By John A. Byrne, contributor
(poetsandquants.com) -- Dubbed "The Class The Dollars Fell On" by Fortune, 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.
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% are women and 36% 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: 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."
A record $112.4 million in debt
In all likelihood, this will be the first MBA class in history to pay more than $100 million in loans and interest payments for the privilege of gaining the degree. 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 10 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 was only $110,000 last year. (You can crunch your own numbers on an online loan calculator to estimate the impact of your own debt.) And none of these numbers include the debt assumed by students during their undergraduate years.
'Can students pay tuition on American Express?'
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 on whether you should use a credit card to pay the fall semester tuition bill due by the end of July (students had to pay a 1.5% fee if they didn't 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. Wharton's parent university allows online tuition payments with an Amex (AXP) card but adds a 2% "convenience fee").
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."
Other students take a similar view, even if they're inclined to worry a touch more. Consider Monica Tai. She will begin her MBA studies at Wharton next month. After graduating with a B.A. in economics from Cornell University in 2006, she worked as an "actuarial analyst" for Mercer Consulting for nearly four years. Clearly, Tai knows and understands the compounding effect of numbers. She was able to secure what she calls a "good financial aid package" from Wharton, but still has to borrow an unspecified amount of money to pay for the degree. She also has "less than $10,000" of undergraduate debt left.
Is she concerned? "I'm a little bit worried," she says. "I think there will be enough incremental value to pay back what I've lost by not working for two years. But I don't know if it's enough to pay back what the loans cost. I guess it really does make me think that I have to recruit in particular types of jobs so that I can pay back the loans."
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