Is An Elite MBA Degree Still Worth The Cost?

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by John A. Byrne on

Does it really pay to get an elite MBA degree?

Ordinarily, that would be a silly question. An MBA from Harvard or Stanford or from any number of the very elite business schools has long been a no-brainer, regardless of the amount of money you have to borrow to make it happen.

But a new analysis by BloombergBusinessweek, published yesterday (Jan. 6), may give some pause. The return-on-investment study claims that it can take a Harvard or Stanford MBA ten or so years to fully recoup his or her investment in the degree. In fact, BW asserted that the elite schools at the very top of MBA rankings tended to have among the worst returns of any of the schools in its study. Chicago’s Booth School was ranked dead last among 71 schools with a payback of 14.3 years. Columbia Business School was next to last with a payback of 12.8 years. It will take MBAs from Wharton, Kellogg and the London School of Business some nine years to recoup their investments, according to BusinessWeek. In contrast, Texas A&M’s Mays Business School, the magazine predicted that Class of 2010 MBAs would earn back their investments more than three times faster than Harvard grads.

While the payback at some very elite schools—Harvard, Chicago, and Columbia—is more than a full decade long, it’s 6.5 years on average for the Class of 2010, according to BusinessWeek. And that’s up nearly a year from 5.6 years for the Class of 2008. The magazine says the deteriorating payback period is a function of lower post-MBA salaries (down 6% from the 2008 average) and higher tuition costs. Another important reason is that members of the Class of 2010 left jobs with higher salaries so the pay differential between what a grad made before and after earning the degree was not as large.

THE BIG SHOCK: B-SCHOOL LEADERS HAVE LONGER PAYBACK PERIODS THAN SECOND-TIER SCHOOLS?

The biggest surprise of the study was not that payback periods grew longer, given the impact of the recent economic meltdown and rising tuition. The most shocking and implausible result is schools outside most Top 25 lists give students faster returns on their investment than the acknowledged leaders in graduate business education.

With the exception of some one-year MBA programs outside the U.S., BusinessWeek said that Texas A&M had the fastest return, in just under three and a half years. Mays is one of the few U.S. programs that is a year and a half in length, the magazine explained, so the total expenses, at just under $70,000, are considerably lower than at most other schools. Other MBA programs at the top of the ROI list: Michigan State’s Broad College of Business and the College of Business at the University of Illinois.

So why did the most elite programs fare so poorly in this analysis? These schools generally have the highest tuition costs, and they also attract applicants with high pre-MBA salaries, two big negatives in BusinessWeek’s ROI calculation. The average pre-MBA salary at Chicago and Harvard, for example, averages more than $80,000 a year.

BUSINESS SCHOOLS WHOSE MBA DEGREES GIVE YOU THE LOWEST RETURNS AMONG 71 TOP SCHOOLS, ACCORDING TO BUSINESS WEEK.

School & BW’s ROI Rank Payback Period (Years) Post-MBA Salary Rise
1. Chicago (Booth) 14.28 $22,000
2. Columbia 12.78 $25,000
3. Harvard 10.63 $30,000
4. Toronto (Rotman) 10.02 $25,000
5. Stanford 9.67 $35,000
6. Texas-Austin (McCombs) 9.33 $28,000
7. Northwestern (Kellogg) 9.12 $35,000
8. Pennsylvania (Wharton) 9.09 $35,000
9. Washington (Foster) 9.00 $27,000
10. London Business School 8.91 $27,000
11. MIT (Sloan) 8.87 $35,000
12. Georgia (Terry) 8.84 $19,000
13. New York (Stern) 8.22 $35,000
14. Maryland (Smith) 7.99 $30,000
15. Georgia Tech 7.89 $27,000

SOURCE: BLOOMBERG BUSINESSWEEK

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Air Time - Comments
  • Orthodoc

    I went into medicine. 4 years medical school, 5 years residency ($50k a year), 1 year fellowship. Now a hand surgeon making about $400k a year plus benefits and after malpractice premiums, working 55 hrs a week and 5 weeks vacation. One perk is that I can pretty much move anywhere in the country in a city larger than 100k people and expect to find a job with similar salary.

    I would say about comparable to the typical top 10 MBA grad considering the boot camp and sacrifices we in medicine go through.

  • Brazilian

    John,
    Would you say that Forbes methodology of calculating payback period is more accurate than BW’s?

  • de Mellow

    Is ANY MBA worth the cost? … is what landed me on this nice thread.
    My Master’s ROOC (Recovery of Opportunity Cost) time guestimate was ~10 years, prior to the decision. A similar figure came up for my spouse’s PharmD & Post-Doc work.

    These days it seems the biggest risk to getting long-term results, in any high skill/expense education, is loss of FT employment for some # of years. That will blow your plans (speaking from experience).

    For me, I left a ~$40k role for an MSEE when DotCom salaries were $100k even for those with near zero skills. 4 semesters in 1.5yrs implies a ROOC minimum of $150k. Ignoring NPV, time value of $, & more, that nets to an average of a $15k delta needed for 10 years. Would have worked great, but 9 years later senior engineers were axed in favor of cheaper options in the Great Recession.

    MBA has been on my list of options a while. But unless it’s funded by a grant or tuition waiver, I have not yet found evidence that there’s a beneficial ROOC versus what I’d earn in a “normal” employment market.

    My spouse might “break even” in 5 years. We’ll see.

  • Kevin

    This is coming from someone who has been in the pharmaceutical industry for four years. From what I have assessed, it’s absolutely true that a top full-time MBA will jump start your career into middle management. Brand recognition will always go farther than what you have actually learned. These employers only have a very short period of time to evaluate your abilities and having a top MBA certainly demonstrates that you are dedicated and capable of performing at a high level.

    As an individual who grew up relatively very poor with no career guidance and a very low undergraduate GPA, the option of going for a top MBA is very limited for me. I have thought about pursuing a lower tier MBA, but quickly learned that it would definitely not be worth my time.

    My current salary is very competitive for my background (bachelors in science from a mid ranked state school). I have jumped companies three times since my first job out of undergrad. If it were not for my low GPA, I would most likely have applied for several top MBA programs already. Given my current situation, I will take the much harder route and attempt to climb up to senior management or become an entrepreneur servicing the pharmaceutical industry in China.

    Overall, I do believe an MBA gives you jump start to your career. However, unless you’re in banking/trading, your opportunities of making a lot of money are much more limited than, say, a surgeon, radiologist, or anesthesiologist. Also, contrary to popular belief on P&Q, there are many senior managers and executives, and even more entrepreneurs who do not have an MBA.

    Like Lou said, you do not need an MBA to accomplish your life’s goals. However, if your goal is to have an easy road paved for you into a management position at a top prestigious firm such as BCG, Bain, Goldman, or Google, then yes, an MBA is for you.

  • Chicago Booth, for sure, if you can get in. Always go with the best brand name, regardless of the cost. It will take longer to payback your loans, but you’ll get a much better job out of the gate and your chances for advancement will also be better.

  • Matt

    What is to be said though for the students that are looking at lower cost schools that can not break into higher paying salaries? Which MBA has more benefit / worth? Currently I am making ~$38000 per year, but I would love pursue an MBA strictly for the purpose of boosting my resume to get a new position as I hate my current job. Certain things I’m reading say don’t pursue an MBA until your in your career that you would like to stay and work up within, but in the current job market it is impossible to get into the career field I would like to go. So is it worth it to go to say a University of Chicago Booth Business School when it would require a lot of student loans and still a possible unsure job market, or would it be better to go to a more affordable DePaul University or a Northern Illinois Univ. for a MBA?

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