That’s probably the first question that came to mind when you thought about going back to school. It’s not an easy question, and there’s not an easy answer.
Return on investment — the ROI of the MBA — is multi-faceted. You not only have to look at your salary to debt ratio, but you also have to consider the time investment, career progress, network, and even skills and lessons learned.
So, how do you calculate ROI and determine if an MBA is right for you?
Salary VS Debt
The first place to start is with money. The average salary you can expect to make after graduation should be compared with your total debt to see if it’s worth it.
According to data submitted to U.S. News, the typical MBA student from the Class of 2015 finished his or her degree with just over $50,000 in debt. When you compare that debt to the average starting salary of their 129-ranked schools—$91,940—you’re looking at a long time to pay off your debt, but what does it mean for your ROI?
To calculate your return on investment, you also have to take into consideration your starting salary. Let’s break it down.
Andrew Josuweit, Founder and CEO of Student Loan Hero, recommends calculating ROI of the MBA by subtracting your current salary from your expected future salary. Then, divide that number by the total cost. Total cost includes not just debt but also forgone income and accumulated interest on a 10-year loan.
So, let’s say you’re an MBA grad who earned $65,000 before going back to school. Then, after graduation you earn $100,000 and have $55,000 in student debt.
- Total Cost = $65,000 + $65,000 + $55,000 + interest = $195,000 total cost
- ROI = ($100,000 – $65,000)/$195,000 = 17.9% debt to salary ratio
The lower this percentage, the harder it will be to get a return on your investment. In this case, a 5.6-to-1 debt to salary ratio doesn’t necessary mean your MBA won’t pay off, it just means that salary-wise, it’s not the best investment, and you need to consider other parts of your MBA.
Career Progress
The second part of your ROI has to do with your career progress after you graduate. For most individuals, it’s going to be easier to see a solid return on investment if you’re younger when you go back to school. For example, a Financial Times study looked at MBA graduates of varying ages to see who received the greatest benefit.
Students aged 24 and under saw a salary increase of nearly $69,000 in three years after graduation, up 145% from their pre-MBA salary. Students aged 27 to 28 years old had a pay increase of $67,000, a 100% increase in their pre-MBA salary. As for students aged 31 and older, they only saw a $56,000 increase in their salary or just a 70% increase from their pre-MBA salary.
However, age also changes the type of ROI that an MBA student desires. The same study found that younger MBAs were most concerned about their pay while older MBAs were most concerned with developing their skills.
A 29-year-old Columbia student said,
“The MBA was a crucial stepping stone for my career. As expected, it did not immediately catapult me to a senior management level but provided a strong base to join a development program in a top ranked Fortune 500 company and to [progress] quickly.”
While the 22-year old said,
“Although [this meant] I entered investment banking at analyst level because of my lack of work experience, I was promoted to associate after only two years. My MBA provided a strong foundation to build on.”
For MBAs who want to make the biggest leap in their career, the Economist recommends attending cheaper and shorter MBA programs, where you have to give up less time and money to get the return you’re looking for. Schools such as Wharton cost a lot and provide a smaller jump in salary and position, requiring you to wait longer to receive your ROI.
Networking & Education
However, for some students, Wharton is the best option because it’s all about networking and education. For many MBAs, their network is intrinsically tied to their net worth. The right network can open doors to your dream employers, investments for your startup, and more.
For MBAs interested in networking and education, the quality of the program is key to increasing satisfaction. Students who attend prestigious universities such as Harvard Business School, Stanford, or Wharton will earn their education alongside notable alum and classmates.
For example, Harvard MBAs could add individuals such as Meg Whitman, George W. Bush, and Jamie Dimon to their network of influencers.
As for education, not every MBA program offers the same opportunities or classes. Since many MBA students go back to school solely to increase their business knowledge, leadership, and management skills, choosing a program that matches professional growth desires holds more value than salary or cost.
ROI of the MBA – Alumni Views
Overall, according to a detailed infographic on INC.com, MBAs reflect highly on their schooling. Most graduates report earning:
- 1/3 of their investment back over the first year of work.
- 100% of their investment back four years post graduation.
- 200% of their investment ten years after graduation.
In fact, 94% of MBAs rate their MBA as offering good to outstanding value compared to the total cost of their degree. They see it as personally, professionally, and financially rewarding. Plus, 96% would recommend an MBA to others.