When Is An MBA Worth It—When Is It Not?

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by Shawn O'Connor on

Shawn O'Connor is the chief executive of Stratus Prep.

Shawn O'Connor is the chief executive of Stratus Prep.

If you may not be heading to a top ten school, is getting an MBA still worth it? How far down the rankings can you go and still see a positive return on your investment? Are there specific concentrations/career considerations that make an MBA more valuable, even at a lower-ranked school?

With the beginning of the business school application season upon us, you may be wondering if an MBA makes sense—particularly if you’re not sure you can win acceptance to a top-ten ranked school.

Given the resources required to successfully navigate today’s competitive admissions landscape, you’ll want to weigh the pros and cons of potentially going to a school outside the top ten early in the application, and assess if your GPA, scores, or work experience suggest that these top programs may represent stretch schools.

No matter what your GPA, test scores, and work experience, I would still advise applying to a number of the top ten schools (even if they seem like near impossible stretches). During my nearly decade in this industry, I’ve seen numerous strategically-positioned Stratus Prep clients gain admission to schools like HBS and INSEAD with GMAT scores in the 500s and GPAs around 3.0. At the same time, it’s critical to objectively assess your chances and, if necessary, consider whether it makes sense to pursue an MBA if you don’t get into a top-ten MBA program.

For most students, attending a school ranked anywhere in the top 25 has a positive return on investment. However, attending MBA programs outside the top 25 may not provide you with sufficient post-graduation earning power in order to assure an adequate return on your investment.

In order to assess the return-on-investment of an MBA program, we first need to consider the full cost of attending business school. Most students consider only the tuition and living expenses of an MBA program—which can top $150,000 at many schools. In addition, however, we must consider that if you were not attending business school, you would likely be earning about $60,000 to $100,000 a year. When including this opportunity cost, the true price tag of obtaining your MBA is approximately $275,000 to $450,000–not including the interest costs on a loan should you need to borrow money. One can now understand why it is so important to carefully weigh this decision and do everything possible to win admission to the school of your choice.

An MBA from a premier program, such as Harvard, Stanford, INSEAD, Booth, Wharton, Sloan, Kellogg, Columbia, or NYU Stern has a very robust return on investment: For example, students graduating from Harvard Business School can expect to earn a starting post-MBA salary of $115,000, and to average $3.6 million in total earnings during the 20 years post-graduation, with many HBS grads earning significantly more (see related story).

SCHOOLS RANKED IN THE LOWER HALF OF THE TOP 100 WILL HAVE SUBSTANTIALLY LOWER STARTING SALARIES

While schools ranked between #10 and #25 have slightly lower average earnings, there is little doubt that the ROI for these schools is quite positive as well. For example, Yale School of Management graduates typically leave school with a base salary of $100,000 and earn $2.8 million over the subsequent 20 years. In addition, given Yale University’s strong brand equity, Yale SOM’s reputation and ranking are likely to increase in the years to come. We counsel our clients considering schools between #10 and #25 to most highly consider schools that, like Yale SOM, have a brand value that’s likely to appreciate during their careers, as this could substantially enhance their lifetime earnings.

As a point of comparison, schools ranked in the lower segment of the top 100 will have substantially lower average starting salaries (in some cases closer to $60,000 a year) and average lifetime earning potential under $2 million. Accordingly, I caution most students that, if they don’t receive significant scholarships from one of these schools, they might be better off continuing to work rather than incurring the high costs associated with obtaining an business degree—especially since many of the skills taught in MBA programs could be obtained through less expensive certificate programs.

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  • Anonymous

    I graduated making $59K six months out of undergrad (I studied political science). 2 years later I was making $74K. 4 years later I’m making $84K. I decided to grab a second bachelors to meet pre-requisites to earn a masters in computer science. My goal is to work in the tech industry as a manager in the $85 – $150K range.

  • engineeringbeatsmba

    I graduated from a CA state university in 2008 in the greatest depth of great recession at $62,000 starting salary. I studied engineering.

  • freakenbloopie

    I graduated from the University of Nevada, Reno’s College of Business in May. I now make $71,000 a year, not including the $60,000 in Restricted Stock Units I was awarded upon hire. I don’t consider UNR to be a prestigious school. While anecdotal, it’s certainly not hugely abnormal for recent undergrads to make that kind of money.

  • TitusGroan

    My company has asked me if I would like to complete MBA as they would like to develop me as a future leader of their company. They will pay 100% fees etc, however if i leave with in 5 years then i will be liable for the fees on a decreasing basis. I am a qualified chartered accountant ACA, is an MBA significantly different in terms of my knowledge gap to warrant the time and emotional investment. Does an MBA really give you better tools to become a leader or am i better off suggesting alternative leadership programmes?

  • Spartan2814

    That is definitely a pretty impressive starting salary. However, I will make the obvious argument that Wharton is tied as the #1 business school with Harvard and Stanford. What percentage of undergraduate students in business will obtain their degrees from institutions with such clout? Not many. Most will get their degrees at a state university, which is my entire point. This article and the information herein is just not applicable to the majority of business degree holders considering an MBA. It presents too hefty a sample bias.

  • JohnAByrne

    The average Wharton undergraduate last year earned $69,506 to start in salary. The $60K to $100K range, however, is for undergrads who are generally three years out.

  • Spartan2814

    Who the hell comes out of undergrad making $60-100K/year?

  • James

    Hate to pick on one little detail from your comment, but it needs to be clarified. Sure, BYU sends many to GS…but that is only because Salt Lake City has the 2nd largest GS office in the country (world maybe?)….for jobs in Operations. These are not jobs anyone is envious of. I’ve known many that worked for GS in SLC and they hated it there. Their jobs were so boring and they were not paid well. When someone thinks of working for GS, they are thinking of front office jobs. BYU MBA grads get the back office jobs. It is very misleading to say both schools place just as many grads at GS. It’s apples and oranges.
    Side note: at the undergrad level, BYU has recently been placing up to a dozen students a year at front office positions with GS in NY and SF. While somewhat admirable, this has not translated to the MBA program.

  • toddwriter

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