Why The MBA Beats The MD & The JD

mba degree pay off

The cost of getting an MBA degree can be staggering, leaving students with heavy debt burdens after graduation. But the perennial question every new generation of MBA applicants have is, does the degree still pay off in dollars-and-cents terms? A new return-on-investment analysis on graduate education shows that the MBA continues to beat all other degrees when it comes down to value.

The study by San Francisco-based Priceonomics to determine which advanced degrees produced graduates with the most (and least) student debt and how that compared to post-degree income immediately after graduation. The study is based on data supplied by graduates looking to refinance their debt from Earnest, a financial services company. Average student loan debt includes debt acumulated in both college and graduate school.

Researchers crunched the numbers for a wide variety of graduate degrees besides the MBA: MDs (medicine), DDS (dentistry), Pharm D (pharmacy), JDs (law), Masters in Science or Engineering, Masters in Arts, and other masters degrees. They also examined the impact of a university’s brand on a graduate’s earnings.


The winner? MBAs, by a long shot. Dividing a graduate’s average student debt by their self-reported income, Priceonomics calculated a debt-to-income ratio for each group of students. Debt-to-income ratios below one mean these degree-holders make more than they paid for their degree in one year. Values over one mean the degree cost more than what the typical graduate makes in a year.

The study found that MBAs enjoy the lowest debt-to-income ratio, just 0.71. That compares with medical professionals’s debt-to-income ratio of 1.41, master’s of arts at 1.07, or law at 1.0. “These (MBA) degrees are relatively affordable and confer high earning power, the researchers concluded.

Not surprisingly, medical professionals incur the most average debt, a chart-topping $191,200, followed by law graduates at $139,900 (see below table). The average debt for an MBA was $89.900, considerably more than the $62,800 incurred by students who went for the master’s of arts, but substantially more than med and law students who have to go to school for longer periods of time.


The upshot? Even though medical and law graduates outearn most MBAs starting out, their debt loads are considerably higher, diminishing the immediate payback of their degrees. “Medical professionals take on the most debt – even when their high salaries are accounted for – while MBAs enjoy a low debt burden relative to their income,” the study found.

The analysis, moreover, tends to underestimate the MBA’s value due to a number of factors the study fails to take into account. For one thing, the stated first-year income for MBAs of $127,200 is substantially below the actual figures for graduates of the top schools. Last year, the median total compensation package—including sign-on bonuses and other guaranteed pay— for MBAs at two dozen of the most highly ranked institutions exceeded the reported average in the study. In fact, the total pay for MBAs at Stanford, Harvard, NYU, the University of Virginia, and the University of Michigan topped $150,000, with Stanford GSB grads making a record $163,827.

The analysis also understates the value of an MBA because employment rates out of business school tend to be substantially higher than they are for law school grads and many other master degree holders. Finally, leading business schools tend to be far more generous with scholarship aid than many other graduate schools. At Harvard Business School, for example, roughly half of the school’s MBA students currently receive fellowships, which now cover more half the cost of the annual tuition of $61,225. Last year, HBS doled out $34 million in scholarship aid to not much more than 950 students. While this generosity would lower the debt burdens in Priceonomics calculations, the study wouldn’t capture graduates with full rides or substantial awards who wouldn’t need to borrow any money at all for their education.