Is An Elite MBA Degree Still Worth The Cost?

Does it really pay to get an elite MBA degree?

Ordinarily, that would be a silly question. An MBA from Harvard or Stanford or from any number of the very elite business schools has long been a no-brainer, regardless of the amount of money you have to borrow to make it happen.

But a new analysis by BloombergBusinessweek, published yesterday (Jan. 6), may give some pause. The return-on-investment study claims that it can take a Harvard or Stanford MBA ten or so years to fully recoup his or her investment in the degree. In fact, BW asserted that the elite schools at the very top of MBA rankings tended to have among the worst returns of any of the schools in its study. Chicago’s Booth School was ranked dead last among 71 schools with a payback of 14.3 years. Columbia Business School was next to last with a payback of 12.8 years. It will take MBAs from Wharton, Kellogg and the London School of Business some nine years to recoup their investments, according to BusinessWeek. In contrast, Texas A&M’s Mays Business School, the magazine predicted that Class of 2010 MBAs would earn back their investments more than three times faster than Harvard grads.

While the payback at some very elite schools—Harvard, Chicago, and Columbia—is more than a full decade long, it’s 6.5 years on average for the Class of 2010, according to BusinessWeek. And that’s up nearly a year from 5.6 years for the Class of 2008. The magazine says the deteriorating payback period is a function of lower post-MBA salaries (down 6% from the 2008 average) and higher tuition costs. Another important reason is that members of the Class of 2010 left jobs with higher salaries so the pay differential between what a grad made before and after earning the degree was not as large.

THE BIG SHOCK: B-SCHOOL LEADERS HAVE LONGER PAYBACK PERIODS THAN SECOND-TIER SCHOOLS?

The biggest surprise of the study was not that payback periods grew longer, given the impact of the recent economic meltdown and rising tuition. The most shocking and implausible result is schools outside most Top 25 lists give students faster returns on their investment than the acknowledged leaders in graduate business education.

With the exception of some one-year MBA programs outside the U.S., BusinessWeek said that Texas A&M had the fastest return, in just under three and a half years. Mays is one of the few U.S. programs that is a year and a half in length, the magazine explained, so the total expenses, at just under $70,000, are considerably lower than at most other schools. Other MBA programs at the top of the ROI list: Michigan State’s Broad College of Business and the College of Business at the University of Illinois.

So why did the most elite programs fare so poorly in this analysis? These schools generally have the highest tuition costs, and they also attract applicants with high pre-MBA salaries, two big negatives in BusinessWeek’s ROI calculation. The average pre-MBA salary at Chicago and Harvard, for example, averages more than $80,000 a year.

BUSINESS SCHOOLS WHOSE MBA DEGREES GIVE YOU THE LOWEST RETURNS AMONG 71 TOP SCHOOLS, ACCORDING TO BUSINESS WEEK.

School & BW’s ROI Rank Payback Period (Years) Post-MBA Salary Rise
1. Chicago (Booth)14.28$22,000
2. Columbia12.78$25,000
3. Harvard10.63$30,000
4. Toronto (Rotman)10.02$25,000
5. Stanford9.67$35,000
6. Texas-Austin (McCombs)9.33$28,000
7. Northwestern (Kellogg)9.12$35,000
8. Pennsylvania (Wharton)9.09$35,000
9. Washington (Foster)9.00$27,000
10. London Business School8.91$27,000
11. MIT (Sloan)8.87$35,000
12. Georgia (Terry)8.84$19,000
13. New York (Stern)8.22$35,000
14. Maryland (Smith)7.99$30,000
15. Georgia Tech7.89$27,000

SOURCE: BLOOMBERG BUSINESSWEEK

About the Author...

John A. Byrne

John A. Byrne is the founder and editor-in-chief of C-Change Media, publishers of Poets&Quants and four other higher education websites. He has authored or co-authored more than ten books, including two New York Times bestsellers. John is the former executive editor of Businessweek, editor-in-chief of Businessweek. com, editor-in-chief of Fast Company, and the creator of the first regularly published rankings of business schools. As the co-founder of CentreCourt MBA Festivals, he hopes to meet you at the next MBA event in-person or online.