25 B-schools that lead to the most student debt

April 26, 2011, 2:48 PM UTC

Wharton can lay claim to top ranking in a category it might rather not publicize: highest student debt load. Why does this elite B-school outpace rivals Harvard and Stanford by such a wide margin?

(poetsandquants.com) — MBA students at 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), Northwestern University’s Kellogg School of Management ($87,256), and Cornell’s Johnson School ($86,900). These staggering levels of debt are far in excess of averages for undergraduate student loans — $27,803 in 2007-08, the latest reported year — and have fueled widespread concern.

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 pay off 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, coincided with 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% of the graduating class last year got their MBAs without a loan. Some of those students received funding from their pre-business school employers.

The Tuck grad with the highest debt racked up $156,820 in loans. The graduate with the least amount of debt (aside from the lucky debt-free grads) accrued $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.

“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% and 1.7% 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 indebtedness trend altogether. Averaged debt for individual graduates of Yale’s School of Management, for example, decreased by more than $12,000. 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 more than $9,000 to $71,403. Debt loads also fell at Harvard, UCLA, Carnegie Mellon, and Pepperdine.

Conspicuously absent from the list 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 tuition rates and similar student pools.

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. One 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’s average scholarship in the last year was $20,644, or roughly $41,288 for the two years of the MBA program. Wharton does not disclose this number.

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 debt 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.

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