Helping MBAs Manage The Debt Burden

He reckons that some of his clients would be in a better position had their schools been more transparent with salary information and job prospects. “The schools are highly biased and so are the institutions that provide data,” he cautions. “We saw the same thing in housing when the National Association of Realtors and Investment Banks and Mortgage Brokers were all biased. The difference is that with housing, the cat was let out of the bag rather quickly—I’d say four years into the bubble (2002-2006). With education, that lag is so great that many will not know whether their investment was recouped until long into their careers.”

Thibeault’s ideal is to advise MBAs before they sign promissory notes. John Katz, senior associate at North Bridge, a private equity firm in Waltham, Mass., will join MIT-Sloan’s MBA class of 2013 this autumn. With six years worth of savings and a great pre-MBA salary, he didn’t qualify for subsidized federal loans. Other federal loans offered him a fixed, 6.8% rate, but he says, “I don’t want to be paying that to borrow money.” A quick search online found him a 5.5% rate through his own bank, but his hunt for “the cheapest debt possible” kept him looking.

He eventually found Graduate Leverage, and set up a $450 meeting, Graduate Leverage’s annual fee for clients of any stripes. Thebeault steered him toward private loan products that carry a mere 2-3% interest rate – Mom and Dad will co-sign the loan to help him keep the interest rate in check. “Dan’s got the data on what I should be paying,” Katz says, adding that such a low rate allows him to put his existing savings into higher-growth accounts or investment products. With a low rate, he can also max out and borrow closer to $80,000 a year.

“I feel there’s a job out there for me (after B-school),” Katz says. “I’m hoping it’s at the same compensation level or greater; but again, in this environment, nothing’s guaranteed.” Still, with six years of experience he feels pretty confident that he’ll be able to pay off his six-figure debt – “I’m not taking on an insurmountable amount of debt,” he says – within three to five years of graduation.

Katz took advantage of low-rate private loans – one the best gifts to MBAs since acceptance letters were mailed in the winter and spring. In what Thibeault calls “a very interesting development in the MBA financing space” many MBAs have been able to borrow at rates well below what the Federal government has on offer. “It’s a function of the low rate environment as well as the need for certain banks and credit unions to make loans,” he says.

Word is starting to spread. “We’ve already helped around 250 MBAs secure loans in the 2.25% to 5% range in lieu of the federal Grad PLUS loan, which is at 8.1%. But most are still unaware of this opportunity, as they assume Federal loans are always better than private loan rates.”

This uptick in pre-MBA business is a relief to Thibeault, who tends to meet his MBA clients long after they’ve begun saving for an MBA (or not), chosen where to study, and settled into their MBA lifestyle (some live more lavishly on loans than others). Were he to sit down with MBA applicants, he offers this advice: “Be more price sensitive. If you go to a high-ranked school because it suits you, or geographically its location is important to you, you can overlook price. But always go with the lower-cost program. If you can go part-time, that’s not a bad decision.”

Thibeault helped MBAs manage $7.5 million in debt in his first year of business. The company’s MBA business peaked in 2006, at $243 million, when Graduate Leverage was still acting as an intermediary between borrowers and lenders, helping to originate loans. When Federal PLUS Loans became an option for graduate students in July 2006, locking in interest rates for borrowers and allowing them to borrow the full freight of tuition from the Government, Graduate Leverage began to slowly close that arm of its business. Today, the company focuses on helping its clients to consolidate their loans after graduation. In 2010, the company dealt with $18.5 million worth of MBA-related debt.

MBA DEBT: A BEAST OF A BURDEN

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