M7 Business Schools: What It Really Costs To Get An Elite MBA

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The average payback is longer today than it had been a decade ago. Forbes latest estimates put the average payback for a Top 25 MBA degree at 3.7 years, compared to 2.7 some ten years earlier–the result of the Great Recession on starting salaries for MBAs, subsequent lower pay increases, and considerably higher tuition costs. Even so, there are few degrees that translate into big pay increases, and the MBA still makes that magic happen, even among students at M7 schools who had been earning decent money before stepping on campus.

Consider this math, not quite as scary as the above calculations. The typical incoming student at MIT Sloan School of Management left a job paying $70,000 a year. Once armed with an MBA, the median starting salary of a Sloanie last year was $124,400, not including sign-on bonuses or other guaranteed year-end bonuses or perks. That translates into a 77.7% increase in annual salary alone. And that is why MIT has 12 applicants for every seat available in its MBA entering class.

The Real Costs Of Getting An MBA

From An M7 Business School

 

School Lost Income Two-Year Tuition Fees & Living Expenses Bottom Line
Stanford $160,000 $123,750 $75,120 $297,650
Harvard $160,000 $122,450 $74,350 $295,385
Wharton $160,000 $136,420 $58,664 $289,750
Booth $152,000 $127,960 $64,450 $282,523
Kellogg $146,000 $128,118 $57,908 $270,002
Columbia $148,000 $131,976 $67,808 $289,736
MIT $140,000 $131,500 $62,528 $274,660

Source: Poets&Quants analysis

Guide To The Table: The bottom line estimate is based on lost after-tax income, two years of tuition, and the school-estimated fees and living expenses increased by 25% to account for the highly conservative nature of those estimated expenses. We subtracted out $40,000 of those estimated costs because our readers pointed out that you would still incur those expenses if you weren’t going to business school.

For example, MIT Sloan MBAs leave jobs paying $70,000 in gross income a year for a total opportunity cost of $140,000. Apply a tax rate of 25% to that income, however, and the opportunity cost falls to $105,000. The cost of tuition for the next entering class at Sloan is $65,750, or $131,500. The school estimates the cost of housing, food, medical insurance, transportation, books, supplies and a computer at $32,265 a year, which comes to $62,528 over two years (the computer cost is a one-time expense). Add 25% to that purposely low estimate and the true cost is about $15,632 higher. But let’s also make a concussion to the readers who have pointed out you have to pay rent and eat, anyway. So we subtracted another $20,000 a year, or $40,000 total The bottom line cost: $274,660.

While we did not include the cost of inflation or the additional opportunity costs attributed to a pay raise, we also failed to include earnings from a summer internship, scholarship awards, or starting a new job early upon graduation in May or June, which would reduce the estimated opportunity costs. An MIT Sloan student would pick up $20,000 in median pay for a ten-week internship, and another $64,700 in median pay for starting a job right after graduation and not taking the summer off (based on the median $124,400 in starting salaries for Sloanies last year). If the student was among the 35% who receive scholarship aid, the average grant over two years at Sloan is $56,440. Add those all up and you can subtract nearly $65,000 from our bottom line cost for the MIT degree.

One final note worth mentioning, however: If you had to borrow money to attend MIT Sloan, your interest costs on the loan–along with the other fees–would probably cancel that out. Last year, the average indebtedness of a Sloan MBA was $106,602 and 65% of the graduates left with student debt. Total interest on a 12-year loan for that amount of debt would approach $50,000, not including loan origination fees. Drop in the extra lost opportunity costs from a raise as well as the bump in second year tuition–roughly another $7,000–and you’re pretty much back to our estimated bottom line cost.

The numbers can vary widely if a person leaves a job paying much lower than the average, receives a full ride scholarship, and borrows less money. Still, these numbers come pretty close to telling you how expensive an elite MBA degree has become.

DON’T MISS: HOW MUCH WILL YOU HAVE TO BORROW? or MBA SCHOLARSHIPS AT TOP BUSINESS SCHOOLS

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