|
May 2005
Paying for B-School: Debt Matters
It's a common perception that business students are better off financially than students in
other professional programs. Even if an MBA student
pays full tuition at an expensive school for a traditional program, he or she only has to finance two
years of education, compared to three years for lawyers and four or more for
doctors. Moreover, MBAs can count on post-graduation salaries that make debt repayment feasible.
But business school is, nonetheless, a sizeable investment.
Tuition and fees at a top-ranked program easily top $30,000
a year. Housing, food, utilities, travel, insurance,
textbooks, and class materials must be paid for as well. In
addition, many b-school students, being in their
mid-twenties or older, have family or property
responsibilities to keep up. The
actual cost of attending business school can wind up being
more than twice that of tuition.
But does it matter so much if a student takes out loans
to get through b-school? Aren't educational loans "smart debt"
– more an investment in your future earning potential than a
drain on your finances?
Students should think twice before falling into that
thinking, consultants say. Debt is debt, no matter what it
was used for. Smart MBA students start thinking about
b-school costs from the start.
Prospective Students Should Size Up Debt
A remarkable number of aspiring MBAs select programs on
the basis of rankings or "brand name," without giving
serious thought to how good a fit the program is to their
interests and goals – or to their personal and financial
situation.
"People don't always make careful decisions," said
Kent Harrill of AdmissionsConsultants.
Kent is an MBA from Cornell who also
served on the school's admissions committee.
Harrill explained that while many students diligently
research top business schools and dream of the boost a
degree from one can give their careers, they fail
to give enough thought to the sobering question of whether they can truly
afford certain programs.
"It's like being a kid in a candy store,"
Harrill said. "But just because you like everything you see on the
shelf doesn't mean it's all within your reach. School loan
repayments can stretch out for years. Prospective students
don't always grasp the weight of that."
The burden of a student loan, Harrill said, can be equal to
that of a mortgage. "It's like having a second house,
with no house to live in." Student debt can force someone to
put off buying a house, starting a business, getting
married, or having children.
Be Realistic
Students
should start their MBA planning by taking a long, hard look
at how well their school choices fit their career goals. One of the
top ten b-schools in the country may not be a wise
choice for someone who wants to run a modestly sized family
business, or to move up in a company they're already happily
employed at, or to stay close to their rural home town. A less expensive
local or regional business school might be a better choice.
"Be honest with yourself," Harrill said. "Ask, 'what
do I want to do with my life?'
It's important to choose a program that supports your goals without
forcing you to take on excessive debt."
Michael Machen, director of financial aid at the
University of Chicago, agreed.
"Be realistic," he said.
Machen explained that students need to take a close look
at their careers post graduation and ask themselves these
questions: is the school you want to attend going to allow
you to do the work you want to do? Is that work going to
allow you to pay off your student loans?
Look at the
Bottom Line
Students should also look at the bottom line cost of each
program they are considering. These will vary considerably
from one person to another. For example, a program that
would require you to move to another city for two years will
cost more, to you, than it would to someone already living
in commuting distance of that school.
On the other hand, financial aid packages can make an
enormous positive difference in the effective price of an
MBA program.
AdmissionsConsultants founder and president David
Petersam feels that many applicants underestimate the value
of some very
attractive grants and fellowships.
He cites Cornell University's Park fellowships as an example.
Cornell's Johnson Graduate School of Management awards
up to 25 Park fellowships to each entering MBA class,
on a competitive basis. The
award provides full tuition plus a living stipend for two
years, in effect providing a top-flight MBA education for
next to nothing.
"We
work with well over 1,000 applicants a year and we have been
in business since 1996," Petersam says. "We can honestly
state that the next client who chooses a Park Leadership
Fellowship offer from Cornell over an offer from HBS or
Stanford that includes only loans will be the first such client we have ever seen. To
put some more perspective on this, we have had
at least
3 such clients each year since 1999 and we had some
additional such clients in our first few years of existence."
Page 1 2
Are you interested in reproducing this article on your
own website free of charge? Contact us
to find out how.
|
