Ranking MBAs By Return-On-Investment

Ranking MBAs by return on investment

A new ranking of MBA programs by return-on-investment has come up with a ton of counter-intuitive surprises. Among them: the most highly ranked, prestigious programs typically have ROI that is below the median. In this ranking, there are at least 50 other full-time MBA program ahead of Harvard Business School in return-on-investment.

But who in their right mind would turn down an admit offer from HBS to get an MBA at the University of Kentucky’s Gatton College of Business & Economics, which according to Bloomberg, which produced the analysis, has an ROI of 23.8%, more than double the 10.2% return estimated for MBA graduates of Harvard. In fact, only one of the top 25 business schools–the University of Washington’s Foster School of Business–in this estimate of ROI is ranked among the top 25 MBA programs in the U.S.

After Gatton, the top ten MBA programs based on this analysis are No. 2 Syracuse Whitman, No. 3 Mississippi, No. 4 Georgia Terry, No. 5 Oklahoma Price, No. 6. Florida International, No. 7 Florida Warrington, No. 8 Tennessee Hallam, No 9 Georgia Tech Scheller, and No. 10 Texas A&M (see table below). By the way, Gatton was helped into first place by the fact that its MBA program is just 11 months long while most of the schools in the analysis have traditional two-year programs. That would bode well for many shorter MBA programs at European institutions, though this analysis only applies to U.S. programs. Whatever the case, you can bet it won’t take very long for those and other schools to proudly tout their rankings on their websites.

Among the best-performing highly ranked MBA programs are Stanford, Yale, and MIT sloan, yet even these are below the median stats for the overall sample. On this ROI measurement, Bloomberg ranks the MBA at UC-San Diego’s Rady School of Management dead last, with an annual ROI of 5% and an increase in pay of just $133,000 over a ten-year timeframe.

RANKING MBA PROGRAMS BY RETURN-ON-INVESTMENT

The rationale for looking at MBA programs by ROI is obvious. As Bloomberg itself explains, “Will an MBA pay off for you? That’s the key question in deciding whether to pursue the degree. This tool uses a standard measure of financial success to help answer it: profit relative to initial principal, or return on investment.” Fair enough.

Across Bloomberg’s entire sample of 77 U.S. MBA programs, the average annual ROI is 12.7%, netting the graduate an extra $662,290 over a ten-year span. That result assumes a hefty total MBA investment of $286,182 in tuition, fees and living expenses, including $147,242 in foregone income from quitting your job to go to school for two years along with $9,043 in interest payments on student debt of $58,415. These numbers vary greatly, of course, depending on which school you go to and how much you made before showing up for classes.

An incoming MBA student at Harvard Business School walked from a job paying $120,591 to go to HBS. Therefore, the salary they land upon graduation must be considerably higher than for many other students. Sure enough, students expect first-year median compensation of $239,199, a doubling of their pre-MBA income. According to the Bloomberg calculator, all of that translates into an annual ROI return of 10.2%, or $814,426 over ten years.

WHY THIS ROI CALCULATION GREATLY UNDERESTIMATES THE RETURN ON AN MBA

But here’s the problem with this calculation. It assumes that students are paying full price. Very few students actually pay the sticker price on an MBA. At many programs, the discount rate is 50% to 70% and it is also possible to get a full ride from many institutions trying to attract the best students to maintain their U.S. News ranking. The calculation also has a 10-year window, but an MBA often results in a lifetime change to one’s personal and professional development as well as their earning power and job fulfillment. The analysis also fails to assume a base skill set before grad school. Some people are poets and become quants, an virtually impossible transition without an MBA. It also doesn’t account for what a student would earn from a summer internship. And possibly even worse, it assumes that an MBA would average only a 3.9% increase in pay annually, an underestimate for sure.

At Harvard Business School, half of the students receive fellowships that average a $46,000 a year or a whopping $92,000 over two years. HBS alone doled out $51 million in scholarship money to its MBA students in fiscal 2023. The median income for a two-month summer internship for an HBS student is about $18,000. If you adjust the Bloomberg analysis by this average tuition discount and the summer earnings, you get slightly better ROI numbers: 13.4% vs. the 10.2% or $935,101 vs. $814,426. Yet, even this adjustment doesn’t give a fully accurate account of what a person gains in an MBA program. For one thing, a ten-year timeframe is not the length of an MBA’s full career. It’s more like 35 years to age 65–if you even decide to stop working at that age. Some of the biggest income increases occur after ten years when many MBAs find themselves in or just below C-suite jobs and board seats. The immediate income bump and the additional opportunities you gain from the degree and from networking with classmates over a career are not factored into the analysis.

Bloomberg also essentially ranks ROI by percentage, not on the actual income gain over ten years. The only school whose MBA graduates increase their pay by more than $1 million over the ten-year period is Stanford. The gain, according to Bloomberg, is $1,039,638. That’s nearly double the No. 1 school on ROI which provides a net gain of $561,057. Yet, in percentage terms, it’s just 11.9%, below the median for all the schools. But if you go by actual cash, MIT Sloan would come in second place, with a gain of $904,444 over ten years, while Georgia Tech would slide into third, with a $836,402, with Yale fourth ($822,359) and Harvard fifth ($814,426). Most folks would be interested in the big number, after all, not the percentage.

The same issues hold true for other highly ranked MBA programs. Consider Wharton. The median cost of getting a degree from Wharton is $266,000, a sum that includes including and other living expenses. The numbers are based on survey respondents who graduated from 2014 through 2023. Bloomberg notes that Wharton’s cost is the highest in its sample of 77 schools.

HOW TO THINK OF AN MBA’S RETURN ON INVESTMENT

Bloomberg says that Wharton was eighth in the estimated 10-year difference between post- and pre-MBA compensation, and 19th in reported signing bonuses. “The bottom line, according to calculations based on survey data and Bloomberg estimates: The typical Wharton graduate could expect a 10-year net return on investment of about $678,000, or a compounded average rate of roughly 9% a year,” according to Bloomberg.

Calculating return on investment, however, is not as easy as taking available metrics and plugging them into a software program. As Scott Beardsley, dean of the Darden School of Business at the University of Virginia, noted in his commencement address in May, a person’s most important investment is in him or her self and one’s well being.

“Many of you came to B-school for a “return on investment,” he told graduates. “This is understandable; an elite graduate business education is expensive. But how should you calculate ROI over your lifetime? I have come to believe that in an objective function for your life, the letter “I” in your personal ROI is a ‘return on I’ (meaning yourself); your self-conception created by your Intelligence. The return currency is well-being and fulfillment; and the system-your intelligence-is how to maximize it. Life’s conceptual equation is both objective and subjective, very personal, iterative, and recursive. In effect, it is the goal of the goals. Yet many have objective functions with a different currency, and singularly pursue a goal with no guard rails or boundary constraints.”

It’s something no calculator can accurately measure.

(See following page for the top 25 MBA programs by ROI and how the highly ranked, prestige MBA programs compare)