Is An Elite MBA Degree Still Worth The Cost?


Which brings us back to the question: Does it pay to get an elite MBA degree? The answer is an unqualified yes.

First off, there’s a massive amount of evidence that anyone who gets an advanced degree in any field is much better off. New research published last year by Robert Barro of Harvard and Jong-Wha Lee of the Asian Development Bank found that the return from investing in a year of graduate education averages 17.9%. “Compare that to the returns from investing in real estate, stocks, bonds, or most other asset classes, and you conclude that investing in your own human capital is about the best investment you can make,” says Robert F. Bruner, dean of the University of Virginia’s Darden School of Business. “The rate of return is high. Some Nobel Laureates and others have examined this, controlling for many attributes. They look at large samples over many years. If you take data from the trough of an economic cycle you will almost always find that the return is lower and the payback is longer than if you look at other points in the cycle. The finding may merely be an artifact of the sample period.”

Secondly, and more specifically regarding elite MBA degrees, the BusinessWeek analysis is so faulty that if the same rigor had been applied to astronomy, everyone would still believe the world is flat.

Dig into the methodology of the study and make your own conclusion. To calculate it’s ROI numbers, BusinessWeek first took the total dollar amount the average student spends on a degree (tuition, fees, living expenses). That sum was added to the total salary a student gave up to attend B-school. The median pre-MBA salary was then subtracted from the median post-MBA salary, and the difference was divided into the total amount spent on the MBA. The resulting number represents the length of time, in years, it will take the average student to make a return on their investments.


That’s it. The analysis failed to account for starting bonuses, year-end guaranteed bonuses, relocation allowances or tuition reimbursement plans. It also failed to figure in the value of pay increases or performance bonuses through those 10 and one-half years during which a Harvard or Stanford MBA is supposedly waiting for the payoff of the degree. Nor does the analysis include stock options or other equity grants.

The impact of these numbers, particularly on MBAs from the top schools, would completely reverse the findings of the study. McKinsey & Co., the largest single recruiter of elite MBAs, typically pays starting base salaries of $125,000 to graduating MBAs. That is the number BusinessWeek is using to make its ROI calculation. But the MBA lucky enough to land a job with McKinsey has total first-year compensation of about $190,000—52% higher than the base pay. That comes from the median signing bonus of $20,000, a performance bonus of up to $40,000 in the first year, and relocation allowances between $2,000 and $5,0000. This higher $190,000 number doesn’t even include McKinsey’s contribution into a retirement fund that equals 12% of the MBA’s salary and bonus—another $19,000 or so.

Then, you have the salary and bonus increases that will occur every year along with the promotions that bring even larger jumps in pay. It turns out that elite MBAs don’t get 3% pay rises. Within two or three years at any major consulting firm, whether it’s McKinsey, Boston Consulting Group, Bain, Booz, Accenture or a dozen others, an MBA’s base salary is usually $175,000 to $250,000—not the entry level base of $125,000–as he or she takes on the role of a project leader or engagement manager.

For MBAs from the best schools, these jobs are not only within reach. They’re fairly common. One in four of the graduates from Harvard’s Class of 2010 went into consulting. At both Stanford and Wharton, roughly 30% of the latest graduating classes accepted jobs in consulting.

What happens when you plug these other sums into BusinessWeek’s math? Currently, BW claims that the average Harvard MBA quit a job that paid him or her $80,000 and ended up with another job that paid $110,000, or just $30,000 more. If you still use the pre-MBA salary of $80,000 to the consulting example above, the gain in annual compensation would be $110,000–not $30,000. And the payback period would shrink to 2.9 years from 10.6. Admittedly, this is back-of-the-envelope math because MBAs headed into consulting could very well have made more than the $80,000-a-year median pay before setting foot on the Harvard campus. They also could have had a small bonus, too. On the other hand, we’re still not adding in the annual payments to the retirement fund, or an increase in the base after 12 months on the job, or larger bonuses in the second year. My hunch is that if you tossed those numbers into the equation the payback period could shrink to about two years or so, especially given the very big upside after your first couple of years.

Interestingly, the latest analysis by BusinessWeek even contradicts another study published by BW last year. In that analysis, done in conjunction with the consulting firm PayScale, BW estimated the lifelong earnings of MBAs. Guess who was at the top? Harvard Business School, Wharton, Columbia, Stanford, Dartmouth’s Tuck School, and Kellogg. The estimated career pay of a Harvard MBA was $3.9 million, and the elite schools completely dominated the top of these numbers: Wharton ($3.5 million); Columbia ($3.3 million); Stanford ($3.2 million); Tuck and Kellogg ($3.1 million). And how do these numbers compare with one of BusinessWeek’s best ROI schools? Let’s take Michigan State, which is ranked seventh in ROI (see below). The estimated career pay of a Michigan State MBA is $2.1 million, according to the BW analysis. That’s not bad–but it’s $1.8 million below Harvard and $1.4 million less than Wharton.


School & Rank Estimated Career Pay
1. Harvard Business School $3,867,903
2. Pennsylvania (Wharton) $3,491,372
3. Columbia Business School $3,349,669
4. Stanford Graduate School of Business $3,327,145
5. Dartmouth College (Tuck) $3,146,031
6. Northwestern (Kellogg) $3,085,680
7. MIT (Sloan) $3,031,132
8. Chicago (Booth) $2,970,437
9. Berkeley (Haas) $2,960,527
10. New York (Stern) $2,918,748
11. Virginia (Darden) $2,908,136
12. Duke (Fuqua) $2,858,021
13. Cornell (Johnson) $2,844,421
14. UCLA (Anderson) $2,807,378
15. Yale School of Management $2,750,657


  • 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

    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?