Is MBA Student Debt Killing Entrepreneurship and Innovation?

The MBA is an expensive program that the majority of students could afford only by taking huge amounts of loans in the hope of getting a good return on investment. While sectors like investment banking, consulting and brand management could help you get rid of this burden within a short period after landing a job, the outlook is bleak for someone wanting to be an entrepreneur or pursuing their interests in non-profits.

Amy Nelson, CEO of Venture for America, is one such person who confesses that even after four years of graduation, she remains saddled with a debt of more than $250,000. Incidentally, she heads a non-profit organisation that aims to create economic opportunity in American cities by mobilizing the next generation of entrepreneurs and equipping them with the skills and resources they need to create jobs.

Amy tells the Quartz that she had enrolled at NYU Stern School of Business with a scholarship. However, as a single mother of two, she found little support and piled on the debt thinking that it would be worthwhile in the end.  However, she says that doesn’t seem to be happening.

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She finds herself in a situation where the monthly payment till recently didn’t even cover the interest component of the loan. Of course, she makes a lot of money but not as much as many of her MBA classmates. Her credit score still remains low and she is afraid of never being able to buy a home.

Amy says the Business school is good for those going into investment banking, consulting and brand management. Without an MBA, it would be difficult to get into these are sectors. The higher pay ensures that the investment in an MBA will be net cash positive in the long-run.

Business schools tailor their calendars, processes and sales pitches to these industries. However, with more and more schools offering entrepreneurship and social innovation as part of the MBA programs, she advises students to be careful.

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These sectors require a high degree of risk tolerance and are very difficult to teach well in a classroom environment. Thus, it is only a marketing play on the part of the business schools claim that they prepare students for these careers. Except for wealthy students, the debt burden of business school could kill the entrepreneurial aspirations of the rest.

With the average Wharton or Sloan graduate saddled with six-figures of debt, the new business formation is at 40-year lows. Fewer and fewer people under age 35 aspire to ever own a business and many of them directly cite debt as the reason, she says.

Even the handful of prominent young entrepreneurs from Harvard Business School, Wharton, and Stanford who managed to get co-founders and resources at these schools to help them get started are mostly from affluent families.

Thus student debt is one of the biggest barriers to entrepreneurship and innovation in the United States, says Amy. The country has more than 1.3 trillion in student loans and most graduate school loans have interest rates north of 7%—nearly twice the prevailing mortgage rates, despite the fact that student loan debt cannot be discharged in bankruptcy but a mortgage can. Tuition only continues to climb, and more and more of the national budget is dependent on student loan revenue.