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

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.