Is The Value of a MBA Degree Worth It?

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Posted On: April 6, 2018 by Pauline Paquin, MBA

The following graphic compiles key statistics in why getting an MBA makes sense.

MBA Degree by the Numbers

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Infographic: MBAs by the numbers (sources from US News, Statistic Brain, Online MBA, Columbia Business School, CNN)

  • The average MBA graduate earns $126,000/year in the consulting industry, $107,000 in the energy field, and $82,700 working for non-profits.

  • Over 90% of MBA graduates land a job within 3 months of graduating

  • The results vary greatly depending on the school you attend,  high earners attend top schools

  • You can earn over $160,000 after a Harvard, Stanford or Wharton MBA

  • The average alumni salary at the College of Charleston School of Business is only $54,000 including bonuses.

  • Around 150,000 students graduate each year with an MBA

  • A typical full-time MBA takes two years to complete, and up to three years if you study part time.

  • The cost of an MBA ranges from $7,530 for an online MBA from the University of Wyoming to $71,500 for Columbia Business School

  • You can study online for $500 to $1,000 per credit

  • The uptick in tuition fees can be traced back to the mid 90s

  • The top US 5 MBAs according to the Financial Times are (with tuition fees)  – Stanford Graduate School of Business ($68,800) – University of Pennsylvania: Warthon – Harvard Business School ($72,000) – Columbia Business School(71,500) – University of Chicago: Booth ($69,200).

  • Back in 2000, yearly tuition at Harvard Business School was $28,500.  It is now twice and a half times more expensive, at $72,000. In the meanwhile, inflation was only 42%.

  • 25 years later, only 1% of the Harvard Business School class of ‘86 thought getting their MBA was not worth it.

Is It Worth Getting an MBA?

If you would like to advance your career, sharpen your skills or get a new specialization, getting a Master’s in Business Administration (MBA) might seem like a great idea. Today, we will explore the financial aspects of getting an MBA, to make sure you are getting value out of your investment. After all, getting an MBA after a few years of employment is quite the sacrifice. If you keep working at your day job, you are looking at around three years of extra hard work, all the while making sure you do not compromise your career. That does not leave a whole lot of time for hobbies and social life. And if you opt for studying your MBA full time, these are two years of your life you won’t get paid for, in hopes of future higher rewards. Even a career professional can benefit by studying with an Online MBA degree at highly regarded schools such as UNC, Johns Hopkins, Purdue or Indiana.

And said rewards can be really high. According to The Financial Times, a top MBA such as Stanford, Harvard, Wharton, UCLA, Notre Dame or Columbia can result in an average salary three years out of $170,000 to $195,000… but Columbia estimates the total yearly budget of getting an MBA at just under $108,000. Investing two years of your life and such a huge amount of money is not the kind of decision you should make lightly.

So let’s have a closer look at the numbers, and all the costs that are involved with getting an MBA.

How much more will you make with your MBA?

Good Call reports that getting a master’s degree can result in earnings $17,000 higher on average than sticking to a bachelor’s degree. These numbers increase when looking at business degrees in particular:

  • Finance graduates earn a median salary of $101,000 with a master’s degree, compared to $73,000 with a bachelor’s.
  • Business Management and Administration graduates earn $89,000 versus $65,000 per year.
  • Even with the smaller $24,000 gap, we are way above the $17,000 average difference between master’s and bachelor’s.

One thing that seems pretty obvious, with the median earnings for business bachelor’s degree holders at $65,000, is that the higher the exit salary, the better the return on your MBA.

If you can leave a $65,000 job, get into Stanford, and come out with a $170,000 job offer, it will barely take a couple of years to recoup the cost of your MBA.

And with reports of between 95 and 100 per cent of graduates from top MBAs being employed within three months of graduation, you don’t have to worry too much about finding such a lucrative job.

U.S. News & World Report says that 73 of the 113 schools that participated in its MBA study reported an average starting salary and bonus of over $90,000 for their graduates, with top schools getting the top earnings.

Additional earnings over a 30 year career

Let’s take our median worker who earned a bachelor’s degree in Business Management and Administration, and assume he is 30 years old, earning a yearly salary of $65,000.

Over the next two years, he can remain employed, and keep making $65,000 per year. For the sake of simplicity, we will maintain his salary as is.

Or, he can decide to go to business school and get an MBA.

Keeping the $65,000 job and not getting an MBA

Our earner has 32 years ahead of him from age 30 to 62, earning $65,000 a year. His lifetime earnings add up to:

  • 32 years at $65,000 = $2,080,000

Pretty good, but let’s see what happens if he gets an MBA.

Getting a Top MBA

Our median earner gets into a top 10 MBA, pays tuition of around $70,000 a year, for a total cost including living expenses of $100,000 per year. After two years, his costs are

  • $140,000 for tuition
  • $60,000 for living expenses
  • $130,000 for the salary he didn’t earn for two years.

Total: $330,000

From age 32, when he graduates business school with his MBA, until age 62, when he retires, he will make $175,000 per year. Again, for the sake of simplicity, we will keep his salary the same, assuming he would keep on making $65,000 as well if he stayed at his previous job. His lifetime earnings are:

  • 30 years at $175,000 = $5.25 million
  • Minus $330,000 for MBA costs = $4,920,000.

Getting an Average MBA

Our median earner gets into an average MBA, where he pays $40,000 in tuition each year, for a total including his living expenses of $60,000 a year. After two years, his costs are

  • $80,000 for tuition
  • $40,000 for living expenses
  • $130,000 for the two year salary loss

Total: $250,000

From age 32 until age 62, our median earner makes $90,000 per year. His lifetime earnings add up to:

  • 30 years at $90,000 = $2.7 million
  • Minus $250,000 for his MBA = $2,450,000

A whopping $2,470,000 less for getting into a $60,000 cheaper MBA. While it may not have been a personal choice, and have been based on where he got accepted, the first lesson we can learn here is that even if tuition is more expensive at top business schools, you will get your money back and then some over the course of your professional life.

Let’s also note that even with an average MBA, our median earner is still $370,000 ahead of his bachelor’s degree self after 30 years of work. But all things considered, that is barely $1,000 a month, and if he is able to save a good chunk of his salary in his early years, invest that in the markets and make a decent return, that may be a wash. Hence the importance of getting yourself into the best MBA program you possibly can.

Things to Consider When Investing in an MBA

Now that we have crunched the numbers quickly on tuition and lifetime earnings, let’s clarify and note that whether an MBA is worth it or not is not just about the money. It depends on a lot of other factors. On a personal level, does it make sense? How about the content of the program or where you want your career to go five or ten years from now?

Personal considerations

As you gain more and more experience in the workplace, you will find out that a number of the skills you would learn by enrolling into an MBA program might be learned at the office. If you are happy with your job, finding a great mentor and picking up skills by yourself might position you for the next promotion… and salary bump. Say you are that bachelor’s degree holder making $65,000 a year, what would it take for you to make $90,000? If the answer is less than two years, and a few sleepless nights studying specific areas where your knowledge is just lacking a little bit, it might not be worth paying six figures for advancing your career.

As you age, it can become harder to go back to school. Some people are not the studying type in the first place, others fared well twenty years ago, but going back into the academic mindset can need some adjustments. What if you have a partner, or a family? How would that be taken into account? Single applicants will generally be more geographically mobile than families. That may limit the scope of the programs you can apply to.

And if you are older, you might want to apply to as many schools as possible, to make sure you can start next fall, whereas as a younger applicant, you can afford to forego another year before you get your top choice school.

In any case, if you get rejected from all the schools on your first try, you might want to broaden the net the next time around.

Investing in yourself generally offers a great return on investment. Staying healthy can save you thousands and thousands of dollars in doctors visits and medication. A quick online course if you are missing something at work can get you a 3% promotion, equivalent to a year’s salary over the next 30 years. So seen from a personal perspective, getting your MBA is in theory a good idea. But make sure you explore all the options before you get six figures in debt for your degree.

It is generally recommended that students get a few years of work experience between their bachelor’s degree and joining an MBA program. These years will help you know yourself better, and know if an MBA is the right choice or not. Additionally, some programs will require you to have 3, 5 or up to 10 years worth of work experience before you apply.

What if you want to start your own business? No degree is required to do that. But the value of your MBA is not only in what you learn, it is also in who you get to know. And your network in general. Even if you didn’t study at the same time, you can always tap into the alumni directory and get a much better chance at being heard than if you were cold calling.

Over 7% of Wharton graduates started their own business in 2013, five times more than back in 2007. Still a pretty small number, and something to think about when considering the value of an MBA.

If you think getting an MBA is the right choice for you, there will be a way. Online learning has made it so much easier to earn your MBA on your own terms. It generally takes two years as well, but you have the flexibility to study around your regular schedule, and no need to move across country, or even commute! It is a personal choice, as you might miss on the whole college experience and networking, so really write down all your goals when it comes to further education, and make sure this is the right choice for your needs.

Financial Considerations

Getting an MBA is a huge investment. As we discussed above, you are not only paying for tuition and probably the cost of relocating and living in another state, but also passing out on two years of salary for the privilege of studying full time.

You can decide to get into a program that allows you to recoup your costs as soon as possible, or opt for a more expensive, prestigious institution, and focus on lifetime earnings instead.

Our math above is pretty simplistic, there are many considerations to add, such as

  • Ability to get an MBA in 3 years, while you keep working and earning your salary
  • Ability to invest your savings during these two years. If you had $200,000 to invest in the stock market at 8% for 30 years instead of paying tuition, you would have $2.18 million at age 60. Savings can snowball quickly and taking two years to earn nothing and study can take a long time to recover from.
  • Ability to study for free thanks to scholarships, grants, etc. or getting your MBA paid by your current company. Be careful with these arrangements as they require you to typically work there for another five years, so again do the math and make sure it is to your advantage.
  • and so on

If your goal is to get your money back as soon as possible, here are 10 MBA programs where students get a starting salary much higher than their debt.

  1. University of Texas – Dallas

    Average starting salary (MBA 2016) $86,644

    Average debt (MBA 2016) $7,132

  2. Missouri University of Science and Technology

    Average starting salary (MBA 2016) $66250

    Average debt (MBA 2016) $11,386

  3. Louisiana State University – Baton Rouge

    Average starting salary (MBA 2016) $66,152

    Average debt (MBA 2016) $17,900

  4. University of Washington-Foster

    Average starting salary (MBA 2016) $111,847

    Average debt (MBA 2016) $32,047

  5. Mercer University-Atlanta

    Average starting salary (MBA 2016) $57,500

    Average debt (MBA 2016) $17,171

  6. Oklahoma State University-Spears

    Average starting salary (MBA 2016) $60,910

    Average debt (MBA 2016) $18,728

  7. University of Missouri-Trulaske

    Average starting salary (MBA 2016) $64,252

    Average debt (MBA 2016) $20,495

  8. Temple University

    Average starting salary (MBA 2016) $85,278

    Average debt (MBA 2016) $27,770

  9. West Virginia University

    Average starting salary (MBA 2016) $53,988

    Average debt (MBA 2016) $18,608

  10. SUNY-Oswego

    Average starting salary (MBA 2016) $48,000

    Average debt (MBA 2016) $16,677

Each school has specific financial aid programs, for example Stanford offers no parental contribution to tuition if they make under $125,000 a year and have typical assets. You will still be expected to contribute. But if the prospect of a higher starting salary is not enough, you want to get as many scholarships as possible to minimize your student debt when you graduate.

Some schools aren’t as well known but might provide you with the skillset you need for a fraction of the cost.

Program Considerations

Where you study can have a big impact on your exit salary and lifetime earnings as we discussed previously. So you want to pick the best program possible, taking into account a variety of factors such as:

  • Peer reputation of the program, how well respected is your MBA?

  • How selective is the program? What is the admission rate, what are the barriers (i.e. having 3+ years of experience is common, some executive programs might require 10 years)?

  • How qualified are the professors? How many have PhDs? What research have they conducted?

  • What kind of scholarships can you expect? How will you finance the rest?

  • What are recruiters looking for right now? Which MBA gives you these skills?

  • Is an online MBA a guarantee of a decent salary? What is the average salary for last year’s class? The class before that?

  • Is the program AACSB accredited?

  • How strong is the network and the sense of community? Can you attend alumni events throughout the year? How much do you value that over professional skills?

  • Will you live close to your alma mater once you graduate? Or in a place with a high concentration of graduates?

  • What do past MBA graduates think of the program? You can find a lot of information online, on public forums, surveys etc. try to find neutral sources and not only the college’s website.

Career Considerations

Most importantly, the value of and MBA depends on what you will do with it. What is your career plan? Will you remain with the same company? Start your own business? Are you looking at changing fields maybe, or being recognized as an authority when it comes to business administration? How much value does an MBA add to your skillset?

If you were an history major for example, and are looking at management jobs, an MBA might be a necessity. Whereas if you already hold a bachelor’s degree in business, it might just be a question of gaining more experience.

MBA salaries vary greatly depending on the major, and your job’s industry. You will make much more money working in finance than in the non-profit industry. Does an MBA still bring you value if your expected salary is $80,000 instead of $180,000?

See also What Can I Do with a MBA in Finance?

Some careers make an MBA a must to ascend to senior positions. If you need your MBA right now, cast a wide net and apply for as many schools as possible, to make sure you get admitted somewhere.

If you are more of an entrepreneur, make sure you opt for a program that will bring you the skills you need for your business, and a strong network. And ask yourself whether this is the best use for your funds and to grow your business over the long term.

If you are angling for an executive position, a top tier MBA will increase your chances or success.

A specialization will enhance your CV and get you more job opportunities

PayScale lists the most lucrative MBA majors as

  • Strategy
  • General & Strategic Management
  • Corporate Finance
  • Operations Management
  • Operations & Supply Chain Management

And here are five of the most sought after jobs for MBA grads

  • Financial manager
  • Medical and health services manager
  • Business operations manager
  • Accountant
  • Compliance officer

On the other hand, some MBA concentrations don’t pay that well

So when you decide to apply for an MBA, remember to take into consideration all these factors. Yes, in theory, the investment will be worth your while, and the tuition fees will pay for themselves after a few years. But that is assuming you want to pursue a lucrative career in the corporate world. Otherwise, proceed carefully.

How to Pay for Your MBA

See also 9 Kickass Ways to Creatively Finance Your MBA Degree

There are several ways to pay for your MBA, but it will most likely be a combination of:

  • Scholarships such as the Business Leaders Scholarship offered by BusinessStudent.com

  • Having your company pay for it

  • Saving for it, which can be a great way to limit or avoid debt, but at the same time you would be passing on years of potential higher salary, so it is something to think about based on your debt and risk aversion.

  • Taking student loans. These should be your last option, but they can be fine as your higher earnings should help pay them off quickly. They should be a priority as soon as you graduate.

Conclusion – Investment vs Opportunity Cost

Back in 2012, Beat the GMAT published an interesting report on the Harvard Business School class of ‘86, twenty-five years later.

Of the 271 alumni who completed the survey, only three thought getting their MBA at Harvard was not the best use of their time and money. (Source: BeatTheGmat.com)

82% would have gone with another MBA if they hadn’t been accepted into Harvard. The class had a median net income of $350,000 and a median net worth of $6 million, with 23% reporting a net worth of over $20 million. While 5% said they were making $100,000 or less a year, the study doesn’t disclose whether that was by choice, like in the case of a stay at home parent or start up CEO not paying themselves a salary yet.

The big question when considering the value of your MBA is: will your investment and opportunity cost be worth the added lifetime earnings? Depending on where you want your career and professional life to be headed five, ten and twenty years from now, the answer may vary greatly. An MBA can be a great way to boost your career quickly, but make sure the cost is.

Pauline Paquin, MBA
Pauline Paquin, MBA
Finance Contributor
Pauline is a personal finance expert who is passionate about empowering people to become financially independent. She graduated college with an MBA and $25,000 in savings which she used to buy her first rental property, kept saving aggressively, and was able to leave the 9 to 5 in 2009. You can find more about her at Reach Financial Independence.com

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