MBA Debt: The Burden Grows Heavier & Gets Scarier

Applicants who do hold assets are also tightening their belts. “Students are only borrowing what they really need,” Edwards says. “They’re thinking, ‘maybe, because I’m early in my career, it’s worth liquidating my assets, because I can rebuild those for the future.’”

Even MBAs who hit the financial aid jackpot and receive full tuition scholarships often still need loans. INSEAD gave Brazilians Themis Gomes Serrajordia de Mello and her husband Pedro full scholarships to study in Singapore and France. But that didn’t cover their rent, food and childcare for their baby. So they borrowed an additional 80,000 Euros in 2009, or $115,350. The only lender that would consider their case was Prodigy Finance, an outfit run by INSEAD alumni who offer other B-school alumni a chance to invest, with a return, in the education of the MBAs who follow them.

Themis and Pedro each landed jobs in Latin America. Pedro works out of Santiago, Chile, while Themis is in her native Curitiba, Brazil, working for an INSEAD alumnus as market strategy manager for Positivo Informática. Together, they pay 1,200 Euro, or roughly $1,730, per month. “That’s a bit scary, but not if each one of us has a job.”

U.S. Students who have bitten off more than they can chew in Federal loans got a break in 2009. Borrowers working in non-profits, or who don’t earn enough to pay what they ought to on their loans can apply for the Income-Based Repayment Plan, a two-year-old program that is saving many borrowers from defaulting on their loans. With IBR, loans are forgiven after a certain period of time if you work for a non-profit, or if you cannot repay the principle after 25 years in any profession. “There would have been lots of folks defaulting on their loans if it weren’t for this program,” says Heather Jarvis, a law school graduate who writes, a popular blog focused on debt.

Some MBA alumni suggest that people should avoid the costly degree all together, unless an employer is footing the bill. “I guarantee you dollars to donuts that I can find you a cheaper option than an MBA,” says Christian Schraga, a member of Wharton’s MBA Class of 2002, and now a vice president at Columbia Records. He graduated in a year when MBA jobs were few and far between, and felt the panic of bearing unshakable debt that you cannot repay. His tally was a frightening $112,875—ten years ago.

“Instead of thinking about signing the promissory note and taking two years at B-school, just do what you want,” he says. “If you want to be in the music business, find someone who sings well and book them gigs. If you want to sell toothpaste, sell it. You’ll learn a hell of a lot more that way and it will be a hell of a lot less expensive.”

This is the first in a three-part series on MBA debt. The next story appears Friday on an incoming MBA at a top-tier school who is determined not to rack up a dollar of debt.

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