More Parents Foot the Bill for Business School

M.B.A.s Aim to Minimize Debt to Keep Career Options Open

Prospective business students are trying to steer clear of student loans. Instead, they’re sidling up to more familiar investors: their parents.

Forty-four percent of people considering graduate business degrees last year expected to tap mom and dad for financial assistance, up from 38% in 2009, according to the Graduate Management Admission Council, which administers the GMAT business-school entrance exam and surveys thousands of hopeful students annually. They also expected their parents to foot more of the bill: 20% in 2013, compared with 13.7% four years earlier.

Some prospective, current and former students who receive money from their parents say it is a gift, while others say they hope to pay it back down the line.

The share that said they planned to take out loans for M.B.A. and specialized master’s programs fell to 49% from 59%, and they expected loans to cover a smaller portion of costs.

Graduating M.B.A.s are increasingly drawn to entrepreneurial ventures and early-stage startups. By minimizing their debt loads they can better afford to give up the steady paychecks of traditional finance or consulting jobs, they say.

The shift in expected funding sources is due in part to concerns that institutional debt will limit postgraduation job opportunities, students and career services officials say. Graduating M.B.A.s are increasingly drawn to entrepreneurial ventures and early-stage startups. By minimizing their debt loads they can better afford to give up the steady paychecks of traditional finance or consulting jobs, they say.

Of the 2012 M.B.A.s who borrowed to finance their business education, the typical graduate carried $42,000 in debt, according to a March report from the New America Foundation, a Washington think tank.

At the University of California, Davis’s Graduate School of Management nearly half of first-year students in the full-time M.B.A. program are receiving some financial help from their parents, according to an informal poll of new students—including 48 first-year full-time M.B.A.s—the school conducted last week.

That’s about double what James Stevens, senior assistant dean of students, expected, especially since M.B.A.s in that school have an average of three to five years of work experience, often in the high-paying technology industry. While program fees have been flat for the past three years, Davis has been increasing financial aid by 5% to 10% each year.

About two-thirds of international students said their parents were pitching in, while 37% of domestic students were getting help from mom and dad, according to the Davis survey. Foreign students made up 39% of new full-time M.B.A. enrollees last year, up from 25% in 2010.

Between 2009 and 2013, the percentage of funding prospective MBA students worldwide expected their parents to cover increased from 14 per cent to 20 per cent; the portion they expected to borrow or cover through scholarships/grants decreased. Amid the popularity of specialised master’s programmes in business, those who planned to enrol for such courses expected their parents to fund a significant sum.

In countries such as the US, where a full-time two-year MBA course is the signature programme at many business schools, those considering these courses expected to increase the contribution of personal funds, employers and parents towards the education costs and rely less on loans, compared to 2009.

Between 2009 and 2013, the percentage of funding prospective MBA students worldwide expected their parents to cover increased from 14 per cent to 20 per cent; the portion they expected to borrow or cover through scholarships/grants decreased

Rahul Churiwala, 27 years old, estimates that his parents will cover about 80% of all his tuition and living expenses at Davis. Tuition is $48,733 for non-California residents, excluding room and board fees. Mr. Churiwala worked for his family’s aluminum company in Giridih, India, and then spent more than three years with consulting firm Accenture in Mumbai and Pune. While the pay was generous by Indian standards, he says, he couldn’t save up enough to pay his way through an M.B.A. program in the U.S.

“My parents were more than happy to help me,” says Mr. Churiwala, who took out a bank loan to pay for the other 20%.

He wants to work in marketing in the tech industry before eventually opening his own business, and says he might reimburse his parents later.

While financial gifts from mom and dad may free up students to take less lucrative jobs after school, it also can give an extra incentive for helicopter parents to stay involved as their adult children choose among schools, courses and career paths.

“It becomes more of a ‘we’ conversation the more parents are footing the bill,” says Marc Zawel, co-founder of AcceptU, a Boston-based admission consulting firm. In the three years that AcceptU has been working with M.B.A. program applicants, Mr. Zawel says he has gone from having almost no parental interactions to regularly hearing from parents with billing questions.

In some cases, parents stay in the picture for many years after their children have started their professional lives. People considering executive M.B.A. programs—which often require more than a decade of work experience—said in the GMAC survey they anticipated their parents would kick in 9.5% of the funding, up from 6.2% in 2009.

Women—who tend to enter the business-school pipeline at a younger age, and with fewer financial resources—are more likely to have their parents involved in the conversation. Across all degree programs, 47% of women respondents said they expected their parents to help pay for school, contributing 23.1% of the funding. Meanwhile, 42% of men anticipated parental support, with that aid covering 16.8% of expenses, according to the GMAC study.

With inputs from the Wall Street Journal