In this episode of Business Casual, hosts John, Maria, and Caroline delve into the financial aspects of pursuing an MBA. They explore the significant costs associated with top U.S. business schools, revealing that average debt burdens can reach as high as $143,000, as seen at Kellogg, and around $99,000 at Harvard Business School, even for scholarship recipients.

The hosts provide their opinions on different aspects of this topic. Caroline emphasizes the importance of early financial planning and advises candidates to consider a mix of savings, loans, and scholarships. Maria points out that the return on investment for an MBA is substantial, often leading to lucrative careers that justify the initial debt despite the high costs. Meanwhile, John notes that while some schools offer more generous scholarship funds, others might admit more students from less affluent backgrounds, affecting the average debt figures.

The episode highlights the complexities of financing an MBA, the importance of planning, and the potential long-term benefits, making it a crucial listen for prospective MBA candidates.

Episode Transcript

[00:00:07.290] – John

So how much money do you think you have to borrow to get your MBA? We’re going to explore that topic in today’s podcast with Maria Wich-Vila and Caroline Diarte Edwards, my co host. I’m John Byrne with Poets and Quants. And you’re listening to Business Casual, our weekly podcast. Now, we just did an analysis of the MBA debt burdens at the top 50 US business schools, and the data is pretty darn interesting. So based on the numbers that are reported by the schools to the Department of Education, and let me tell you, they’re four years old, and that’s the latest data available on the high end. You have Kellogg, where the average indebtedness is $143,000, and then you have everybody else. I think there’s one, two, three, maybe four schools where students are averaging debt of 100 or more thousand dollars. And if you actually look at the Harvard Business School latest loan page, Harvard is saying that the average student graduated with loans of approximately 99,000. And even for those who received a scholarship, the loan amount was not much lower, 94,000. And the neediest half of scholarship recipients at Harvard was $75,000, which seems to be an awful lot of debt, particularly if you were to include the debt that many people are carrying with them from their years in undergrad.

[00:01:47.500] – John

How do people do it? Caroline?

[00:01:50.210] – Caroline

Well, it takes a lot of advanced planning, that’s for sure. And that’s something that we talk to candidates about. And also when I was at INSEAD, we would encourage candidates to start their financial planning as soon as possible.

[00:02:05.340] – Maria

Right.

[00:02:05.590] – Caroline

Don’t wait until you’re admitted to the program to start thinking about where the money is going to come from. So for most people, for the vast majority of students, it’s a mix of savings and loan, and for some of the lucky ones, then some scholarship support as well. But you can’t count on getting a free ride, right, if you’re going to get a scholarship or financial aid from a school, even with the most generous support, the top schools with deep pockets, they’re not going to give you a free ride. So you definitely need to plan ahead and think about taking on some debt and look at your options well in advance. And it’s often quite complicated, especially for international students. So if in the US, it’s fairly straightforward to get loans to fund your education, but it can be much more challenging for international students, and that’s something that also I faced at INSEAD.

[00:03:00.870] – Maria

Right.

[00:03:01.200] – Caroline

Sometimes people were not able to come to the program because they struggled to put their loans together, certain countries is much more challenging than others. So these are some very big numbers, but nevertheless, it’s a lot less than the total cost of the program. Right? So students are managing to put together savings and get some scholarship support. So if you think about today, the total cost of an M7 MBA must be somewhere in the region of $250,000, right? I mean, the tuition fees alone, it’s $150 to $170,000, plus all the living expenses. And so, as you said, this data is from a few years ago. But nevertheless, people aren’t graduating, on average, with a quarter million dollars of debt. They are getting support, and some of them will have been able to put in some substantial savings. But for the vast majority, I think it’s a mix of loans and some scholarship support.

[00:04:07.980] – John

True. And if you look at the percentage of a class that actually graduates with debt at Yale, it’s only 44%. So somehow, 56% are finding enough money to basically pay for their education and their living expenses without having to take out a loan. Berkeley, it’s 46%. Duke, 56. UVA Darden, 53. NYU, Stern, 45%. At Harvard, it’s 52% of the graduates come out with debt. Maria, what do you make of these numbers?

[00:04:42.220] – Maria

I mean, I think that it is an indicator of the fact that the business school, the goal of a lot of people going to business school is to enhance their careers. And the schools realize this. And as a result, yes, getting an MBA is expensive, but they also know that you are positioning yourself well to make a lot of money afterwards. And so I think the business schools, rightfully so, are often looking for students to take on some level of debt so that the students themselves also have some skin in the game. And I think also, even when the numbers. I think that, if anything, I think some of these numbers might be a little bit underneath what I would intuit that they would be. These just might be the student loans. But perhaps, for example, I know a few people in business school who took out tremendous credit card debt to be able to join the trips with other people. Right? That’s something you cannot use student loans for. But these international trips are a big part of the social life. Know, going skiing in Vermont and all these sorts of things that people.

[00:05:45.070] – Maria

Maybe that’s also influencing my perception a little bit of the overall costs. But I do think that no matter how big the number gets, I think the career results are such that most people happily pay this. And I think, in fact, when they have surveyed people who have taken on debt, most people say that it was still an investment worth making.

[00:06:07.410] – John

Yeah, totally. Well, if you look at, let’s just say, Harvard. So in our story, we’re reporting two different numbers. We’re reporting year old debt numbers that were collected from us news because us news asked each of these schools to report that number. Many of them refused to report it, including most of the M7, incidentally. And then we’re including the rarely seen Department of Education numbers that are reported to the Department of Education from the schools directly. And we have much more complete debt on that, even though it is four years old. And then, of course, you have the current numbers, which I quoted earlier from the Harvard business School, because they’re up by, like 11,000 per loaner in one year at Harvard Business School. So you got a bunch of numbers. But one of the things I think that comes through here in interpreting them is that schools where students have high debt have two things going for them. I think, one, it’s possible that they are admitting more students who simply didn’t save a lot of money or don’t come from wealthy families and therefore have to borrow more. The second conclusion would be that those schools have less scholarship money to spread around than other schools where the debt levels are lower.

[00:07:41.400] – John

So if you look at. I’m just going to deal with the Department of Education numbers. Now, if I look at Stanford, the Department of Education number is, the average debt is 74,000. And that compares with the northwestern number that I cited earlier of 143. Now, I know Stanford is incredibly generous, as is Harvard, and that could very well be the differential. On the other hand, you might make the argument that many people who go to Stanford because they probably come from even more elitist backgrounds and better jobs than those who go to Kellogg may have more wherewithal to actually pay for their education than the students who go to Kellogg. That’s one other conclusion. Right? But still, Kellogg is still on the high side, because if you look at Chicago Booth in their neck of the woods, the average indebtedness, according to the Department of Education numbers, is 96,000 versus at 143 at Wharton, incidentally, it’s 86,000 at MIT, Sloan, 73, Columbia, 98,000. You expect it to be higher in New York City, given the cost of living and the fact that people would normally borrow more money than the tuition requires to cover other expenses.

[00:09:00.750] – John

It’s also high at NYU Stern, where it breaks 100. It’s 109,000 at NYU Stern. And again, living in New York isn’t cheap, and the tuition isn’t very low either. So that’s also an indication of those factors. I wonder what else you can glean from these numbers, Maria. Now, you’re someone who had to take out debt years ago, right?

[00:09:28.470] – Maria

Yes. And it was many, many years ago, and it was higher than the average number being reported.

[00:09:34.150] – John

And that’s why the tuition was lower.

[00:09:37.050] – Maria

Yeah. So it really is. When they say an average, they’re not kidding. It’s really an average.

[00:09:42.100] – Caroline

That’s because Maria did too many ski trips.

[00:09:44.630] – Maria

I know it was too. Yes. Thank you. I do not ski. Skiing combines three things I hate. Being cold, being scared and being in pain. And it’s like one activity that combines all three things. I hate. But thank you for that. No, I think what to make of some of this is, I do wonder if some of the lower, for example, you cited Stanford and Harvard having slightly lower debt numbers than, say, a Kellogg. I wonder if it’s more about the inputs as opposed to like, I have worked with candidates to these programs and not all of them, but some of them are easily making 200, $300,000 or more prior to even entering some of these programs. And so, first of all, it’s not a huge stretch of the imagination that they have saved money for it. Many of them are sponsored. If they work for, say, a consulting firm that pays for the MBA or if they’re sponsored by their government, some students from overseas, their governments will pay for them or their employers will pay for them. So I don’t necessarily think that anything can be, if anything, you say, wow, Northwestern is at 143 versus Booth at 95.

[00:10:51.940] – Maria

Well, Booth, we’ve talked about. You’ve reported on this a lot, John, that Booth has a huge scholarship fund. They’ve raised a ton of money in the past several years that they’ve been putting specifically towards scholarship money. And one thing that I think is interesting is not just looking at the debt level, but if we then also look at the pay, which was all the way in the right hand column of your report, the average pay, there’s a differential of, what, roughly five and a half, $6,000 per year from that first year pay. So even though maybe the story is that people coming into northwestern are coming in from less lucrative backgrounds, maybe it’s also that Northwestern gives out less scholarships. And yet at the end of the day, when people are graduating, they’re effectively making the same amount of money as people from Booth. So it’s not like, oh, I don’t know. I don’t think it’s a reflection of the quality of the program. I’m wondering if it’d be fascinating to be able to dig into the data and really look at is it that the school is, quote unquote stingy, or is it that the know, is it perhaps letting in people who were very financially successful prior?

[00:11:58.690] – John

Yeah, that’s a really good point, because you would assume, incidentally, that Chicago Booth would have more people who come from finance, which pays very well. And I know of all the schools, the largest private equity crowd goes to Stanford, which is why such a high percentage of their graduates end up back in PE or venture capital. And there’s a good number of hedge fund employees who go to the likes of a Wharton of Columbia, Chicago and Stanford, given the finance slant or the brand value to the graduates. So obviously, if you’re working for a PE firm for a number of years or a hedge fund, you’re going to be making over 200,000 to begin with. So that’s going to really go a long way to making sure you don’t have any debt when you graduate or you have very little. So that’s to be factored in here, too. I think these numbers also make you think twice about, hey, maybe a one year program does make sense, right? Caroline?

[00:13:05.610] – Caroline

Well, it’s certainly a more cost effective proposition, I think, for many students. Right, because you’re paying tuition, fees and living expenses and foregoing your salary for literally half the time.

[00:13:18.960] – Maria

Right.

[00:13:19.300] – Caroline

So return on investment of the top one year programs is typically very good. And that’s a key reason why many international candidates do apply to programs like INSEAD, because as we’ve said, often pre MBA, they have not had the earnings capacity of students in countries like the US, and therefore they are more price sensitive. And that one year proposition is really very appealing. I would say, though, that looking at this data, when you do compare, as Maria says, the average debt and then the average pay post MBA, I mean, just eyeballing this, it looks like the average pay is about double for many of the schools of the average debt. So it’s not going to take them a huge amount of time to pay that off, is it, if that’s what they’re earning post MBA. So I think if you put it in that context, it doesn’t look so bad at all.

[00:14:20.770] – Maria

True.

[00:14:21.090] – John

And the income numbers that we’re showing do not include things like, oh, anything from year end guaranteed bonus to different earnouts, depending on the kind of job that you have or performance bonuses, or even more standard things like a moving allowance or some other perks that often are granted graduates of MBA programs. So the four programs where the Department of Education debt is over 100 would be Kellogg, NYU, Stern, Cornell and SMU Cox, which is a bit of a surprise. And according to the US news data, which is incomplete because as I mentioned before, many schools refused to report it, the schools with the highest debt in six figures would be UVA, Darden, UC Berkeley, UNC, Chapel Hill, Duke Fuqua and Yale SOM. You could see all the data in the think, you know, I don’t want people to see the data and get them scared off from going and getting an MBA. And I’ll let Maria tell you.

[00:15:30.090] – Maria

Thanks, John. Yeah, no, I mean, I think most people, and I think that you Poets and Quants may have done a previous article about this a few years ago where somewhere there was a survey that was cited that most MBA graduates are happy that they got the MBA. And I think for the vast majority of people, the debt in retrospect was certainly worth it. I think especially in this day and age of digital media, where a tweet can reach 1000 people in an instant, if people were graduating with these debt numbers and then feeling as if though they had signed on for an impossible repayment plan and boy, this wasn’t worth it, and wow, do I regret this. I think that we would have heard that pretty quickly, right? I think that that would have been reflected. I mean, I know that numbers are down, but I think that’s a broad application. Numbers are down, but I think that’s a broader indicator of the strength of the overall economy, perhaps. But overall, people are happy to take on this debt because when they graduate, not just the post MBA, right. I know that the focus is on that immediate post MBA salary, but if you really take the tools that you get from an MBA education and apply them throughout your career, you’re going to use that to catapult yourself to even higher and higher levels of earning.

[00:16:47.750] – Maria

And so, for example, let’s say an NYU is one of the most expensive schools in terms of the debt. But if you go into finance, out of NYU, and the people who work in finance tend to make a ton of money, if they stick with it for 10, 15, 20 years, they can be making millions of dollars per year. And so I think most people who take on this debt are happy to do so. And even people who don’t pursue perhaps the most financially lucrative of routes, they still see value in the MBA as making them stronger in whatever field it is. So even if they do go into the nonprofit sector, they feel that they are better managers and better leaders as a result. And therefore they have more success in whatever their given field is. And also the loan repayments can be, you can refinance them, you wouldn’t want to refinance them now, but the people taking on that debt right now, in today’s high interest rate environment, they will be able to refinance them hopefully in a few years. Or if you need an extension, it’s very easy to get extensions on those loans.

[00:17:48.780] – Maria

Or for example, I know many schools will have loan forgiveness programs where I often get people reaching out to me and saying like, well, it’s not fair that I didn’t get a very big scholarship from the school because I’m going to be a social enterprise person and I’m not going to be making a lot of money. And therefore they should have given me more money up front. And I’m like, yeah, but they don’t know that. Maybe you’re going to show up and then you’re going to end up working in investment banking for Goldman Sachs. So what a lot of schools do is they do it on the back end. In other words, when you graduate, if you then take a job that pays under a certain amount, if you then take a job that is in the public sector, the schools themselves will often forgive part of your debt in order to make that less onerous of a burden. So even someone might graduate with say, $90,000 worth of debt. But then if they take a public sector job, the school or whoever it is might say like, okay, well, we’re going to forgive 20 grand of that, right?

[00:18:41.110] – Maria

It is very rare. In fact, I don’t know that I’ve ever, I mean, obviously nobody wants debt idea. In an ideal world, no one would have any debt for anything ever. So everyone sort of grumble sometimes, like, oh, student loan payments. But I don’t think anyone that I know, not just in my sort of social circle, but even amongst clients, people don’t really reach out to me and say, oh, this was a terrible, this debt. Well, I should have never gotten the MBA. I think the overwhelming majority of people are glad that they did it, which is why the circle of life and debt continues.

[00:19:13.930] – John

Indeed. And I also think that some of these numbers are preventing some people from making the decision to go and get an MBA. I mean, this could be very well one of the reasons why domestic applications have been going down for some time. And I should add that these numbers are all in the context of schools having raised hundreds of millions of dollars in the past decade to fund much more generous scholarships at almost all the schools. And that has been a priority of many deans in their fundraising campaigns to help offset the high cost of an MBA. Caroline, I wonder if you get candidates who actually get into schools and then say, oh my God, I don’t think I can afford it, what should I do?

[00:20:05.520] – Caroline

Do you ever hear, I haven’t. I don’t recall any recent clients being in that situation? I certainly did come across that when I was head of admissions at INSEAD, that we would sometimes admit people who struggled to put their financing together. And in fact, occasionally we would allow those candidates to defer. So schools generally don’t like giving deferrals, right, because it messes up the class that they have carefully crafted. Sure, but we would. And the school, I believe, still does this give people deferrals for a very short list of reasons. And one would be, for example, medical issues, and the other would be that they don’t have the money right now, but they have a plan for getting the money together. And in twelve months time, or 18 months time, they could join the program and be able to finance it. And the school will work closely with candidates like that. And they have dedicated staff, right, who advise students on their financing and help give them information about options and advise them on how to put that together. Because at a school like INSEAD and the other international schools, it is often quite complicated, right?

[00:21:23.790] – Caroline

You have people coming from literally all over the world and coming from countries where they may not be able to get a loan locally to finance an international education. So when I was in INSEAD, I signed the deal with prodigy finance, which was put together by a couple of INSEAD graduates to fund because they recognized the issue of their fellow classmates who had struggled to get loans or had got loans with exorbitant interest rates. And so prodigy has been very successful. And there are other providers as well, who have a better model for scoring the risk for that pool than traditional banks, and therefore are able to lend to students who are studying internationally, because often banking is often very locally focused. And so if you are coming from Turkey and you want to study in Singapore, and then you’re going to be going to work in Brazil when you graduate, a local bank in your home market is not going to understand that at all and will just turn you away. And so those providers like prodigy have played a really important role in the market for schools like INSEAD.

[00:22:37.230] – John

Now, to the extent that scholarships are somewhat of an offset to how much money you would need to borrow, how much negotiating power does any candidate truly have over a school on the scholarship money.

[00:22:51.480] – Maria

Maria, I will defer to Caroline for most of that because she was actually in the role of probably having people reach out to her. I have seen varying levels of success on that front, but I think on the most part, I do think that the schools, I don’t think the schools are in it to play games. I don’t think they’re like, well, here’s our first offer, but secretly we have ten grand hidden away somewhere. You just have to ask for it. I don’t think they have the time or the inclination to play those sorts of games. So normally when you do get a scholarship offer, kind of is their best offer. I think if you get into a school that the original school might see as very a strong competitor for them, and then it might sort of inflame this kind of competitive spirit of like, well, we want you and we don’t want you to go to that other school, then that might be a cause for it. But if your higher scholarship offer is from a school that is not viewed as elite, as the school that you are pleading with, my take on that would be like, just take out the higher debt and go to the better school.

[00:23:54.890] – Maria

Invest in yourself, man. This is your chance. You wrote all these essays about how you’re going to go out and change the world and be the person who becomes the CEO that transforms the universe. Great, cool. Put your money where your mouth is. Because as we’ve talked about before, these MBA programs are sometimes loss leaders for the overall institution, right? Sometimes the institutions make more money from or higher profit margins, at least from executive programs, for example, or publishing or other sorts of revenue streams. And so I don’t know if I’m an institution and I have literally thousands of people who would kill for your spot, and I give you that spot. I don’t think it’s unreal if somebody were to come to me and say like, well, I’m not going to go. I get kind of tough love with those folks and I get uncharacteristically capitalist with them when they’re like, well, I got in, but boohoo, now I don’t feel like taking out. I don’t know, it’s too risky. And I’m like, well, either you believe in yourself or you don’t.

[00:24:54.350] – John

Okay, well, Caroline, have you ever been held up when you were admissions director over at INSEAD.

[00:25:00.110] – Caroline

I mean, people do try to negotiate and as you can, you can try, right? You can say to the school, okay, well, I’ve got this great scholarship offer from London Business School, but I’d rather come to INSEAD. Can you match this? And in most cases, it’s probably not going to work. Right. But you could always ask. And in some cases, there can be movement in the scholarship pool. So schools will have a plan of who they’re going to give financial support to. And if some of those admits turn down the offer to come to the school, then they may have some scholarship funding that gets freed up that they can then reallocate. Right. So we would sometimes do, and when I was at INSEAD, we would have some students who we knew were working very hard to put their financing together. And they had some scholarship funding. We knew that they had a loan, but sometimes they still had a bit of a gap, right. And so in some cases, if we had the funds, then we would increase the scholarship to help to close that gap. But you really have to provide a lot of information to the school to get that. And whether or not you can get that depends on whether there’s any funds left at the end of the day.

[00:26:28.650] – John

And there’s no downside. Right. I mean, look, if I ask for a little more help, you’re not going to reject me after you’ve admitted me, right?

[00:26:36.770] – Caroline

No, but just be careful how you ask. Right. You need to show your gratitude if they have already given you some support and you don’t want to come across as arrogant and over entitled and too demanding, because that is just going to get you nowhere. It’s highly unlikely that they would withdraw an offer at that point.

[00:27:07.740] – Maria

Right.

[00:27:08.080] – Caroline

But it’s not going to get you anywhere in the negotiation, for sure.

[00:27:12.200] – John

Yeah, exactly. And besides, if they actually withdrew an offer, can you imagine in today’s social media world how that would get out and look really bad for the school? I don’t think anyone could do that. So I don’t really think there’s any downside in trying to negotiate as long as you do so in a gentlemanly way. And as Caroline says, express your gratitude for what you’ve already been given and the fact that you really want to go there and you know it’s going to make a difference in your life. So you can negotiate from a very positive point of view, which would help a lot. All right, there you have it. Check out the debt numbers. Obviously, for every individual student and graduate, this is going to be a different story depending on your circumstances, whether you have the money to just pay it, whether you have the ability to gain a scholarship. And we do know that most of the schools offer their scholarship money on the basis of merit, there are only two that contend they only offer it on the basis of financial need, and that’s Harvard and Stanford, although there is some skepticism about that.

[00:28:21.390] – John

So that even in those schools, there may be a good number of awards based on merit as well. And good luck. I hope you don’t have to borrow too much money, but if you do, we think it’s worth it. It’s a no brainer. The return on investment is there, and if you use your education to get the best possible job, you’ll probably be able to pay back that loan in less than five years, and maybe even quicker, because many people do. All right, thanks for listening. You’ve been hearing Business Casual, our weekly podcast.