MBA Debt: The Burden Grows Heavier & Gets Scarier

Graduates from Poets&Quants’ top-ten schools earned a median $107,905 in 2010. MBAs from the schools rated Nos. 40-50 earned about $30,000 less, an average $81,599. On first glance, those salaries look nice; but hiding among every the averages are pay ranges that dip frighteningly low, especially when compared against the debt. At Wharton, where the average debt was nearly $110,000, graduates earned a range of annual base salaries that stretched from the cool $350,000 to the meager $25,000.

If your salary is among the lower outliers, “that’s the risk,” says Robert J. Swieringa, professor of accounting and dean of Cornell University’s Johnson School of Business from 1997 to 2007. “If you’re going back to China or India or Brazil, for instance, unless you’ve got someone subsidizing you, it is difficult to say this is the right investment, especially if you’re going back to a local salary. That may change over the course of your life, but in the short-term you have a liquidity problem.”

MBA graduates who land a six-figure job loaded with extra compensation are not likely to be kept awake at night worrying about such debt. Columbia Business School sent 48% of its graduating class to the financial services industry in 2010, where the median salaries ranged from $95,000 in commercial banking to $115,000 in hedge funds. So when about 65% of your MBAs borrow money through the financial aid office, according to Marilena Botoulas, director of financial aid, and their debt “hovers” around $100,000, it may not be quite so scary. “We do a good job of clearly saying that ‘financing an MBA is not a cheap thing to do,’” she says. “It’s an investment in your future and one that comes with, possibly, some loan debt.”


Columbia encourages its MBAs to live on less during school, which “allows them to live less like a student later,” Botoulas says. “It’s not a cheap monthly payment. It’s another rent payment in New York for the most part.” With an eye to the future, she says that Columbia MBAs have been borrowing less, using some savings to pay for school.


Meantime, post-MBA salaries have not kept pace with 80% tuition rises. At L’Oreal, starting MBA salaries have risen once since 2008, when Cecilia Nelson, director of talent development for L’Oreal’s consumer products division, joined the company. When the human resources department considers salary, “MBA debt isn’t our concern,” she says. Instead, salaries are set “to remain competitive in the market.” Lest MBA salaries run too rampant, most companies are also wary of how much money a new MBA hire earns (nearly six figures at L’Oreal) compared with undergraduates who have climbed the ranks to the same title-level as an MBA, for instance.

The ease at which borrowers can now access Federal loans is another debt-fueling culprit. In 2006 the government made grad students eligible for the Direct PLUS Federal Loan – previously restricted to the parents of students – allowing grad students to cover the full whack of the student budget, which each school sets, with federal loans. U.S. graduate students no longer have to lean on as many private loans after they max out on their annual Direct Stafford Loan limits ($20,500 per year), as well as the Federal Perkins Loan, a need-based, low-interest rate loan reserved for students in exceptional circumstances, and limited to $8,000 per year of grad school.

Private loans are costly and more difficult to obtain – as a result they had quietly kept graduate borrowing in check. The banks also check their clients’ total debt burden, and are sensitive to credit scores. “Some (students) did not qualify,” says Dan Thibeault, president and co-founder of Graduate Leverage, a company focused on reducing the costs related to student loans. That forced MBAs to liquidate assets, rely on savings, or borrow from family before they borrowed from a bank to pay for school.


“We had seen too many people saying, ‘An education will make me better off,’ Thibeault says. “That carries into ‘any education will make me better off,’ but that’s not the case anymore.”

Jenkins sobered up to that lesson at Pepperdine. Short of a job offer that would allow him to pay off his debt, he took a calculated risk to fine-tune his human resources knowledge in another master’s degree program. He moved to Ithaca, New York, and enrolled in Cornell University’s 12-month Masters in Industrial Relations program. Thanks to a dean’s scholarship, he only needed to borrow another $20,000 for the privilege.

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