The Real Cost Of An MBA: $345K So Is It Really Worth It?

Let me preface this post by saying that I am not a financial analyst but I do enjoy analyzing things and did do quite a bit of finance study during undergrad (i.e. my numbers could be way off).

That being said, I was thinking about the overall cost of an MBA program and I kept going round and around in my head wondering if it would all be worth it in the end.  Would taking out an astronomical amount of loans and taking two years off of work be worth it?  There are many people who have strong opinions one way or the other so I decided to put some numbers down on paper.

I used Columbia as an example, since they would surely have one of the highest living expenses and their tuition is pretty expensive too.  I took their suggested student budget and expanded some of the numbers after doing some research on actual housing in New York at places I would actually want to live, including travel each year (which I definitely want to take advantage of) and also including a food and clothes budget…since that is just common sense.

When I put all these numbers down, it seems like the true cost of an MBA at Columbia is upwards of $200k.  Ouch.

Here is where I laid it all out:

Note that the total is a looooot more than $200k.  That is because I also included the opportunity cost of the foregone income for two years.  In this example, I used $70,000, which I think is about what most people going back for their MBAs make.  I have also done this exercise with my own numbers, which I am not going to share:)  The total cost of an MBA is closer to $340k, not a small sum.

After getting a total outlay, I attempted to figure out my payback period, my ROI and my Net Present Value of the difference in income each year using a discount rate of 2.5% (which, if I remember correctly is a good estimate for inflation).  It turns out my pay back period is a little over 7 years and my ROI grows to well over 300% during the time frame for this analysis.  You can see all the gory details here:

Now, this might seem like it looks great and an MBA is worth it in the end.  However, I did a similar analysis with a part-time MBA and with part-time MBA assumptions.  The numbers were quite similar, with an even higher ROI for the part-time MBA.  It is nothing to sway a decision one way or the other, since my assumptions for the analysis are pretty broad (and quickly researched on Google) and the numbers are so close, but it definitely is something to think about if you are on the fence between a part-time MBA and a full-time MBA.

All that being said, I may have totally botched the numbers.  If that is the case, please let me know!  It’s been years since I had to do this kind of analysis.

MBAGirlJourney offers the perspective of a highly thoughtful young professional woman who hopes to land a seat at a top ten MBA program for the Class of 2016. She has two goals: to gain acceptance to at least two of the top ten business schools and to finance her MBA without taking on heavy debt. She blogs at MBAGirlJourney. Previous posts on Poets&Quants:

My Goal: To Get Into Two of the Top Ten MBA Programs

How To Finance Your MBA Degree In A Responsible Way

Handicapping My Own Chances of Admission to Harvard, Wharton, Chicago Booth, et al

An Ideal Routine For Your GMAT Test Day

Narrowing Down & Strategizing My Target Business Schools