How to Think about Business School Debt

I was recently catching up with a friend when he said “Wow so you’ve finally graduated. You must be in like 200k worth of debt by now correct?” While most top business school programs cost about $200,000.00, the median debt burden for a top ten school according to Poets & Quants is $88,500. This is because some students get generous scholarship awards, and others save substantial parts of their pre-MBA salaries to offset the cost of their graduate business education. While I didn’t get any scholarship money from Kellogg, I did have some meager pre-MBA savings. This meant that I definitely had to borrow “big”, but I didn’t have to borrow as much as $200,000. 🙂

Before attending business school, I spent a lot of time agonizing over business school debt, and I asked current students and alums lots of questions about it. The questions I asked, and the answers I will give today – with the benefit of hindsight – are as follows:

1. How Easy/Difficult is it to Pay Back the Loan?: I think this was the main source of my agony. What if I did this MBA and the debt burden made me financially worse off than I was before my MBA? A lot of people told me that this was not a very likely scenario, and that I’d be fine, but I wasn’t ready to take their word for it. Instead of asking you to do the same – take my word for it, I’ll provide you with a loan repayment tool. What I tried to do here was make some estimates that helps one see how much she might have to pay after business school, and how easy the payments might be to make. In using this tool, you’ll have to make some estimates about:

  • how much you’ll be borrowing,
  • your interest rate,
  • your repayment duration,
  • your post MBA salary (please don’t be too optimistic here),
  • where you’ll live after business school (and the corresponding taxes of that location)

Notwithstanding the amount of “guesstimation” involved, and the fact that I use a fixed salary for the total duration of the loan, I still think this tool can provide some valuable insight into one’s financial situation after getting that flashy but expensive MBA. From my analysis, I think that it is in most cases possible to easily pay back your loan. For example, if you want to spend no more than 20% of your monthly after-tax salary on loan repayment, and you borrow $95,000 at an interest rate of 5.5%, the only scenario where you will fail to achieve your goal is with a post-MBA salary of $80,000, and a payback period of 10 years.

loan repayment

It is important to pay close attention to the variables mentioned above, since as they get more aggressive (payment duration gets shorter, or loan amount gets larger), payment becomes more difficult. Please feel free to play around with the tool, and let me know if anything seems off.

2. Is it worth it to take on this incredible amount of debt?: This is definitely a more nuanced question. How does one decide if an amount of debt was worth it? For me it came down to this question: has the business school experience delivered what I expected it to? While my answer so far has been yes, I know that this is not the case for all of my classmates. With that in mind, I’d say that there is an element of risk associated with funding an MBA through debt. In most cases, you will get what you want from the experience, but sometimes you may not; you have to be comfortable with both outcomes.

3. Should you borrow more to go to a higher ranked school?: Now that I’m out of the business school bubble, I can tell you for a fact that the people who care the most about rankings are the students deciding to go to business school, and the business schools themselves. Most employers are satisfied with knowing that you went to a ‘top’ school. How you decide to define ‘top’ is another matter, but I won’t touch that one. My point is that going to Wharton instead of Kellogg, or Booth instead of Ross will not significantly affect your career prospects. I work with people from a bunch of different business schools right now and we’re pretty much interchangeable. That said, I think there’s something to be said about the experience of a school. I decided to attend Kellogg even though it was the only school I got into that didn’t give me any money, and the reason for my decision was the people I met during my campus visit.

4 .Should you borrow more to get a richer business school experience?: Short answer: yes, I think it’s fine to borrow for certain parts of the bschool experience, but you have to be smart about it. If you’re like most students, you can’t afford to do everything, and you will have to pay back this money sometime in the future. I’ve started my own repayment process, and I can tell you that it’s not fun. 🙂 I’ll definitely love to be using that money for something else at this point. Therefore, my advice would be to optimize for things that have lasting value to you. For me that was participating in the tech trek to San Francisco and Seattle and doing my study abroad in Madrid.

This post is longer than I’d have liked it to be. However, I hope it’s helpful in some small way to someone somewhere, asking the same questions as I was in 2012.

Image courtesy of http://www.seniorliving.org

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Final Quarter (Spring) Courses

Oh Spring quarter! The final lap of the bschool experience. When you realize it’s all coming to an abrupt end, you can do one of two things: have your final course binge in order to maximize the value of your tuition and/or complete the requirements of your desired major, or take things really easy with respect to academics so you can take the rest of the experience in. Guess what I did? I chilled!

I decided to take a few classes for two main reasons. The first was that I wanted to have time to connect with my classmates before we scattered to different parts of the globe, and to plan my wedding (yes I did do some of the planning 🙂 ). The second was that I wanted to have a lot of time to dive deep into my finance classes. As I mentioned in an earlier post, I didn’t enjoy Fin D because I didn’t have enough time to work through the cases in depth, and I didn’t want to feel that way with the final finance classes I was taking at Kellogg. With the benefit of hindsight, I’m glad I took 3 credits in my final quarter. The classes that I took are as follows:

1. Entrepreneurial Finance & Venture Capital: I really enjoyed this course. It focused on the venture capital industry, an industry that I continue to be fascinated by. Through this course I was able to understand key industry terminologies like pre-money, post-money, and the various types of investment vehicles available to early stage investors. I was also able to debate with my classmates about the future prospects and possible valuations of a wide variety of businesses from biotech to enterprise software. These conversations were the best part of the class. We also had a few visiting entrepreneurs and VC speakers which was cool.

2. Financial Modeling For Leveraged Buyout Transactions (LBOs): I took this 5-week class because of the professor. Chirag Saraiya is a professor at Kellogg and a partner at Training The Street, a training outfit that teaches financial modeling and Excel skills to some of the most reputable banks and consulting firms in the world. I encountered Chirag and his amazing teaching style during one of his weekend workshops at Kellogg focused on financial modeling, and decided to take his class, even though I knew I wouldn’t be doing any LBO transactions anytime soon. What I really liked about his class is that he uses a lot of real-world examples, and tells us how finance-related stuff (like calculating WACC) plays out in the real world. I’ll definitely recommend this class for anyone interested in real-world corporate finance, or kick-ass Excel modeling skills.

3. Healthcare Information Technology: I decided to take some ‘random’ classes during my final quarter at Kellogg. By random I mean classes that had nothing to do with my primary interests: marketing, finance and technology. This turned out to be one of those classes, and I can’t say it went very well. It was a 5-week class so it wasn’t too bad. While we were talking about healthcare IT which is a hot topic, we ended up spending too much time on healthcare and not enough time on technology. With the right balance of both, it could be a pretty cool class.

4. Healthcare Quality: This was the other random 5-week class I took, and I didn’t enjoy it at all. Maybe it was too far from my comfort zone. We talked a lot about how hospitals measure quality and other similar but overall it was just a bad fit for me. Wouldn’t recommend.

5. Entrepreneurship: Building Innovation, Teams and Cultures: This one was good; really good. Think entrepreneurship meets technology meets organizational behavior. The professor, Mark Achler is one of the coolest people I’ve ever met. He’s incredibly accomplished and yet so humble, and he has this vast network of entrepreneurs that he willingly shared with us. This was also a 5-week class, and every week the professor brought in a past or current CEO to chat with us about topics around corporate culture, bootstrapping a business, and other inspiring topics. The best speaker in my mind was the former CEO of Redbox. He had an incredible life story that left some of my classmates in tears. Definitely recommend!

Overall, a great quarter, and a good end to my academic experience at business school. Unless I have some sort of mid-life crisis (which is a distinct possibility), this is the end of formal classroom learning for me! 😀

Business School Electives: Go Hard or Soft?

Hard or soft

Last week I chose the classes that I’ll be taking for my last quarter at Kellogg. Business school is really coming to an end!

Something that I’ve struggled with over the past two years is how to choose my business school electives. There usually is a vast array of classes to choose from – in areas ranging from finance to supply chain management. However, I usually have insufficient time (and bid points) to take all the classes that I’m interested in, so I have to make choices, and therein lies my dilemma. Should I focus more on taking ‘hard’ classes that teach functional skills like marketing, finance or operations, or should i take ‘soft’ classes that teach behavioral and leadership skills like negotiations, personal leadership and power in organizations?

From conversations with classmates and alums, I’ve come to understand that there are two main schools of thought regarding how to choose business school electives. The first group strongly advocates for ‘soft’ classes that focus on leadership and organizational behavior, and their argument is that when you talk to alums that are now in senior leadership positions, they usually tell you that they wish they had paid more attention to their leadership classes. The second group argues for choosing ‘hard’ classes, and state that they’d rather spend their time in business school learning functional skills like marketing and finance which they won’t be willing or able to learn in-depth after they graduate. Who is right and who is wrong?

I think both arguments definitely have their merits. However, I think the argument for choosing soft courses based on the recommendation of alums might be a bit misleading. The fact that an alum who graduated 10 years ago now wishes that she had taken more leadership classes doesn’t necessarily mean that if she could do it all over again, she would take more leadership classes at the expense of developing functional skills. In my opinion, the mix of functional and leadership skills that are needed on the job varies throughout one’s career. In most post-MBA roles, a greater emphasis is placed on functional skills. By middle management, it becomes more of a balance between functional and leadership skills, and at senior leadership levels, leadership skills become more dominant as one would expect.

What does this mean for me and my choice of electives? In the end, I decided to choose a mix of leadership and functional classes, but to focus more on gaining the functional skills that I need to succeed in my next job. My thinking is that performing excellently in my next job is what will give me the opportunity to move towards the senior roles that will require more leadership skills. Furthermore, I’ve always been a student of leadership, so I know for a fact that my leadership education will continue for as long as I am alive. Unfortunately, I don’t share the same enthusiasm for learning finance and statistics, so I better get up to speed while I still can! 🙂

Image by scottyhdavis.com

Fall Courses

As I mentioned in an earlier post, I planned to take only 3.5 courses in the Fall. My hope was that with this approach, I won’t be stretched too thin, and I’d have time for important parts of the business school experience like connecting with my classmates. I ended up taking 3 courses instead of 3.5, but I still felt overwhelmed! Why? Well, one of my classes (Financial Decisions) felt like 2 classes rolled up into one so I was back to taking 4 courses again. 😦 Furthermore, I still had to attend to my other responsibilities at Kellogg like leading the Africa Business Club, and driving logistics for the Kellogg Tech. Conference.

While I was – once again – unable to dive deep into my coursework, I really loved my second fall quarter at Kellogg as my extracurricular activities really helped me to better understand and develop my leadership abilities. This is a part of the business school experience that I initially underestimated, but have come to really really appreciate.

The classes that I took last Fall are as follows:

1. Strategy and Organization: This is the second strategy class I’ve taken at Kellogg; the first was my Business Strategy core class. The best part of this class was definitely the professor, Niko Matouschek. All you have to do is spend a few minutes with this guy and you can tell that he’s incredibly smart. How can you tell? I’m not really sure. Maybe it’s his high energy level, his insightful responses to questions, or the fact that he frequently wears white long sleeved shirts with the sleeves rolled up… 🙂
Something else I really liked about this course was the content. The course teaches simple but powerful frameworks for analyzing how compensation (monetary and otherwise) can be used to motivate workers, and how to think through the rationale for a merger or acquisition, and decide if it makes sense or not. I wasn’t sure if I would be needing any of this knowledge in the short term, but it’s surprising how often I’ve found myself using frameworks from this class to analyze everyday issues.

2. Financial Decisions: Financial Decisions, or Fin D, is meant to be some sort of Finance capstone class that allows you to utilize the financial concepts learnt in Finance I and Finance II. On average, we had to analyze two cases per week, and this usually included building a financial model and then writing a report on our analyses. The good part of the class was that I had an awesome team and we worked really well together. The not so good part was that I found the pace of the class to be too fast, and so I didn’t learn as much as would have if I’d taken the time to really dive deep into most of the cases.
If I had to do Fin D all over again, I’d go through this online training course before stepping into my first Fin D class. It’s a little pricey, and I’m not affiliated with Training the Street in any way, but I can tell you that the content is definitely worth it. I’m actually going through it right now and even after Fin D, I still find it to be very helpful.

3. International Finance: As always, I saved the best for last. International Finance was a lucky find for me. A friend of mine who graduated last year recommended the class to me and although the professor is a rockstar, I was able to get the class for 1 bid point! The International Finance course at Kellogg consists of two main parts: broccoli and dessert. (Stay with me okay? 🙂 ) Broccoli refers to international finance concepts such as hedging foreign transactions with forwards and options, and figuring out if a currency is overvalued or undervalued. Broccoli honestly wasn’t very exciting stuff. However, it did give me some tools and techniques for identifying and managing foreign exchange risk. Dessert on the other hand was simply awesome! It was about one of my favorite things in the world: economic history. (yes I’m nerdy that way 🙂 ) Professor Rebelo is really an expert on the world’s major economies, and he told such amazing stories that we really got sucked in, and learnt a lot about other parts of the world that we weren’t necessarily familiar with. While most classes were usually a mix of broccoli and dessert, my favorite classes were all dessert!

So what’s next? Studying abroad at IE Business School in Madrid, Spain! I guess I have to take some classes at IE Business School to maintain my student status, but my focus during my time in Madrid will definitely not be my business school courses. I want to chill, make new friends, and see Europe! 🙂

How to Apply for a Spanish Student Visa at the Chicago Consulate

The first lesson I learnt while applying for a Spanish visa – so I could spend my Winter quarter studying at IE Business School in Spain – was this: you don’t want to apply for a Spanish student visa! The process can be complicated, and you may not get multiple entry visas that allow you to visit other countries within Europe. What I did instead was apply for a Schengen tourist visa, with Spain as my main destination. This option allows me to study for a period of up to 90 days in Spain, and to visit any of the European countries in the Schengen agreement: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and Switzerland. 

The process for applying for a Schengen visa is pretty straightforward; all the requirements are listed here. A couple of pointers on the application:

1. Original Local Police Invitation or Hotel Reservation: Your host school is likely to provide you with a letter stating that your accommodation will be taken care of when you arrive, and that letter should fulfill this document requirement.

2. Round Trip Flight Reservations: You can do a search flights on on Expedia, and then save the detailed information of a specific flight as a PDF. You don’t need to pay for the flight before saving as a PDF.

3. Health/Travel Accident Insurance: Kellogg has an international insurance offering that all students making international trips are required to purchase, and this was good enough for this requirement.

 Please feel free to post any questions you might have about the application process and I’ll do my best to answer.

I’d advise scheduling your visa interview about a month before your trip as Schengen visas are sent out about 2 weeks after the visa interview. From my experience, visa interview appointments at the Chicago consulate are pretty easy to get, and the atmosphere at the consulate is pretty laid back compared to other consulates I’ve been to. The US consulate is definitely the most hard core… 🙂

 

 

Back for the Last Lap

McManus

I took this picture a week before the beginning of pre-term classes for second years. The first years were already one week into their own pre-term at that time so I tried really hard to stay out of their way. I remember my first year pre-term and it was really intense 🙂

The first week of pre-term was so good! Like any good MBA, I’ll give you three reasons why this was the case: Re-connecting with classmates, Mass to celebrate the beginning of the school year, and the pre-term crisis management class.

Reconnecting with Classmates

So Kellogg makes us take our pre-term Crisis Management class  with our section mates, and the last time we were all together in one class was in December 2013! It was so nice to see everyone, and quickly catch up on work, travel, wedding engagements, wedding ceremonies, and babies delivered over the summer.

Mass to Celebrate the Beginning of the School Year

If you read my blog, you probably know by now that I have a catholic priest as a classmate (true story). Well, he and other members of the Catholics @ Kellogg group decided to celebrate mass to kick off the beginning of the school year. Prof. Harry Kraemer, one of our rockstar professors, agreed to host us at his apartment, and it turned out to be a really great event. My greatest fear as one of the organizers of this event was that the turnout would be really low; most people were still getting settled in and first years had pre-term exams in a few days. It turns out that we actually had a record turnout at the event, and I made a note to myself after the event: “sometimes you just have to take a leap of faith!”.

Crisis Management Class

This is probably not the real name of the class; I think it’s Leadership and Crisis Management but you get the idea. Unfortunately I can’t share the details of the class content (I remember signing my name on a lot of documents that said I couldn’t share 🙂 ) but let’s just say that the material was really good in terms of helping one think about the ethical dilemmas that we will come across during moments of crisis in our careers, and how we can handle these dilemmas effectively. The best part for me as always was the different perspectives that people had in the class as a result of their varying personal and professional backgrounds. This is really the best part of business school.

Actual classes start tomorrow for first and second years. I’m pretty excited about some of the classes I’ll be taking this quarter: Financial Decisions, International Finance, and Strategy and Organizations. I hope I still feel the same way about these courses at the end of the quarter. 🙂

Spring Courses

I really was looking forward to my spring quarter, especially when you consider the fact that the winter quarter was just brutal. As I was lucky enough to have completed my internship recruiting in the winter, I assumed that the spring quarter would be a breeze. I also felt that since I had taken only 3 courses in the winter, I needed to make up for that “shortfall” by really loading up on courses in the spring. Bad move on so many levels! First of all, my courses made me so busy that I no longer enough time for important stuff like spending time with friends. For my classmates, this was a pardonable sin, but not so for second year students; this was their last quarter at Kellogg!

Another consequence of my course overload was that I started approaching my coursework from a mindset of efficiency instead of one of learning and growth. What this meant was that instead of trying to figure out how to really understand what I was learning, I worked hard at trying to get things done with the minimum amount of effort. When I had assignments to complete, I tried to go really fast and once I felt I had done what could be described as decent work, I moved on to the next assignment, and the one after that, and so on, and so on. Although I wasn’t a model student in the spring quarter, these were the course I took:

1. Finance II: This is a follow up to Fin I as you would imagine. It was quite different though. Whereas Fin I was about stocks, bonds and interest rates, Fin II felt like the softer side of finance. We spent a lot of thinking about conflict of interest between stakeholders such as senior management, the board of directors, and investors. We also touched on risk management with hedging and options (puts and calls) which was quite difficult to comprehend at first but it kind of came together in the end. I’m not sure if that’s something I’ll ever use in my day job but we’ll see. The professor really cared about us learning this stuff, and he was more interested in the class conversations and what we took out of them than what we could regurgitate in an exam. Oh and did I mention that my class was at 8.30am? We were always so few in the class but it was kinda cool though. 🙂

2. Operations Management: I like to think of myself as being fairly immune from star professor fever, but this was one case where I clearly caught the bug! Gad Allon is a professor like no other. His energy level in EVERY class is off the charts, his passion for the material is contagious, and he’s ALWAYS available to help out after class. I’ve emailed this guy by 11pm and gotten a response in 5 mins. Some classmates tell me that they’ve emailed him after midnight and still gotten really quick responses. I really don’t know how he does it. But for the Allon Effect, my operations class would’ve been average. I wasn’t really excited by the topics covered in operations management, but this guy took it to a whole new level. I would like to take one more class with him before leaving Kellogg. Not sure if I’ll get the chance though; his classes take up a lot of bid points.

3. Power in Organizations – Sources, Strategies and Skills: This is one class that I’m glad I got to take. The concepts are really common sense, but the value for me was that I learned some frameworks for thinking about how power works within organizations. Who really owns the power within an organization? Who is dependent on whom? What type of culture exists in the company? Which behavior is rewarded and which is punished? These were some of the questions we tried to answer. There was a fair amount of writing (which I like to avoid if possible), but overall the course was pretty good.

4. Research Methods in Marketing: This one was a mixed bag. First of all I didn’t find the material to be very interesting (hey it was research!). To make matters worse, we had a consulting project with a real client, and my team had some issues with our assigned mentor. Despite these challenges, I was lucky enough to have a really cool team and we were able to power through to the end of the course. I know it sounds cheesy, but my friends made the course worth it in the end.

5. Personal Leadership Insights: I saved the best for last! PLI was amazing, and by amazing I mean really really good! The course is really about spending some time thinking about your favorite topic in the world: you! I think I’m supposed to keep the details of the course secret, but let’s just say that in the midst of the business school craziness, it’s so refreshing to have the opportunity to spend time with 9 like-minded students exploring questions about what really matters in business and life. I really liked loved Professor Brooke, she’s so authentic and you can tell from her stories that she really practices what she preaches. Oh and yes, these 9 people become your friends because they get to know you on a very personal level. Scary, but totally worth it.

With the benefit of hindsight, I think I should have taken a maximum of 4 courses. 3.5 actually as PLI is a 0.5 credit course. In my mind, that option would have given me enough time to balance learning, extracurricular activities and networking. Which course should I have dropped? No clue. I will be running the 3.5 course experiment in the fall quarter, and will be sure to report my findings 🙂