THERE ARE AVERAGES AND THERE ARE THE MORE LIKELY EXCEPTIONS IN BUSINESS
Of course, overall doctors on average are likely to earn more than typical MBA grads over the course of their careers. But the averages don’t tell the full story because a prestige MBA makes it far more likely for someone to climb the corporate ladder to gain access to higher paying senior leadership positions just as the degree increases the odds that a graduate may someday become an entrepreneur who successfully starts and scales their own companies. Those MBA graduates can easily outearn what the most accomplished doctors or lawyers make over a lifetime.
A study commissioned by Poets&Quants, for example, showed that over a 20-year career a Harvard MBA made $3,233,000 in income, while a Stanford MBA pulled down $3,011,000. At Wharton, the total was $2,989,000 and at UC-Berkeley’s Haas School graduates earned $2,858,000. The higher ranked the school, the more career income MBAs made. Median total compensation for an MBA from the top three schools was $3,011,000 versus $2,759,500 at a top ten, $2,266,000 for a top 50, or $1,771,000 for all MBA degree holders (see The Most Lucrative Seven-Figure MBA Degrees).
The Priceonomics study found that “graduates with all degree types experience a decrease in debt-to-income ratio after graduation, but in some professions, those ratios come down faster than in others. Medical professionals have the highest debt-to-income ratio immediately after graduation. This is likely because MDs begin their careers in residencies, which are essentially low-paid apprenticeships lasting three to six years. Once residents become practicing physicians, they can expect comfortable six-figure salaries and subsequently make fast progress on their debt.
“In contrast, MBAs have the flattest trajectories toward debt freedom. Though they have the lowest debt-to-income ratio across the entire post-graduation time period we considered, they make the least progress between years 1 and 11 after graduation.”
‘SCHOOL REPUTATION MATTERS TO INCOME AND TO DEBT’
How does a school’s prestige factor into the value equation? As the earlier Poets&Quants analysis had shown, the Priceonomics study confirms that degrees from the most highly selective schools come with tangible financial benefits. “School reputation matters,” the researchers said. “For all disciplines except medicine, graduates of top-100 programs enjoy lower debt relative to their income upon graduation. This trend continues after graduation, with the exception of engineering graduate students, where students from less prestigious schools have more favorable debt to income ratios six years after graduation than their counterparts from higher ranked schools.”
Bottom line: “The ‘rich doctor’ stereotype makes medicine look appealing, but it doesn’t do justice to the burden of financing an MD,” according to the study. “Medical professionals take on an average debt near $200,000 to finance their degrees, and early in their careers, their income does little to offset their debt. Attending a more prestigious school doesn’t mitigate their high debt-to-income ratio; graduates of top schools pay just as much relative to their salary as grads from lower-ranked programs.
“In contrast, the average MBA makes six figures after spending one or two years in graduate school. They typically take on around $90,000 in debt, but consistently enjoy a low debt-to-income ratio. This is doubly true for graduates of top-100 business programs, who enjoy the high income that comes with access to a high-powered alumni network.”
THE LESS TANGIBLE BENEFITS THE STUDY FAILS TO ACCOUNT FOR
Of course, this is a pure dollars-and-cents analysis that fails to take into account other important reasons to get an MBA degree, from the likelihood that a graduate would gain entry into jobs and organizations that would otherwise be off limits to the unusual ability of the MBA to allow someone who earlier made a different career choice to reinvent him or herself.
Eric Johnson, dean of Vanderbilt University’s Owen Graduate School of Management, made that latter point in a recent panel discussion of the MBA’s value at Poets&Quants’ CentreCourt event in New York City. “The MBA is a uniquely American invention,” Johnson said. “Where else can you at the age of 28 decide I really don’t like what I am doing. I want to go in another direction and reinvent myself. That is a really unique gift and I think most of the world is still catching up. I still don’t think they understand the American MBA as it has morphed, developed and polished it over the years. It is just an amazing thing. In much of the world, what will happen to you is pretty much determined by the eighth grade, whether you are headed into a factory or the administrative wing.
“We are in a great environment where you can be sitting in your career right now and think it’s going pretty well but it’s not where you would see yourself 15 to 20 years from now,” added Johnson. “So you decide to come back for an MBA and it can change the trajectory of your life. That is the magic of the MBA. If you compare it to almost any other graduate program on campus, it has a high ROI and an amazing potential opportunity creator.”