Yale | Mr. Yale Hopeful
GMAT 750, GPA 2.9
Stanford GSB | Mr. Startup Founder
GMAT 700, GPA 3.12
Stanford GSB | Mr. Tesla Intern
GMAT 720, GPA 3.9
Stanford GSB | Mr. Supply Chain Data Scientist
GMAT 730, GPA 3.9
Stanford GSB | Mr. Global Consultant
GMAT 770, GPA 80% (top 10% of class)
Stanford GSB | Mr. MBB/FinTech
GMAT 760, GPA 3.7
Stanford GSB | Mr. Digital Indonesia
GMAT 760, GPA 3.7
Stanford GSB | Mr. Equal Opportunity
GMAT 760, GPA 4.0
Stanford GSB | Mr. MBB to PM
GRE 338, GPA 4.0
Stanford GSB | Mr. LGBT Social Impact
GRE 326, GPA 3.79
Stanford GSB | Mr. Nuclear Vet
GMAT 770, GPA 3.86
Stanford GSB | Mr. Oilfield Trekker
GMAT 720, GPA 7.99/10
Stanford GSB | Mr. SpaceX
GMAT 740, GPA 3.65
Kellogg | Mr. Big 4 Financial Consultant
GMAT 740, GPA 3.94
Stanford GSB | Mr. Mountaineer
GRE 327, GPA 2.96
Harvard | Mr. Tech Start-Up
GMAT 720, GPA 3.52
Rice Jones | Mr. Simple Manufacturer
GRE 320, GPA 3.95
Columbia | Mr. MD/MBA
GMAT 670, GPA 3.77
MIT Sloan | Mr. Latino Insurance
GMAT 730, GPA 8.5 / 10
Darden | Ms. Inclusive Management
GRE 313, GPA 2.9
Harvard | Mr. MedTech Startup
GMAT 740, GPA 3.80
Harvard | Ms. Comeback Kid
GMAT 780, GPA 2.6
Stanford GSB | Mr. Failed Entrepreneur
GMAT 750, GPA 3.7
Stanford GSB | Mr. Latin American
GMAT 770, GPA 8 of 10
Columbia | Mr. Oil & Gas
GMAT 710, GPA 3.37
Harvard | Mr. Deferred Admission
GRE 329, GPA 3.99
NYU Stern | Mr. NYC Consultant
GRE 327, GPA 3.47

The First MBA Class With More than $100 Million In Debt

How did we come up with the estimate that Wharton’s Class of 2013 will rack up $112.4 million in debt and interest fees?

As conservatively as possible.

Here are the assumptions:

Roughly 75% of the Class of 2013 will graduate with debt (that’s the average percentage of borrowers among top business schools).

The average debt load for an MBA will be just shy of $124,000. The estimate is based on Wharton’s reported average debt per student in the Class of 2010: $109,836. It was adjusted to account for three years of increases in the cost of getting a degree. Those adjustments are equal to previous increases in the average debt numbers.

Many schools expect the average indebtedness of their students to increase due to the Great Recession. At Stanford Graduate School of Business, for example, the average debt of this year’s graduates jumped by 9.8% to $78,700 from $71,700 in 2010. “This was expected because these students started in the fall of 2009 right after the economic downturn in 2008,” says Jack Edwards, director of financial aid at Stanford. “I expect that my peer schools would also have been a similar increase.”

For each $124,000 borrowed, it was assumed that a graduate first maxed out a Stafford loan for $20,500 each year, or a total of $41,000 for two years, at an interest rate of 6.8% and a loan origination fee of 1%.

For the remaining $82,980 in loans, it was assumed that a graduate then borrowed at the same interest rate of 6.8% (it would more likely be higher, probably closer to 7.9%, according to loan experts), and a loan origination fee of 4%.

Using FinAid’s online loan calculator, a typical Wharton MBA borrowing the estimated average of nearly $124,000 would have monthly payments of $1,477 over ten years. The cumulative payments would come to $177,256, including nearly $53,000 in interest alone.

The total cumulative payments per graduate were then multiplied by 634 of the 845 enrolled students, roughly 75% of the class. Using a 10-year payback period, the total loan and interest payments for the class came to $112.4 million, including $33.5 million in interest.

This estimate is conservative based on the lower 6.8% interest rate chosen for the entire borrowed among as well as the fact that most students would likely pay back their loans over a period in excess of ten years.

Using a more likely 18-year payback period (the average for undergraduates who incur far less debt tends to be between 16 and 18 years), the total loan and interest payments for the class come to $140.7 million.

MBA DEBT: A BEAST OF A BURDEN

 

About The Author

John A. Byrne is the founder and editor-in-chief of C-Change Media, publishers of Poets&Quants and four other higher education websites. He has authored or co-authored more than ten books, including two New York Times bestsellers. John is the former executive editor of Businessweek, editor-in-chief of Businessweek. com, editor-in-chief of Fast Company, and the creator of the first regularly published rankings of business schools. As the co-founder of CentreCourt MBA Festivals, he hopes to meet you at the next MBA event in-person or online.