It was a shocking revelation, a signal that he was trapped withoverwhelming debts that would control how he could live his life.Not only had he barely made a dent in the principal after two yearsof payments, but he had $42,000 in interest to pay over the next 10to 15 years. He never questioned the value of getting his Harvard MBA, and heliked his job managing a business development division for Dell in Austin, Texas . But with debt payments arriving every month, he realized he hadlost flexibility in his life. He knew that if he lost his job itcould be a disaster. |
He would have to think twice about rocking theboat at work, balking if he was overlooked for a promotion ortaking a job that paid less even if it would allow him "tomake a valuable contribution to the world." "I didn't want a gun to my head every time I thought aboutthis," he said. "I felt trapped." It's a revelation that few students contemplate as they apply forprograms, said Sandy Kreisberg, an MBA admissions consultant."All they want is to get into a top program." After acceptance, they might ask about financing, but most, likeMihalic, think an MBA will deliver wealth, and they need not fretabout money, Kreisberg said. That tends to be true of top MBAprograms, although jobs have been more difficult to get since the2008 financial crisis. More top MBA programs are trying to help students withscholarships, and some compete for students with top GMAT scores byoffering aid, said John Byrne, editor of Poets & Quants. Forexample, Mihalic received $54,000 from Harvard.
But with costs of some top MBA programs about $300,000, based on aPoets & Quants analysis that includes living expenses and lostincome from quitting a job, debt can be oppressive. And whenconsidering MBA programs, pay attention to the effect ofscholarships on cost, plus the job placement rates at each school,when applying, said Byrne. Levels of debt vary substantially between schools, even those inthe top 10 or 20. At Harvard, Byrne said, the average MBA studentin 2011 had $77,880 in debt, similar to Stanford at $77,599.
The University of Pennsylvania 's The Wharton School was highest with $114,339. Sometimes top private colleges canhelpstudents more than public ones. Despite high costs, Byrne said MBA students have the lowest defaultrates on student loans, about 20 percent. MBA graduates have theadvantage of relatively high pay, with base salaries averaging$91,400 in 2011, said Byrne. PayScale Inc.
put the median salary in 2012 for MBA graduates at $83,500, but$136,000 for MBA graduates of the country's top 30 business schoolsas ranked by Bloomberg Businessweek. A higher salary allows students to take on substantial debt andlive within a rule of thumb in education finance. That is: Borrowno more than what your first year of annual pay is likely to be. In addition, it's wise to stick with federal Perkins and FederalGrad PLUS Loans because they include forgiveness programs, such aslimiting debt payments to 10 percent of a person's income andforgiving debt that's left after 20 years.
While those rules can take some pressure off students, Mihalicdidn't want to pay loans for 10 years. He put himself on an austerelifestyle. He sold a car, took in two roommates, stopped going tomovies, didn't take dates to dinner, skipped trips and friends'weddings and even carried his own flask of liquor when he went tobars with friends. He blogged about it, and in seven months he was debt-free exceptfor his home.
Now, he said, he's so used to an austere lifestyle,it's difficult for him to spend money.
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