Financing an MBA, With Help From Mom and Dad

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By Alison Damast

Daniel Wesley 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 program at the University of Chicago's Booth School of Business (Booth Part-Time MBA Profile), 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.

"It is a huge advantage and definitely a relief to know that I won't have nearly a quarter of a million in debt hanging over my head when I graduate," says Wesley, 33, chief executive officer of Creditloan.com, a website on personal finance.

Wesley is one of a growing number of graduate business school students who are using their parents as a funding source for B-school, either accepting tuition gifts from them or negotiating interest-free loans. A two-year business program 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 they expect their parents to help them pay for business school doubled, and was approaching 40 percent in 2010, according to a 2011 survey by the Graduate Management Admission Council. The lingering effects of the economic downturn, coupled with tighter lending standards, have left many students nervous about taking on more student loan debt, says Haley Chitty, a spokesman for the National Association of Student Financial Aid Administrators. The average debt of a college graduate is about $23,000, making the class of 2011 the most indebted class ever, according to the financial aid website Finaid.org.

"Any time there is economic uncertainty like there is now, there is a general reluctance to borrow," Chitty says. "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 graduate education; 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, GMAC says.

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, says Michelle Sparkman-Renz, GMAC's director of research communications. Increasingly, they are interested in one-year specialized degree programs that require little or no work experience, she says. 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, she notes.

Schools are catching on to the fact that parents are increasingly paying for a significant portion of their adult children's graduate degrees, Sparkman-Renz says, 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," she says.

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