The Class The Loans Fell On


The costs inevitably lead you to the most often asked question: Is an MBA worth it? When it comes to the Wharton brand, it is unquestionably one of the very best in the world. The school is consistently ranked among the top two or three business schools; its faculty is among the most outstanding in the world and its alumni network is invaluable. Even Schraga, who is critical, concedes he landed his current job through a Wharton contact.

Moreover, every published analysis of post-graduate pay shows Wharton very near the top. The median pay for the Class of 2006, five years out of school, is $225,000, second only to Harvard’s $230,000, according to this month’s Forbes ranking. Forbes estimates that it takes only 3.7 years to breakeven on the investment.

Looking longer term, the rewards seem even more lucrative. Over a 20-year career span, Wharton MBAs are said to earn more than $3.3 million, also second only to Harvard’s $3.6 million, according to an analysis by the firm Payscale for Bloomberg BusinessWeek.

The problem with these numbers is that they are all based on a limited sample of respondents from each class—and are likely to be inflated. That’s true even when Wharton contacts its own alums for pay data. As Schraga points out, “When it comes to reporting something as ego-sensitive as compensation, people receiving low salaries are unlikely to respond. To give a real world example, I personally chose not to reveal my salary information to the Career Management office because I felt slightly emasculated in admitting to my relatively meager remuneration.”


What about Forbes’ estimate that it takes a Wharton MBA only 3.7 years to breakeven on their investment? While that calculation includes the pay you leave behind by going to school for two years, it includes only tuition and fees—not the full costs of attending business school, which are considerably higher. And it presumes you don’t have to borrow any money, nor pay loan origination fees or interest charges. Run all these factors through a calculator, as Schraga did with his Wharton-taught knowledge of “net present value,” and you’ll get a more realistic view of the investment.

“If one were to leave an $85,000-a-year job today for the hope of getting a $115,000-a-year job two years from now, your net yearly take-home pay (after loan repayments) will actually be lower than if you simply stay put for the first several years. You won’t even break even until about twelve years from now.”

Unless starting salaries rise dramatically, or Wharton finds more cash to help its students study, the continuing increase in tuition will mean that an MBA from Wharton MBA will become an even more uncertain investment.

Roughly 30% of the University of Pennsylvania’s graduates are having trouble paying back their student loans, according to government statistics. (Wharton does not report this data separately to the Department of Education as some other business schools do). Missing payments and extending a loan can substantially increase the costs of debt. But most are less concerned about potential defaults than they are about how this much debt constrains opportunity and freedom to pursue one’s passion.

Margaret Heffernan, who teaches business at Babson College, is reminded of a walk she recently had in New Hampshire. She passed a church, outside of which a sign proclaimed: “Debt is slavery.”

“That says it all,” believes Heffernan. “When you are in debt, your freedom of action is severely curtailed. This means you may not be able to take the jobs you prefer but pay less. It may mean you can’t afford to walk away from work, or working practices that are antithetical to your values. The irony here is that the education is supposed to enhance opportunities but its cost circumscribes them. I think that one of the greatest risks embedded in business today is the silent compliance of the workforce, and debt creates and encourages that.”

“The Class The Dollars Fell On” had no such concerns. They graduated with virtually no debt and into an era of unparalleled prosperity—not today’s frighteningly volatile economy where most worry whether the U.S. is about to enter a “double-dip recession” that will make it even more difficult for “The Class The Loans Fell On” to land the jobs that will help them pay off their huge debts.

With additional reporting from Mica Bevington, Neelima Mahajan-Bansal, and Liza Rodler

This is the final article in a three-part series on MBA debt.



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