Not all MBA Debts Are Created Equal — Know Your Financial Story
Before I start: DO NOT GO TO BUSINESS SCHOOL JUST BECAUSE YOU WANT TO START A BUSINESS. GO START IT.
So a lot of people have contacted me for free MBA counseling but most of them assume getting in is the only part to think about. So I figured I might write a quick MBA PSA on the part no one seems worried about — the $$$.
Here’s the deal — getting an MBA will cost more than you think (it’s not just the $200K tab — think opportunity cost, etc), and if you are the only person who will pay the final tab, you need to determine whether it makes sense for you or not. The objective budget and reasoning strategies that may have paved your path of success up until you receive that letter need to stand guard.
Everyone with their eye on an MBA degree envisions the beautiful day they receive the dream letter:
“Congratulations! You have been accepted to the Stanford Graduate School of Business!”
If I could rewind time, I would have read:
“$$$$$$$$$$$$$$! You have been accepted to the Stanford Graduate School of Business School Debt. $$$$$$$$$$$$$$”
Moment of Truth: I’m honestly writing this post because I left my awesome job in NYC at the Robin Hood Foundation woo-hooing my way back to Stanford without really thinking through what I was going to do with my MBA. I made it! Hardest school to get into! I’m set for life. The money will figure itself out. Life too! Yes!
Turns out no, it doesn’t work like that. The hardest part of getting into Stanford (or any top MBA program) is figuring out what your calling is. And that’s costly if you don’t work just as hard trying (there is no failure in trying, the failure is not trying) to figure it out.
Anyway. Do as I say, not as I do.
Here are the free lessons I pass to you:
Don’t go with the MBA flow! Your school debts will flow back and slap you upside the head.
1. When considering an MBA, measure costs as they specifically relate to you. Maybe create a simple flow chart like this:
a) Will getting an MBA accelerate you in your career of choice, or more importantly, in the one you’re intending to pursue WITH an MBA? Have you even figured out what that is? Now is the time.
b) If yes: By how much? Create a five-year model that proves an MBA is financially worth it. (If you can’t create this excel model, now is the time.) A starting point is to do a basic analysis of your education investment (Update: this link no longer works which means you’re on your own homies).
c) If yes: Can you really afford those loans? (i.e., did you know our interest rates are the equivalent of highway robbery? Me neither.)
d) If yes: Can you afford two years without income?
e) If yes: Godspeed.
2. When you get accepted to a program and still have a job, before you send your LATER SUCKERS final work email, create your ‘while I get my MBA and have 0 income’ plan.
a. Once you figure out your source of income, create a two-year financial plan (that you will likely not stick to — create a buffer).
b. Use this plan to decide whether you can go on any of the ridiculous trips that your classmates are planning. Remember, while many of your classmates will act buck wild, you ultimately have no idea where or how they are financing their behavior. No one is responsible for your financial health except you!
c. Use this plan along with your flow chart to determine what type of internship you should be aiming for in between your first and second year.
*Note: your MBA internship is pretty important for those of you making career switches. Make sure you have thought through any trade-offs before you accept an offer.
3. Before you graduate, invest the time to get the right job (or make the right connections for your start-up) before you leave — your future-self will thank you.
a. Since you’ve now been planning your life well, now you can look at careers that can actually fulfill you! Measure your risk tolerance (start-up excitement vs. large companies with comprehensive benefits) and plan for the impossible (potential unemployment, etc).
b. Try to lock down your first job before graduation and negotiate a salary that makes sense with your payment plans for your debts.
c. Be smart about fun decisions (i.e., buying a nice car, living the festival life, signing a lease in that new fancy SOMA building — all big no no’s unless you have a firm and confident grasp on your reality)
To Conclude:
The point is, you’re the sole person who is responsible for your financial health. Your dorm-mates may be able to afford a lifestyle that you cannot, and that is a-ok. Living in the moment is much more fun if you aren’t stressed because of preventable bad decisions. In hindsight, I probably should have used a reality check to help me think through a lot of the decisions I made — from what classes I took to what art I bought while on GSB trips (who does that? Seriously, who.) — but most importantly, to give me a realistic perspective on my financial life.
Good luck living debt-free!
