B-School Whopper: The $100 Million MBA
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John Byrne
Poets
August 24, 2011

In all likelihood, Wharton School’s Class of 2013 will be the first MBA class in history to pay more than $100 million in loans and interest payments for the privilege of gaining a graduate degree in business.

In fact, if the Class of 2013 continues to borrow at rates similar to their predecessors, it will take on a staggering $112.4 million in debt, loan origination fees, and interest payments. That heart-stopping sum includes interest payments of about $33.5 million. All this, for just a single class of MBAs, one in four of which is likely to incur no debt at all.

Brought down to individual terms, a typical Wharton MBA in this class will graduate with average debt of nearly $124,000. With monthly payments of $1,477 over ten years, the total would come to $177,256, including nearly $53,000 in interest alone. It would be the proverbial bite that would be hard to chew for most because a graduate would need an annual gross salary of $176,560 to comfortably pay down the loan, according to financial advisors. That’s not a comforting thought when the median starting pay of a Wharton grad last year was only $110,000. And none of these numbers include the debt assumed by students during their undergraduate years.

Paying over a longer period of time—18 years—would bring down the monthly payments, but would also significantly increase the costs of borrowing. An MBA would have to pay $1,028 a month for 18 years, bringing the total payments to $221,994, including $98,014 in interest. A person borrowing this much money would generally need an annual salary of $123,330 to afford the loan. The higher interest payments piled on the class would bring the cumulative debt to $140.7 million in loans and interest from $112.4 million

‘The Mysterious Potency of the MBA’
Dubbed “The Class the Dollars Fell On” by Fortune magazine, the 1949 graduates of the Harvard Business School were undoubtedly the most celebrated group of MBAs in history. Though the 700 or so members of the class graduated with modest expectations, more than a third would become CEOs and well over half would end up as multi-millionaires.

As author Laurence Shames would write in The Big Time, one of two books that documented the group’s unprecedented success, “the class would become emblematic of the mysterious potency of the MBA degree back when it was still exotic, a rare golden ticket to action.”

Fast forward to this year’s incoming class at the University of Pennsylvania’s Wharton School. The 845 students who start their first classes on Sept. 7 are among their generation’s best and brightest. Unlike the men of 1949—there were no women–the Wharton group is as diverse as any in history: A record 45 percent are women and 36 percent hail from outside the U.S. To come to the Philadelphia campus, they left some of the most prestigious organizations in the world where they already were on the fast track to success.

But there’s one other very big difference between this year’s incoming Wharton class and the most renowned B-school class in history: debt and lots of it.

Largely funded by the GI Bill, few members of Harvard’s class graduated with any debt. If the Class of 1949 had been the most wildly successful of all the MBA classes ever, it can be said with certainty that Wharton’s Class of 2013 will be the most heavily in hock.

Call them the “Class the Loans Fell On.”

Don’t Leave School Without It
It seems oddly appropriate that for several weeks this summer the post that rose to the top of the class’s e-Talk forum was one regarding the use of credit cards to pay the fall semester tuition bill due by the end of July (a fee of 1.5% was assessed if an incoming student failed to meet the deadline). An incoming MBA candidate asked: “Can students pay tuition on credit cards, in particular American Express?” (The answer, by the way, is yes. The University of Pennsylvania allows online payment of tuition through an Amex card but adds a “2 percent convenience fee” to the bills of students who choose this option.)

Truth is, Wharton students show little concern about the costs of the degree. They rightly believe the school’s brand is among the best in the world and will pay off in the long run. The investment is something of a “calculated risk.” As one incoming student puts it: “The tuition is a big number when you look at it. But I think an MBA or an education in general is a long-term investment. When you graduate from a program, you might get a salary, which is not all that great. But that’s a short-term phenomenon. At the end of the day, you take a calculated risk. There’s a lot more that I’ll gain from the program, and if I have to repay the loan over a longer time, that’s okay.”

John A. Byrne is Editor-in-Chief of PoetsandQuants.com , a social network and website devoted to the graduate business school community.