The Student Debt Debacle

OK so you accepted your partial fellowship offer and lined up your student loans.  Think you’re on easy street with financing your MBA education?  Make sure you’re thinking like a business professional before you dive in.

For many MBA applicants, making the decision to drop out of the workforce for two years is not one to take lightly.  The ease of getting loans has become routine for domestic MBA students, which often is conducive to forgetting the amount of debt students are taking on.  Because post MBA salaries are pretty bankable, the US government and other loan shops are eager to sign up MBA candidates to help them finance their education.  What you may not know, is that student loan debt is one of the few obligations that even survives bankruptcy, so it’s not a small decision to undertake.

The average student loan takes 25 years to repay, a thought which is harrowing considering that’s more time than some post MBA careers. 

That’s right! If you don’t pay back your student loan sooner than the full allowable term, you could still be paying off your MBA after you retire.  Hopefully such thoughts will jump start your plan to pay for your MBA before you even start.  Saving all you can up front is a good strategy, but don’t forget about the signing bonus. While a new car is tempting, putting $20K or $30K towards your student debt would likely be a better strategy long term, don’t you think?

Student loans and rising tuition is only half the equation when factoring in the true cost of business school, however, and it’s the other half that really sneaks up on unsuspecting MBA candidates.  Debt stemming from credit cards and other consumer-level obligations such as car payments and loans for living expenses can really add up as well.  While you’re sitting there lining up a plan to pay off the tuition, you may also be building a sizable debt which could be with you just as long.

There exists an extremely dangerous psychological phenomenon when it comes to debt accumulation, which put simply is, the more debt you have, the more you take on. 

Debt is a contagion, and the larger the pile gets, the less significant additional debt seemingly becomes.  Think of it like a pile of dirty laundry.  Once the pile gets too big to take on in one or two loads, it just keeps growing.  Tossing a couple more dirty socks on each day doesn’t appear to make much difference.

There are several factors that make the debt pile particularly perilous for MBA students.  For starters, MBA programs are extremely time consuming and distracting, leaving very little time to manage your finances or tidy up your personal financial statement.  Secondly, MBA students are exceedingly hopeful about their prospects for income increases going forward and figure any debt they accumulate during school will very quickly and easily go away once the money starts rolling in.  Finally, there’s the dilemma of having no other easy option to pay for everything while in b-school.  For most students, taking on debt is simply a necessary evil, the alternative being to forego graduate school altogether.

So how is one to overcome the odds and avoid the MBA debt debacle? 

Unfortunately there is no easy answer, but you could certainly start by making a budget.  Try to cut out non-essentials and take an honest look at what you really need to spend, especially on a recurring (monthly) basis.  If you find yourself having trouble deciding what is essential, try listening to a podcast called the Minimalist, hosted by Joshua Millburn and Ryan Nicodemus, who have mastered the art of cutting back.  Never charge on a credit card what you can’t pay off by the end of the month, and don’t pre-spend money that may come to you from an internship or signing bonus. In the end, even if you end up landing a job that would pay off all your debt accumulated as a student, you will be far better off if you begin your post MBA life with a healthy balance sheet.  At least that’s how a good business professional would look at it. 

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