Thursday, April 28, 2011

MBA Cost and MBA Debt

Poets and Quants recently published an article that was near and dear to my heart called "25 B-Schools That Lead To The Most MBA Debt".  These guys got a hold of data from US News on average debt for 2010 graduates of various business schools. They spend the first half of the article talking about year over year changes, how quickly (or not) people pay it off, and how big the numbers are.  But the second half was more interesting to me.  This part focused on how much less debt Harvard and Stanford grads had than their Wharton peers.  If we look at required cost of attendance for some of the "top 5" schools and the debt figures from the article you notice something pretty interesting:

For most schools, cost and debt are heavily related.  These are the blue diamond schools on the chart: Haas, Booth, Kellogg, Tuck and Wharton.  When you slap a linear trend on there you get an r^2 of .97 which is a pretty strong indication of a correlation.  The trend says that debt is roughly equal to three times the required cost minus about $24k.  So add in living expenses, some capitalized interest, a laptop and subtract some aid.  The equation isn't particularly meaningful and the sample size is small.  But HBS and Stanford are nowhere near that line.  

The author of the article concluded that the reason that HBS and Stanford are different is that they give out way more need-based aid than their peers and that need, not merit, is their primary methodology in distributing funds.   

For the graph above the debt numbers are from the Poets and Quants article and the required expenses are from Business Week's MBA program profiles.  Sloan is not included since it appears that they didn't provide debt information to US News and thus weren't in the Poets and Quants article.

I found this pretty fascinating.  The idea that a school's aid policies and budgets can make such a huge impact on a student's debt load is impressive.  Of course I've made my decision on where to go, but if you were looking at business schools would you let this information sway where you applied or accepted?

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  1. That is really interesting. Thanks for putting that in graph from.

  2. I just found your blog (am trying to decide between 2 schools now, have full-rides at both and planning loans for other expenses). I am very grateful for all the information you've provided here.

    My question on this post is, couldn't there be less loan debt owed by students from those schools because there are less students who borrow to attend, excluding those receiving scholarships? It seems like *average debt* burden is not the proper way to account for this type of information, assuming they are measuring the debt of the entire class, and not only the students who are borrowing money in the first place.