Last Updated: Jan 7, 2017
Concerned about investing in b-school? Figure out the ROI of your MBA in these five steps.
Preparing to apply to business school takes a lot of planning: you plan for your admission tests, you plan your top pick schools, and you plan your finances.
But there’s one big factor that all aspiring MBA students should plan for as they look into potential business schools: return on investment (ROI). Make no mistake, going to business school is a huge decision. Selecting an MBA program with a good ROI is the best way to start the next phase of your business career on the right foot.
If you’re one of the many people considering getting your MBA, here is a breakdown of the top factors to take into account in determining the ROI of the degree.
Step 1: Understand the differences between the types of MBA degrees
First, it’s important to know that there are three major types of MBA degrees: full-time, part-time and executive MBA programs. They’re all MBAs, but they’re quite different in terms of schedule and timeline.
- Full-time MBA programs are like most traditional master’s degree tracks. You’ll attend classes on a daily or near-daily basis and spend a lot of time on campus (or possibly online), completing your degree in two years.
- Part-time MBA programs have classes that may take place in a classroom or online during the day, evening, or on weekends. Because you’re not spending as much time in class as with a full-time program, it tends to take longer than two years to complete a part-time MBA degree.
- An executive MBA (EMBA) program can be thought of as an accelerated version of the part-time MBA. It is typically completed in the same amount of time as a full-time MBA (two years) but typically with even fewer classroom hours. EMBAs are also specifically designed for highly experienced business managers. To be eligible for admission into an EMBA, you’ll need at least five years of full-time experience in business administration, though many EMBA programs ask for much more experience than that. Most significantly, EMBA programs expect their students to continue working full time, even while they study. Classes are timed to accommodate the work schedules of business professionals, which typically means evening classes, weekend classes, and perhaps one or two “intensive” full weeks of study per year.
So, what do the differences between full-time, part-time, and EMBAs mean for your ROI? There are two key factors to consider:
- The ability (or lack thereof) to work while studying: It’s difficult to work full time while also completing a full-time MBA. In fact, the course schedule for a full-time MBA can be so demanding that students aren’t able to work at all. The resulting loss of wages over the course of two years can have a significant negative impact on the degree’s ROI. Part-time MBAs and EMBAs, on the other hand, do give their students time to keep working, so lost earnings are not a factor in these MBA types.
- Tuition and fees: In theory, full-time and part-time MBAs tuition and fees should cost roughly the same. However, in reality, the fees for a part-time MBA program cost much more; whereas tuition is charged per course, fees are assessed every semester. Part-time MBAs stretch out over more semesters, which means more fees by the time the program is complete. Universities often charge their students anywhere from a few hundred dollars to a thousand dollars in non-tuition fees every term. So the additional fees paid in a part-time MBA program can potentially add up to thousands of extra dollars. Because EMBA programs take the same amount of time as MBA programs, you don’t typically see higher fees. However, EMBAs do have higher tuition costs—usually much higher. To give one example, the University of Pennsylvania’s Wharton School of Business charges a total of $141,740 in tuition for its full-time MBA. But Wharton’s EMBA costs over $50,000 more, with a tuition sticker price of $192,900.
Ultimately, these three types of MBAs differ significantly in structure, dynamics, and potential ROI. To decide which type of MBA program is right for you, conduct a thoughtful, thorough, and well-researched grad school search. It might also be helpful to talk with alumni of each kind of MBA program about their experiences and gather any advice they have to offer.
Step 2: Familiarize yourself with the long-term earnings potential for each MBA
So far, we’ve looked at the MBA ROI in terms of cost. But cost only tells half of the story, the investment half. Now, we’ll take a look at the other half of ROI: the return you get on the investment, in the form of long-term earnings.
In spite of the relatively clear differences in cost between part-time, full-time, and executive MBAs, there’s not necessarily a clear winner in terms of return. Here’s a breakdown for each degree type:
- Part-time MBAs: While part-time MBAs cost more in fees, students are able to continue working while they study, advancing their careers before they actually complete their degree. In fact, sometimes people receive promotions and land new positions just by demonstrating that they have a part-time MBA in progress. A combination of more experience and a fresh MBA degree might make part-time MBA students eligible for higher post-degree pay in comparison to their full-time peers.
- Full-time MBAs: There are certainly ways that a full-time MBA can also promote a long-term increase in salary and a healthy ROI. Because full-time MBA students graduate more quickly than part-time students, they have a faster track to MBA-level pay. Receiving that MBA pay bump on a faster timeline can make for strong earning power in the long run, sometimes equal to or greater than the lifetime earning power of part-time MBA graduates.
- EMBA: True to its name, the EMBA is viewed by employers as a special qualification for top executive positions. The types of jobs you can get with an EMBA tend to have much higher pay than typical MBA-level jobs. Also, bear in mind that EMBA graduates must have years of managerial experience before they start their studies and are expected to keep working during their EMBA course work. It’s not uncommon for EMBA students to have 10 or even 20 years of executive experience by the time they complete their degree. This robust level of experience, combined with the prestige of an EMBA diploma, can boost someone’s pay quite significantly.
Step 3: Be aware of the tuition costs at different business schools
Perhaps the most important factor in long-term earnings and ROI is not the type of MBA program but the school where the MBA program is hosted. This is where things can get interesting in terms of the ratio of school costs to long-term earnings. First, let’s look at tuition costs.
The tuition costs for individual MBA programs vary a lot. So right away you can see how your choice of school makes a huge financial difference. Just look at a few top and mid-tier business school examples, as ranked by U.S. News & World Report:
- Tuition costs for the top 15 B-schools: If you look at the b-school rankings, you’ll see huge differences among the top 15 schools alone. At #5 in the rankings, the MIT Sloan School of Management charges more that $130,000 for its MBA, while top-ranked Harvard charges about $12,000 less. And once you reach the #15 slot, you see UCLA with an MBA that’s a relative bargain, clocking in around $100,000 in tuition.
- Tuition costs for mid-tier B-schools: Outside of the top 15, tuition differences become even more dramatic! Right at #16, you see a tie between the MBA programs at UNC Chapel Hill and UT Austin. These schools charge $74,030 and $66,596 to their in-state students, respectively. And UT Austin charges its out-of-state students less than $100,000 in tuition. Go down to #27, and you’ll see a four-way tie between Ohio State, the University of Minnesota, the University of Washington, and the University of Wisconsin. Among these four schools, Wisconsin charges less than $30,000 to its in-state residents, while out-of-state residents still pay less than $60,000. And yet, just two spots higher at #25, we see Notre Dame charging nearly $100,000 for its MBA…
Step 4: Look at the average long-term earnings of graduates from different schools
As you can see in Step 3, the up-front costs for top and mid-tier MBAs are all over the map—but ROI doesn’t stop there either. To figure out whether a difference in tens of thousands of dollars also comes with significantly better ROI, you have to look at average pre-degree salaries and average salaries after graduation. Forbes has done an interesting study on this.
- Earning potential with an MBA from a top B-school: For the most part, the most expensive schools in U.S. News & World Report’s top 15 also offer the best ROI, allowing MBA graduates to enjoy a huge paycheck increase. Harvard MBA students make around $85,000 before they start the program. Once they finish, they can start pulling in salaries of nearly $240,000 year. At Stanford, MBA graduates are estimated to go from a pre-degree $86,000 salary to a $255,000 salary upon graduation.
- Earning potential with an MBA from a mid-tier B-school: According to Forbes, this uptick from a five-figure salary to six figures persists even outside of U.S. News & World Report’s top 15 MBAs. The aforementioned Notre Dame MBA slightly more than doubles its graduates’ salaries, with a jump from $56,000 pre-degree to $140,000 post-MBA. The University of Illinois at Urbana–Champaign—ranked #39 by U.S. News & World Report—also pushes five-figure earners well into the six-figure range, with MBA candidates earning an estimated $49,000 before graduation and $126,000 after.
- Earning potential with an MBA from a low-ranked B-school: The data on post-degree salaries for lesser-known MBA programs is perhaps the most interesting. Schools that are not necessarily “prestigious” still offer good ROI in terms of long-term increases in pay for graduates. For lower-ranked MBA programs, post-graduation salaries do drop below $100,000. However, these five-figure salaries still tend to be more than double a student’s pre-degree earnings. To give a typical example, at Willamette University in Oregon, MBA students enter the program making an average of $25,000 a year and graduate to make $79,000 a year.
- The time it takes to earn back tuition costs at different schools: Another interesting thing here is that throughout Forbes’ list, it takes around four years for MBA students to recover their initial investment—no matter where they went to school. So there are some surprisingly similar ROI considerations between top, mid-tier, and lower-ranked or even virtually unknown MBAs.
Step 5: Understand the long-term debt of getting your MBA
There’s still one more aspect of MBA ROI that we haven’t covered yet: the amount of money you spend during your MBA studies as it relates to long-term debt. In all likelihood, you’ll have to take out student loans to pay for your degree—six-figure loans, in many cases.
For example, MBA students who graduate from Wharton Business School leave the program with an average of over $122,000 in debt. Others are graduating from top business schools with similar, if not higher, debt amounts.
In addition to the principal balance of student loans, aspiring MBAs need to account for the interest they’ll be paying on their loans. For example, for a Wharton MBA with student loans on 10-year repayment plan—assuming a 6.8% interest rate and total of $46,618 in interest charges—the debt totals about $1,400 in monthly payments.
How much debt you take on depends partly on how you want to live during your schooling. For example, do you want to live as close to the school as possible or perhaps on-campus? That decision can increase your rent and the money you need to borrow while you get your MBA. Are you comfortable having roommates? Can you eat cheaper food or do without other comforts that cost money, such as new clothes or traveling for vacation?
If you want to minimize your long-term debt (and thus enhance your ROI), you should plan your student budget before you actually begin your degree. Use a student loan calculator to decide how much additional debt you need to take on in order to stay comfortable and cared for so that you can focus on your business school course work.
Have you determined the ROI for your MBA yet? Do you have any questions? Leave a comment!