Half Of B-School Grads Worry About Loans

by John A. Byrne on

One in every three business school alums are concerned about their ability to repay their student loans, while nearly one in five say they are “very or extremely” concerned, according to a new survey of alumni by the Graduate Management Admission Council (GMAC).

The debt burden of MBA graduates from top programs has been rising steadily in recent years as tuition hikes have outstripped gains in starting MBA salaries. The Great Recession also hasn’t helped because many students entered school with greatly diminished bank accounts. Average debt for MBAs at Wharton and Columbia are now well into the six-figures and debt levels exceed $90,000 for MBA graduates at such schools as Duke, Dartmouth, Yale, Michigan and Virginia’s Darden School.

Of course, loans have long been a significant part of the financial aid package for most students. More than half (51%) of prospective business school students surveyed in 2011 by GMAC indicated that loans would be part of the financial sources (including personal savings, grants, fellowships, scholarships, etc.) they would use to pay for their education.

SOME 18% OF B-SCHOOL ALUMS ARE “VERY OR EXTREMELY” CONCERNED ABOUT THEIR ABILITY TO PAY OFF THE DEBT

Of survey respondents who have yet to pay off their loans, GMAC reported on Jan. 22 that half (50%) said they had no concerns about doing so. A third (33%) reported some concern about their ability to repay their loans based on their current financial situation, and 18% of alumni said they were very or extremely concerned. Similar to responses collected before graduation in 2012, debt burden does not change or determine how alumni view the value of their education—94 percent of alumni who reported holding loan debt after graduation rated the value of their education as good to outstanding compared with the 95 percent of alumni with no loan debt who also rated their education highly for value.

Overall, GMAC found that 60% of alumni reported taking out loans to finance their graduate management education, with no differences seen by graduation year. When surveyed several months before graduation, 59% of the Class of 2012 expected to graduate with debt. Results from that GMAC student exit study found no relationship between a student’s debt load and the student’s assessment of educational quality, value, or reputation of their program.

TWO-THIRDS OF FULL-TIME MBA ALUMNI REPORT HAVING STUDENT LOANS

Existence of debt among alumni varied by program type, however. Two-thirds (67%) of full-time MBA alumni reported having loans, compared with 47% of part-time MBA alumni, 50% of executive MBA alumni, and 48% of non-MBA master’s degree-holders.57 Although more full-time MBA alumni have taken out loans compared with all other business school alumni, they also report the highest percentage of loan repayment among all alumni and expressed the fewest concerns about their ability to repay their loans based on their current financial situation.

GMAC said survey responses showed some regional differences in the reliance on loans to finance their education. Alumni attending school in the United States (63%) and Central Asia (78%) had the highest percentage of student loan debt. Alumni who attended school in Asia/Pacific Islands or Europe had the lowest level of student loan debt (40% and 44%, respectively).

Percentages of Business School Alumni With Student Debt — Classes 2000 through 2012

Source: Graduate Management Admission Council 2013 Alumni Perspectives Survey

The reason why students are eager to go into debt to earn their MBAs is because of the anticipated payback of the degree. Overall, regardless of program type, GMAC says that alumni experienced a 50% return on their investment two years after graduation and a full return after four years. On average, the Class of 2012 reported recouping 38% of their investment at the time of the organization’s 2012 survey in comparison to Class of 2011 which reported recouping 33% of its investment the year prior. GMAC says that 74% of alumni said the amount recouped has met or exceeded their expectations.

SOME 86% OF THE CLASS OF 2003 SAY THE ROI ON THE DEGREE MET OR EXCEEDED EXPECTATIONS BUT ONLY 67% OF THE CLASS OF 2012 FELT THE SAME WAY

When looking at expectations for ROI by class year across a 10-year span, 86% of the Class of 2003 felt their ROI had met or exceeded their expectations, compared with 67% of the Class of 2012. “The data suggest that the further removed alumni are, each year after graduation, the more likely they are to report they have met or exceeded their expectations for ROI,” according to the GMAC report. “These findings are not surprising considering that as alumni progress throughout their career they are likely to see wage increases and promotions that enhance their financial and professional standing. Not only does their actual ROI increase, but their perceptions of having met their ROI expectations also increase the further along they progress in their careers.”

DON’T MISS: GRADUATING WITH AN MBA AND LOADS OF DEBT or MBA DEBT: THE BURDEN GROWS HEAVIER AND GET SCARIER

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