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The Best Age to Go to Business School

 

In sports, they call it “the window.” It is that short time for a team when everything aligns. Players are at their peak in terms of skills and conditioning. There is a chemistry and bond between them, where everyone is focused on the same mission. In these rare moments, they set their personal egos aside to focus on what’s best for the whole. Soon enough, they’ll start bickering over their roles. Before then, they’ll hit their peak (and maximize their future earnings).

MBAs are really no different. In their 20s, many Millennials – like the boomers and busters before them – believe they can bop around without direction, living for the moment as they gain “experience.” You can always enter business school and make that money up in your 30s and 40s, right?

Not necessarily.

That was the finding from research conducted by Bloomberg Businessweek. Based on data supplied by over 10,000 members from the Class of 2014, Bloomberg Businessweek gauged the starting earnings for MBA graduates between the ages of 24 and 37, along with how much their pay grew over their pre-MBA income.

The major finding? Once MBAs hit 30, their starting pay begins to slowly decline. How steep is the fall? At 30, new graduates are earning slightly more than $125,000 to start. Seven years later, that number has fallen to $110,000. In other words, a 37 year-old MBA’s starting pay is the same as what a 25 year-old MBA makes. Over 12 years, older MBAs are leaving $125,000 on the table – a year’s salary – on the table. Oh, and that excludes the original MBA salary bump (and the subsequent year-to-year pay raises) and a higher opportunity cost.

What does that mean in real dollars? Consider this scenario. Let’s say an MBA graduated at 30 instead of 37. For simplicity’s sake, the 30 year-old MBA will negotiate an 80 percent bump on a $66K pre-MBA salary. At the same time, the 37 year-old MBA will also be earning $66K during the same year when the first MBA entered grad school at age 28. Both will enjoy generous five percent raises annually.

How do their earnings differ? From age 30-36, the first MBA will earn over $967,000. At the same time, the second MBA would make roughly $537,000 from age 28-34 – nearly $450,000 less. And that doesn’t factor in opportunity costs, which the first MBA bore at 28-29 at a $132,000 clip (compared to the second MBA, who gave up $160,000 in wages while in business school from 35-36 in this model).

Percentage-wise, the numbers look even worse for students who earn their MBA later in their later thirties. According to Bloomberg Businessweek’s data, 28-30 year-old MBAs generally receive an 80 percent bump on pre-MBA salary (GMAC reported this number to be 90 percent this week). That number is cut by over half to 37 percent if an MBA graduates at 37 (which is offset, to an extent, by many MBAs entering b-school with far higher salaries than they would have at 28).

What’s more, Bloomberg Businessweek doesn’t project out how much less that older MBAs lose in subsequent years. Back to the pay model in the paragraphs above, the MBA with seven years of experience will be making roughly $167,000 by the time that she is 37 (after starting at $118,800 at age 30 in this model). At the same time, even if the 37 year-old MBA makes $124,000 to start (which would be higher than the $110,000 number cited by Bloomberg Businessweek), his earnings will pale in comparison. Projected out over another five years (with an annual five percent raise), the first MBA will pull down roughly $923,000 while the second will take home approximately $685,000 – over 25 percent less than what an MBA who graduated seven years earlier would make. That’s a lot of money to be leaving on the table!

Bottom line: The value of an MBA may not have an expiration date, but it is a depreciating asset. To get the most from a full-time MBA program, it pays to graduate before you enter your thirties. One other rather critical point to know: These are only starting pay numbers. A quality MBA program, with provides a highly valuable network, has the potential to deliver enduring career benefits throughout your life.

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Source: Bloomberg Businessweek