25 B-Schools That Lead To The Most MBA Debt

Reprinted from PoetsandQuants.com
MBA students at the top business schools are borrowing more money than ever to pay for their degrees.

The average debt carried on the back of graduating MBAs at Wharton increased by nearly $5,000 last year to a record $109,836, the highest debt burden reported by any business school. Wharton MBAs now graduate with debt that is more than a third higher than their counterparts at Harvard Business School and Stanford's Graduate School of Business. The largest year-over-year increase in student debt was at Dartmouth's Tuck School where the average debt burden of a Class of 2010 MBA rose by more than $10,000 to $96,292, second only to Wharton grads.

Financial aid officers at B-schools attribute the rising debt levels to the recent recession, which led to pay freezes at pre-MBA jobs and caused applicants to tap into personal savings, as well as the increasing costs of tuition. "Two years ago, the class came in with much greater financial aid," says Diane Bonin, director of financial aid at the Tuck School. "People coming in made a little bit less and had much less in available savings due to the economy."

After Wharton and Tuck, the highest debt loads were carried by graduates of Duke University's Fuqua School of Business ($92,827), the University of Michigan's Ross School of Business ($92,734), and Northwestern University's Kellogg School of Management ($87,256). These staggering levels of debt are far in excess of averages for undergraduate student loans--$27,803 in 2007-08, the latest reported year--which have fueled widespread concern and worry.

Payback Periods Short Relative to Other Grad Degrees

Most MBA students at top schools eagerly take out what many would regard as crushing levels of debt because they are confident the degree will payoff in the long-term. "In purely financial terms, the payback period is still short relative to a lot of graduate degrees, despite the large numbers," says Richard Lyons, dean of the University of California's Haas School of Business at Berkeley. "And they get a fine graduate education as well."

At the Haas school, average debt for MBAs in the Class of 2010 jumped by 14.6% from a year earlier to $73,186. "Though our tuition remains a bit below our peers, it has risen toward market a lot in the last five years, particularly for California residents," explains Lyons. "That's an important contributor, though not enough to explain all of it." The increase in debt levels, he adds, was despite an increase in fellowship funding to students.

These large numbers, moreover, are averages for graduates who borrow money. At the Tuck School, for example, some 25 percent of the graduating class last year got their MBAs without a loan. Some of those students were sponsored by their pre-MBA employers. Of the majority who had to go into debt, the Tuck grad with the highest debt had racked up loans of $156,820. The lowest? Just $13,000. This year, says Bonin, the Class of 2011 will graduate with average debt of about $98,500, yet another year-over-year increase but modest compared to the rise from 2009 to 2010.

Scary Numbers

"The numbers scare me," concedes Bonin. But she says that about 48% of the full cost of attending Tuck is paid out of students' personal savings, and the default rate on MBA loans has been extremely low. "Historically, our default rate on institutional loans has been between 0.4 percent and 1.7 percent over the last seven years. Our students have been very successful in their careers."

Perhaps the biggest surprise in these overall debt numbers, reported by the schools to U.S. News & World Report, is the handful of B-schools that bucked the trend of increasing indebtedness. MBAs at Yale's School of Management, for example. were able to reduce their average debt by more than $12,000 each. Last year, Yalies left New Haven with MBA debt of $86,895, down from $99,418 a year earlier. At Stanford, average debt fell by about $5,000 to $71,403.

"I expect the decline was due to interest rates going up on private loans," surmises Jack Edwards, financial aid director at Stanford Graduate School of Business. "Prior to the economic crisis, our students were able to secure loans at very low interest rates and borrowed instead of using their own personal financial resources. After Oct. 2008, the interest rates did increase, so the students were more cautious in borrowing and strategically only borrowed what they needed."

The largest single drop? Graduates of Carnegie Mellon's Tepper School last year left with average debt of $75,570, less than $12,022 from the 2009 totals. Debt loads also fell at Harvard, UCLA, and Pepperdine.

Conspicuously absent from the list (below) are the debt numbers for Columbia Business School, MIT's Sloan School of Management, the University of Southern California's Marshall School, and Washington University's Olin School. Those institutions apparently did not disclose this data to U.S. News. But it's a sure bet that all of them would be among the top 25 if they had provided the information, given their high levels of tuition and similar student pools.

Wharton MBAs: Highest Debt, Less Successful in Getting Jobs

Another question raised by the numbers: Why do MBAs at Harvard and Stanford graduate with more than a third less debt than those at Wharton? Wharton officials declined to respond. Unlike most business schools which use scholarship money to attract the best students, Harvard doles out some $21 million a year in fellowship grants to students based on financial need, not merit. The primary aim of its fellowship program is to keep debt at low levels. Harvard measures financial need by taking into account an admitted applicant's income for the last 3 years, assets owned, spouse's income (if any) and outstanding undergraduate debt. In other words, if an applicant has the wherewithal to pay for his or her MBA experience, he's unlikely to get fellowship support.

Our conclusion: Harvard and Stanford are far more generous with their scholarship packages than Wharton so the sticker price of an MBA at Harvard and Stanford is more likely to be discounted. Harvard, for example, says that its students receive average scholarships of $48,200 over their two years at the school. Stanford reported that its students received $20,644 in fellowship money in the last academic year, or roughly $41,300 over the two years of the MBA program. Wharton does not disclose this number.

Wharton can not only lay claim to having the highest student debt loans. Compared to Harvard, Stanford, Dartmouth, and other top schools, it also has been less successful at placing recent graduates in jobs. A full three months after commencement, nearly 16% of Wharton's class failed to be employed, versus just 7.6% at Stanford and 9.7% at Harvard. So more Wharton students are also likely to have trouble meeting their higher loan payments.

Once you add an effective interest rate of 7.65% from government loan programs, these debt burdens grow quickly over the years. If a Wharton MBA paid down his $110,000 over the next 10 years, the total cumulative payments would come to more than $180,000. With a repayment schedule over 25 years, the debt would balloon to more than $280,000--not accounting for any deferrals or penalties for missing a payment.

School 2010 Average Debt 2009 Average Debt
1. UPenn (Wharton) $109,836 $105,489
2. Dartmouth (Tuck) $96,292 $85,917
3. Duke (Fuqua) $92,827 $88,050
4. Michigan (Ross) $92,734 $84,798
5. Northwestern (Kellogg) $87,256 NA
6. Cornell (Johnson) $86,900 $83,700
7, Yale School of Management $86,895 $99,418
8. New York University (Stern) $85,198 $78,887
9. Georgetown (McDonough) $82,577 $78,746
10. Vanderbilt (Owen) $80,857 $76,957
11. Chicago (Booth) $79,539 $86,758
12. Texas-Austin (McCombs) $77,644 $69,552
13. North Carolina (Kenan-Flagler) $77,124 $75,251
14. Carnegie Mellon (Tepper) $75,570 $87,592
15. California-Berkeley (Haas) $73,186 $63,748
16. Harvard Business School $73,110 $76,958
17. Virginia (Darden) $72,027 $66,272
18. Stanford $71,403 $75,442
19. George Washington $68,959 $66,989
20. Pepperdine (Graziado) $66,242 $71,680
21. Thunderbird $64,381 NA
22. Notre Dame (Mendoza) $62,858 $65,925
23. UCLA (Anderson) $62,711 $64,030
24. Wake Forest (Babcock) $61,846 NA
25. Emory (Goizueta) $60,435 $58,440
Source: Business schools reported to U.S. News & World Report.

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image courtesy of flickr user, zolierdos