One student knew as soon as he started applying to business school that he wanted to avoid student loans. He'd already racked up about $45,000 in loans from his undergraduate days and didn't relish the idea of adding another $200,000 or so to that debt load, he says. When he found out he got into the Weekend MBA Degree program at the University of Chicago's Booth School of Business, he turned to his mother and father, a retired construction foreman, for help. They agreed to pay for his first year of school, which he just completed, and plan to pay for his second year as well.
The student stated that it is a huge advantage and definitely a relief to know that he won't have nearly a quarter of a million in debt hanging over his head when he graduates.
The student is one of a growing number of graduate business school students who are using their parents as a funding source for school, either accepting tuition gifts from them or negotiating interest free loans. A two-year business program of MBA Classes at a top school can easily add up to $150,000, after factoring in tuition and fees, room and board, and living expenses. From 2003 to 2007, the number of prospective students who said thhttp://www.blogger.com/img/blank.gifey expect their parents to help them pay for business school doubled, and was approaching 40 percent in 2010, according to a 2011 survey. The lingering effects of the economic downturn, coupled with tighter lending standards, have left many students nervous about taking on more student loan debt. The average debt of a college graduate is about $23,000, making the class of 2011 the most indebted class ever.
Any time there is economic uncertainty like there is now, there is a general reluctance to borrow. Borrowing from Mom and Dad is going to seem a lot safer than borrowing from the government and taking on a loan which likely can't be discharged in bankruptcy and can follow you for the rest of your life.
For most students, parental support is just one of several funding sources they use to cover the cost of their MBA Courses; they also depend on loans, personal savings, employer assistance, and grants and fellowships. But recently it has become a more important part of the financing puzzle; on average, prospective students who plan to receive help from their parents expect them to finance 37 percent of the cost of their degree through loans, gifts, or both.
Driving the need for parental aid is an uptick in the business school pipeline of younger students, especially those in the 24-years-and-under age bracket. Increasingly, they are interested in one-year specialized degree programs that require little or no work experience. In 2005, only 22 percent of prospective students who took the GMAT exam were younger than 24. Today, 29 percent fall into that age bracket.
Schools are catching on to the fact that parents are increasingly paying for a significant portion of their adult children's graduate degrees, noting that some business programs have information for parents on their websites and even invite them to orientation.
Parents are really considering higher education, not just the university undergraduate degree but even a graduate degree, as an investment.
The dependence on parental support is most pronounced among younger European and Asian residents. European students under 24, who gravitate toward the popular one-year business master's degree programs in Europe, use parental resources to fund about 42 percent of the cost of their degree. Meanwhile, Asian students in this demographic expect parents to foot about 46 percent of their tuition bill. Much of this increase is driven by students from China, where more than a third of the GMAT test-takers are under 24, with younger women outnumbering Chinese men by a ratio of 2-to-1.
U.S. students are less dependent on parental support for Honors Degree than their European and Asian counterparts, but those under 24 still expect to finance about 20 percent of their degree with help from family. Students from ages 24 to 30 intend to have parents pay for about 10 percent of their tuition.
Some students are lucky enough to get their parents to pay for the full cost of their MBA. One parent says she always intended to help her daughter pay for graduate school if she decided to go that route. The tuition payments are intended to be a gift for her daughter, not a loan, and have not impacted her and her husband's retirement plans, she says.
She thinks by paying for school this allowed her daughter to be a little more reflective about the schools she could choose from. She also thinks education is important and that it is something that will be a lifelong difference for her children, so they were comfortable investing in it.
Some students use their parents in unconventional ways to help them pay for school. A student and, and her husband, who both recently graduated from Duke University's Fuqua School of Business, used their personal savings to pay for their first year of business school. But when it came time to finance the second year of their MBA, she turned to her parents, with whom she co-owns her house, for help. They both wanted to go to a top business school, but there was no way they could afford to pay $46,000 each for tuition. She knew her parents couldn't pay for her, but she thought maybe she could score a deal with them to use a home equity line of credit. Her parents subsequently restructured the mortgage on the home so that both students were able to obtain a home equity loan of about $100,000, with an interest rate just 0.75 percent above the prime lending rate. That's far more favorable than typical federal graduate school student loans, which can carry interest rates of nearly 8 percent, she notes. She's confident she'll be able to pay off the loan in
The spiraling cost of tuition is one of the reasons students may be relying more on parents to pay for business school, says a student loan consolidation and debt management company in Waltham, Mass. Of the MBA students they work with, about 15 percent to 20 percent have $150,000 worth of debt when they graduate. That was unheard of five or six years ago. Maybe a student in a four-year dental program would borrow that much, but for a student to come out of a two-year MBA program with that much debt is almost shocking. It may lead a sympathetic parent to say, 'Wow, that is a suffocating amount of debt. I have to get involved.
Increasingly, financial aid officers at business schools are trying to help students curb the amount of debt they take on to finance their Honors Courses. At Dartmouth University's Tuck School of Business , the school has made a conscientious effort this year to minimize the student debt load, asking applicants to explore other avenues of financing before taking out loans. For some students, that may mean asking Mom and Dad for help.
It is a major concern for schools, and they are more and more cautious about students taking on too much debt. Historically, they would probably be more flexible, but this year is the first time they are being strict about debt limits. They are asking students to have more skin in the game and invest in their education by using more of their personal resources.
