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Can An MBA Add $1 Million To Your Income? A New Study Says So

The peak ROI on an MBA after three years was reached in 1993 when graduates recouped their entire investment within three years Source: GMAC 2016 Alumni Perspectives Survey

The peak ROI on an MBA after three years was reached in 1993 when graduates recouped their entire investment within three years Source: GMAC 2016 Alumni Perspectives Survey

As the chart above shows, ROI is often dependent on the time period in which an individual graduates because outcomes vary by graduation year. Over a 20-year period between 1991 and 2012, the chart shows that three-year ROI peaked in 1998 and has been all over the place in the past two decades. Even so, it was only zero in the years between 1991 and 1993. In the last year charted, 2012, three-year ROI was 40%.

GMAC found predictably that the 20-year trend in return on investment for a full-time two-year MBA program is showing some decline, due in part to rising investment costs and slower growth in post-degree starting salaries. GMAC tracked the numbers based on a three-year rolling median adjusted for inflation in 2012 dollars), with data from class years 1991 to 2012 (see below). The gap between the cost of an MBA and starting salaries was largest in 2006, but is beginning to narrow somewhat, though it is far from what it was back in 1993.

Total Investment Costs Are Growing At Faster Rates Than Starting Salaries

Source: GMAC 2016 Alumni Perspectives Survey

Source: GMAC 2016 Alumni Perspectives Survey

And then, there is that bottom line outcome of what a graduate business degree is actually worth over time (see chart below). Over 20 years after graduation, business school alumni earn a median cumulative base salary of $2.5 million. This is a half million more in cumulative base salary than they would earn if they did not go to graduate business school and consistently received 5% annual salary increases, and nearly $1 million more than if they did not go to business school and had consistently received today’s more typical 3% annual salary increases over 20 years.

The solid line shows the median cumulative base salary of alumni, which is offset by the opportunity and educational costs during the enrolled period on the chart. Each of the dotted lines show the hypothetical median cumulative base salary of alumni if they did not attend business school, continued working, and received either 3% or 5% salary increases annually. As shown, during the two-year period of school enrollment, alumni cumulative base salary decreases due to lost wages and educational costs, while the hypothetical “no degree” lines show continued growth. After seven years following graduation, business school alumni earn more than both of the no-business degree candidates experiencing either 3% or 5% annual salary increases.

Business School Alumni Earn Cumulative Salaries Of $2.5 Million Over 20 Years After Graduation

Median cumulative base salary (excluding bonuses) accounting for opportunity and investment costs, and hypothetical growth rates of 3% and 5% based on pre-degree earnings, all program types, class years 1986 to 2012 Source: GMAC 2016 Alumni Perspective Survey

Median cumulative base salary (excluding bonuses) accounting for opportunity and investment costs, and hypothetical growth rates of 3% and 5% based on pre-degree earnings, all program types, class years 1986 to 2012 Source: GMAC 2016 Alumni Perspective Survey

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