2011 Forbes Ranking of the Best B-Schools

Harvard Business School across the Charles River

Harvard Business School nudged long-time rival Stanford aside for first place in Forbes magazine’s seventh biennial ranking of the best business schools. The results—published today (Aug. 3)—are based solely on the degree’s return on investment five years after graduation. Stanford grads lost ground in the pay stakes, according to the survey. Five years out, pay was $205,000, down $20,000 from the Forbes survey two years ago.

In the new 2011 ranking, Harvard jumped two places to first, while Stanford slipped to second. Chicago was third, Wharton fourth, and Columbia Business School fifth, knocking Dartmouth’s Tuck School of Business, which was ranked second two years ago, from the top five. The biggest winner among the top ten? MIT Sloan School, which moved up four notches from two years ago from 14th, to place tenth.

Forbes said graduates in Harvard’s Class of 2006 saw their median salaries soar from $79,000 before school to $230,000 in 2010, which was the highest among all U.S. business schools. The $230,000 number was $15,000 more than HBS grads reported two years ago to Forbes. The median gain for a Harvard MBA over the five-year period was $108,000, while HBS grads achieved break even on their investment in the degree at 3.6 years. For all top ten schools, the break even rate was between 3.5 years and 3.7 years, with Stanford, Chicago, Northwestern and Virginia at 3.5 and Wharton and MIT at 3.7 years.

The highest ranked school with the fastest break even mark? No. 11 Yale’s School of Management, with a 3.3-year break even point largely due to the fact that incoming students had pre-MBA salaries of only $57,000–$22,000 less than the pre-MBA salaries of a typical Harvard MBA student.

Another surprise in the survey was the reported incoming salaries of Kellogg students: $68,000, some $4,000 less than Chicago Booth MBA candidates. Kellogg’s incoming salary number was the second lowest of any top ten school. Only the pre-MBA salaries for Cornell Johnson School were lower at $65,000.

To gather its compensation data, the magazine surveyed 16,000 alumni at more than 100 schools. Roughly 30% of the surveyed graduates responded. Forbes then compared their earnings over the first five years out of business school to the opportunity costs—two years of forgone compensation, tuition and required fees–of getting the MBA degree. The schools with the highest returns by dollars ranked highest on the list.

The downside to ranking schools by return is that the numbers don’t fully capture the true value of a graduate business education over one’s career. Moreover, because these estimates are based on survey responses from alumni, it’s possible that small sample sizes at some schools could lead to distortions. It’s also likely that alums who are either unemployed or underemployed may be less apt to respond to the Forbes’ survey.

In many cases as well, Forbes is ranking schools on differences in reported pay that are so small as to be statistically meaningless. HBS beat out Stanford by an incredibly slim $2,000 margin: a gain of $118,000 vs. $116,000. On a break even basis, Stanford grads actually did slightly better: 3.5 years to break even vs. 3.6 years for HBS alums.

Many schools have been aggressively discounting the price of the degree by increasing scholarships and grants to students. Forbes said financial aid to MBAs has risen by more than 50% in the past six years. For the 74 U.S. schools ranked by Forbes, the typical business school handed out an average of $26,000 to 55% of the students in the graduating class of 2010. Harvard led the way, increasing aid by 78% to $49,000 per student in the past six years, according to Forbes.

Forbes said it adjusted the median five-year MBA gain for cost of living expenses and discounted earnings gains using a rate tied to money market yields. The magazine also discounted tuition to account for students who pay in-state rates and for the non-repayable financial aid that schools dole out. Forbes did not deduct taxes from the earnings gains, and only business schools with two-year full-time M.B.A. programs were included in its U.S. ranking.

These adjustments make for some unusual results. Incoming students at No. 22 Emory’s Goizueta School of Business and No. 23 Carnegie Mellon’s Tepper School, for example, have the same $55,000 pre-MBA salaries. Five years after graduation, however, Tepper MBAs earned far more: $147,000 vs. $128,000 for Emory grads. Despite the significant advantage for Tepper MBAs, their time to break even was longer: 3.8 years versus 3.5 years for Emory grads. Why? Forbes doesn’t say, but based on its explanation of the methodology, it appears that Emory is offering more financial aid than Carnegie Mellon to discount the cost of tuition.

(Table on Top 25 Schools in the 2011 Forbes MBA Ranking on next page)