point in the market, even though they had money, just borrowed some money.”

The MBA remains a smart lifetime investment, especially when it is earned from a top-ranked school. (A 2006 GMAC report called “Value Added by Graduate Management Education” shows that grads from “top-ten” B-schools need 5.8 years to realize their investment, vs. 4.4 years among graduates from other programs.) But the degree increasingly comes with a fair amount of debt.


An analysis by PoetsandQuants of average debt burdens reported by business schools to U.S. News & World Report shows that those burdens impact students who go to either public or private universities. Of the top 25 U.S. schools whose MBAs graduate with the most debt, seven are state schools, ranging from the University of Michigan’s Ross School, where the average MBA debt last year hit $93,602 to Minnesota’s Carlson School, where average debt amounted to $60,473.

Only one school substantially decreased the debt of its graduating MBAs: The University of Chicago’s Booth School of Business, which had been the beneficiary of the largest pledge–$300 million–ever made to a business school. In the past ten years, Chicago has more than tripled its scholarship assistance. The result is that Booth MBAs left the school last year with average debt of $70,839, down from $79,539 in 2010 and $86,750 in 2009. That’s a 22.5% drop in two years. MBA graduates at nearby Northwestern University’s Kellogg School of Management now report average indebtedness of $90,200, nearly $20,000 more than the typical Booth MBA.

The average debt burden of graduating MBAs at Harvard Business School is relatively moderate, especially when considering the value of a Harvard degree. Last year, HBS grads averaged $77,880, up from $73,110 a year earlier. Harvard keeps student borrowing down by handing out generous scholarship assistance to most of his students. Last year, Harvard, arguably the institution least in need of passing out cash to applicants or students, doled out a whopping $28 million on scholarships to its MBA candidates (see “The New B-School Arms Race for The Best & The Brightest“). Nearly 50% of every class receives an average $29,000 per year in need-based HBS fellowships.


Yet, even Harvard grads are not immune to the problem. An MBA who graduated from Harvard in 2009 at the age of 26 with $101,000 in debt quickly discovered how hard it was to pay down his huge loan. After his first 21 monthly payments of $1,057, his balance was a massive $90,717. Even after paying out more than $22,000, the balance exceeded his after-tax salary for a year as a product line manager in a Fortune 50 technology company in Austin, Texas.

Determined to payoff his loans, the Harvard MBA went on a crash financial diet. For seven months, he gave up all dinner dates and didn’t go to a single movie. He stopped contributing to his 401K plan, decided against going home for Christmas and missed his friends’ parties and weddings. He didn’t buy a single article of clothing. And to make extra money, he sold his second car and a motorcycle, rented his spare bedrooms to strangers on Craiglist, and started a side business doing landscaping work. Within seven months, he managed to make his final payment and rid himself of all his debt in March of this year.

The Harvard MBA blogged about his experience at “No More Harvard Debt.” As he explained it, “I spent the first two months of the challenge trying to convince myself that my debt should be paid down organically, not by selling off assets, but in the end–and I don’t know exactly what happened inside my head–I decided to sell my second car and motorcycle. And when I made that decision, it felt like a burden was lifted from my shoulders, and I even went on to sell other stuff I didn’t need like my roadbike and other miscellaneous junk.”

But he did it, paying down all his debt within seven months.

(See following page for our table of the top 25 schools whose MBAs graduate with the most student debt.)

  • Dekker Fraser

    Do we have numbers on net worth upon graduation?

  • Bciiny

    So, to provide some alternative perspective on this topic: Top 20-30 school on a full ride or pushing hard for top 10-15 with uncertainty in int’l placement and thus inability to pay even small amounts of debt with the slightly devaluated currency of my emerging country? Every opinion matters so throw’em.

  • clusieo

    what do you think? maybe i am wrong but in previous recession periods, didnt bschool apps go up? Now they are going down. Do you think people are saying–this is just too expensive and i am getting myself into a hole i cant get out of? bschools might be pricing themselves out of existence?…would love to hear comments…

  • Guest

    I applaud his ability to cut costs…but most new graduates dont have extra cars and motercycles to sell, a house to rent out rooms, a large 401(k) to dissolve, or a 100k+ salary to allocate where they see fit.  

  • Guest007

    Again….it’s all about the networking. See my comment above.

  • Guest007

    You’re essentially paying for the school’s networking. That’s the difference. Top 10 probably has the connections to Bill Gate’s personal @$$ wiper

  • AdmissionsProfessional

    Kudos to you. I think you’ve hit the nail on the head – figure out what your own ROI is and go from there. It isn’t always about getting the brand name MBA; it should be about getting the business skills necessary to move up in your career. I’ve seen so many MBA graduates who paid more for their “Top Tier MBA”, only to struggle with that career change, new promo, whatever. An MBA – regardless of where it’s from – isn’t a guarantee of anything. Don’t let them upsell you.

  • Guest

    It’s kind of sad that he didn’t go home for the holidays and skipped weddings and parties in the name of paying off his loan in 7 months.  Why was 7 months such a magic number?  I’m sure he could have lived a little and paid the loans within the year.

    You can always make more money, but you can’t make more time.

  • David

    It’s about to get a lot worse. I’m international and heading to Michigan this fall. Ross are estimating around $83k tuition and living per year (that’s what I have to prove funds for to get my visa).  $166,000+ for the two years. Crazy.

  • LJ

    The burden of MBA debt is why I chose Rochester (Simon) over one of the Ivies. Full-ride tuition saved me $100,000 in loans and I’m still getting the same education and opportunities as any of the larger programs.

  • kingfalcon

     Ha! Good catch and my thoughts exactly.

  • HBS or Bust

    Kudos to the Harvard MBA for buckling down- that takes some major self-control. Especially in Austin, where a single dude could probably drop some major cash on 6th Street every weekend. Though paying down debt is definitely easier when you have a SECOND car and motorcycle to sell, and SPARE bedrooms to rent out!