MBA Debt? Not A Problem, Says The WSJ


The Wall Street Journal ran a story today (Oct. 27)  that told everyone who knows anything about an MBA education that it essentially pays off. The Journal did an analysis of federal student loan data and found that the vast majority of MBA programs, including most that are not ranked in the Top 100, leave students with manageable debt loads.

What does the Journal mean by manageable? At about 98% of universities that offer MBAs, graduates typically made more money two years out of school than they had borrowed, according to the Journal after examining federal student loan data for nearly 600 programs found. That stands in direct  contrast to law schools, where only 6% of JD programs had graduates with higher median earnings than debt in the same time frame.

That finding will not come as a surprise to business school officials who have maintained for years that the MBA is a no-brainer investment. The Forbes MBA ranking, which is based solely on return-on-investment, has shown that to be the case for decades. In its 2019 ranking, the latest published list, Forbes found that the pre-MBA salary of a Chicago Booth MBA was $83,000 but the post-MBA compensation for a Class of 2014 graduate was $245,000. Overall, the five-year gain directly attributed to a Booth MBA was $94,400, even after Forbes adjusted the gains to discount the “time value of money” and adjusting the numbers for the cost of living for graduates. The five-year gain at London Business School for MBAs was $119,100, while the gain for the one-year MBA program at IMD in Switzerland was a whopping $168,900. Forbes calculated the median debt load for MBAs at roughly $80,000. That’s hardly chump change but the salary lift, not even counting signing bonuses and performance bonuses, would easily allow an MBA to erase their debt relatively quickly.


Because the Journal‘s analysis is based on government loan data, it fails to include private loans, and the salary data reflects only students who borrow money through the federal government loan programs (a more complete analysis of MBA debt is here). Even so, the analysis should give some reassurance to applicants and student who often worry if an MBA is worth the time and money. The Journal found that at several elite MBA programs, including Harvard Business School and the Stanford Graduate School of Business, the average starting salary after graduation allowed more than half of alumni to pay off their federal student loans in full. According to federal statistics, at Harvard Business School, students had $41,000 in debt and average earnings of about $172,000.

Of course, pay often reflects both the career paths chosen by students as well as the location of those jobs. At the top end of the pay scale in the most lucrative positions was the 7% of the latest class to head into hedge funds and investment management jobs. The median total compensation for those Harvard MBAs last year totaled $203,307, with median salaries of $152,682, sign-on bonuses of $27,500, reported by 54% of the students, and a massive $132,500 in other guaranteed comp landed by 27% of the grads. The total median pay for HBS graduates who ventured into the likes of McKinsey, Bain, BCG and other consulting was $195,336 last year (see Another Record Pay Year At Harvard Business School).

It is also worth noting that business schools have been in something of an arm’s race to increase their scholarship awards for more than a decade. Harvard is among the most generous in the world in handing out scholarship money to defray the cost of its MBA program. Last year, Harvard Business School funneled a record $40 million in fellowship support to its MBA students. Roughly half of all the enrolled students got scholarships which averaged out to more than $42,000 per student in fiscal 2020. According to HBS, about 56% of the 2020 class of MBAs graduated with some debt, an average of $79,000 in federal and private loans.


According to the Journal, some of the most expensive MBA programs had some of the lowest debt loads. “At Dartmouth’s Tuck School of Business and some other top schools, graduates borrowed a median $41,000 in federal loans, which is the maximum amount that students can borrow at the most favorable interest rates, without resorting to higher-interest Grad Plus loans,” the report added. In fact, the debt-to-income ratio for Tuck MBAs was a mere 0.25, second lowest behind Harvard Business School’s 0.24 and tied with Stanford’s Graduate School of Business. Among the Top 25 business schools, Wharton was next with a ratio of 0.27 (see table below).

The highest ratios among the Top 25 MBA programs were at Georgetown McDonough (0.81), Northwestern Kellogg (0.79), Cornell Johnson (0.69), USC Marshall (0.63), and Carnegie Mellon Tepper (0.62).

The newspaper found that nearly a dozen other business schools showed higher-than-average debt loads for graduates. “Many of those schools said their loan numbers have gone up because federal loan data reflects students in valuable dual degree programs. Roseman University of Health Sciences had the highest debt of any school earning income, with students borrowing an average of $172,000,” according to the Journal. ” The debt-to-income ratio at Roseman was 1.82%. A spokesman for the school said the figure includes students from the school’s dual dentistry and MBA programs.”

The Journal also noted that for-profit business schools had fewer students who paid off their loans after two years. At Strayer University in Washington, DC, the Journal reported that 2% of graduates paid off their loans in full within two years, while nearly a third asked to temporarily suspend payments. “Strayer students borrowed an average of $74,000, yet half made less than $57,000 two years after graduation. Strayer did not respond to requests for comment,” according to the report.


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