Is Getting an MBA Degree Worth It? – Value & Costs of Business School
Is the MBA degree a victim of its own success?
“[E]asier access to an MBA has changed what the MBA means to employers,” writes C. S.-W., in The Economist. “Simply put, MBAs are no longer rare, and as such are no longer a guarantee for employment.”
More than 191,000 U.S. students graduated with advanced business degrees following the 2011-12 academic year, per Forbes. They accounted for approximately 25% of all graduate school degrees conferred in the United States, nearly triple the 1970-71 proportion. The next most popular advanced degree, a master’s in education, accounted for less than 24% of all graduate degrees in 2011-12.
Though surveys suggest the majority of MBA holders remain satisfied with their degrees, signs of an MBA glut are everywhere. According to Jordan Weissmann of The Atlantic, American universities produced 74% more business degrees in 2011-12 than 2000-01. Meanwhile, business school tuition rose 24% between 2009 and 2012, despite slight declines in pay for newly minted MBA graduates.
Today, top-tier MBA programs charge full-time students $70,000 or more per year. Add in extras like student health insurance, room and board, and program materials, and you’re looking at $100,000-plus in annual out-of-pocket expenses. Dorm-dwelling members of Harvard Business School’s class of 2020 can expect to pay more than $109,000 per year, before scholarships and need-based financial aid, per HBS.
But the outlook isn’t all bleak for business school grads. Glut or no, MBA programs afford unmatched networking opportunities, confer invaluable credibility that can unlock professional doors, and boost lifetime earning power for most graduates. Getting an MBA might be one of the smartest – and most lucrative – career decisions you ever make.
In the following sections, we’ll take a closer look at:
The Princeton Review identifies six distinct MBA formats:
U.S. News Grad Compass collects data on MBA program costs and admission criteria each year. Here’s a sampling of its 2017 tuition figures for prominent U.S. business schools, all ranked #30 or higher on its Best Business Schools list:
These figures don’t include room and board or other out-of-pocket expenses, nor do they incorporate forgone earnings.
Unlike certain other professionals, MBAs aren’t members of a closed professional guild. There’s no parallel licensing system for MBAs – no state bar or board of medicine. MBAs don’t “practice” as doctors, lawyers, or accountants do.
Very few jobs absolutely require an MBA. Plenty of C-suite executives lack graduate business degrees, for instance. Execs who work their way up a single corporate ladder might never have the opportunity or inclination to pursue such degrees, and their bosses might not penalize them for it.
That said, plenty of employers require or prefer MBAs for specific positions. Larger, publicly traded enterprises are more likely to be sticklers about this. If you’re applying for a senior or executive vice president role at a Fortune 1000 company, you’d better have an MBA. MBAs are particularly prized by investment banks and management consultancies, whose objectives align nicely with MBAs’ skills.
Should you get an MBA? Ask newly (and not-so-newly) minted MBAs and you’ll likely hear some variation of these arguments in favor:
Even those down on MBAs – and there are plenty – agree that MBA programs are great for participants’ professional networks.
“The connections you make [in your MBA program] are, for many, the single most valuable aspect of the MBA,” writes U.S. News & World Report contributor Stacy Blackman. “Your alumni network helps you stay connected to the university as well as to countless professional opportunities you can tap into throughout your career.”
And you don’t necessarily have to finish your MBA program to reap the networking benefits. LearnVest founder Alexa von Tobel never finished her Harvard MBA, but that didn’t stop her from raising nearly $70 million, per Crunchbase.
According to research from Graduate Management Admissions Council, 79% of employers expected to hire MBAs in 2017. Nearly 60% expected base salary increases for MBA grads to outpace the rate of inflation. And nearly all agreed that MBAs added value to their organizations.
These encouraging stats continue a years-long trend. Though your personal marketability depends on more than your MBA, getting a graduate business degree definitely tilts the playing field in your favor.
Reputable MBA programs should pay for themselves – and then some. StartClass calculated the average return on investment (ROI) for the top 50 U.S. business schools, using the following methodology:
“We…calculated the projected 10-year salary of someone without a business degree and subtracted that total from the projected 10-year salary of a business school graduate from each of the top 50 schools. The schools are ranked according to the difference between their 10-year new salary and their 10-year pre-MBA salary.” The ranking built in a 3% annual across-the-board salary increase.
ROIs at elite business schools like Stanford Graduate School of Business and Harvard Business School exceeded 300%. ROIs at well-regarded state schools like Arizona State University exceeded 250% – at considerably lower out-of-pocket cost.
For more context on raw annual earning potential, check out U.S. News’ post-graduation earnings rankings for elite U.S. business schools.
Every MBA program is different. Some tout lucrative or fashionable subfields, such as social entrepreneurship, that can pay dividends for students’ careers. Applying for an MBA program that offers specific credentials or opportunities to specialize is a great way to bolster your CV without applying for jobs that promise real-world experience. Depending on your current credentials and skill sets, getting into an MBA program might be easier than getting such a job anyway.
Your two-year MBA interlude – longer, if you opt for part-time or online – is a once-in-a-lifetime opportunity to hit “pause” on your career. The chance to reflect on where you’ve been and where you’d like to go is invaluable. So is the prospect of getting “outside” your specialty and connecting with talented people with whom you’d ordinarily have no professional contact. You might end your MBA program in a completely different professional space than you expected.
MBAs aren’t for everyone for the following reasons:
If your medium-term goal involves founding and scaling a new business, or at least getting in on the ground floor, think twice about devoting a year or more to your MBA. No MBA program is an adequate substitute for real-world experience.
“If your dream is to be an entrepreneur, then I can’t think of a more wasteful path measured in time or money than getting an MBA,” says Casey Allen, five-time entrepreneur, startup investor, and organizer of the Minneapolis-based Enterprise Rising Conference. “You wouldn’t get a masters in mechanical engineering to become a plumber, after all. Go work for the fastest growing startup that will hire you and buckle up.”
“MBAs rarely make great founders but they’ll often make a great 200th hire,” he adds.
Many business schools have in-house entrepreneurship programs that cater to entrepreneurially minded students. In Allen’s hometown, the Holmes Center for Entrepreneurship at the Carlson School of Management is a vibrant startup nexus whose MN Cup competition helps countless early-stage enterprises gain traction. But it’s not closed to nonstudents – any ambitious founder can apply without coughing up two years’ tuition.
Few youngsters aspire to semi-anonymous careers in investment banking – at least, until they learn how lucrative the i-banking track can be. But Allen cautions against a single-minded pursuit of financial comfort. Happy MBAs are passionate about what they do, and more likely to be successful in the long run.
“It’s worth remembering that B schools have customers,” he says: investment banks, management consultancies, and Fortune 1000 firms of all stripes. “If those destinations don’t unequivocally get your blood pumping, then an MBA is a very expensive detour to getting to where you really want to go.”
This is self-evident. Yes, top MBA programs promise impressive returns on investment, but it takes years to realize those gains. In the meantime, you’re out tens of thousands of dollars per year. If you’re committed to your likely post-graduation career track, per Allen’s advice, then cost in and of itself isn’t reason to mothball your MBA dreams. But it’s certainly prudent to delay applying until your financial position is stronger.
If you want to practice law in the United States, you’d better have a law degree. (Except in Arizona, but that’s another story.) If you want to practice medicine in the United States, you’d better have a medical degree.
If you want to run a company of your own one day, you’d better…work hard and get lucky.
Nowhere is it written that you must have an MBA to gain entry to the C-suite. And governments could care less whether the folks running locally domiciled companies have advanced management degrees, so long as they don’t cheat on their taxes.
According to Heidrick & Struggles’ “Route to the Top 2017” study, “just 35% of U.S. CEOs have an MBA, which is down 42% from the year before.” Fortune 1000 companies may be more discerning about C-suite candidates’ credentials, but it’s safe to say that you won’t be blackballed by top companies simply because you lack an MBA.
Every business school pays lip service to diversity. Most have made real strides toward diversifying their MBA programs, which until relatively recently were largely the province of white men. But progress hasn’t come quickly or uniformly, and much work remains to be done. In fall 2016, per U.S. News, just 36.8% of matriculating full-time MBAs were women.
Plenty of schools do better than this, and men are in the minority at some (again, per U.S. News). But alumni network composition lags graduating class composition by years or decades, keeping networks of “old boys” entrenched long past their expiration dates. Look for business schools that back up progressive rhetoric with demonstrated support for women students and alums.
Once you’ve weighed the pros and cons of getting an MBA and decided to take the plunge, you need to choose an MBA program. With so many programs to choose from, you’ll need to narrow down your options before you send in your first applications. Consider these factors:
So, you think you have what it takes to get an MBA – and expect the move to pay dividends for your career. Here’s what you need to know about preparing and applying for graduate business school.
Business schools intentionally select students from a range of academic, cultural, and socioeconomic backgrounds, so pigeonholing a “typical” MBA student or pre-MBA track is difficult. For instance, it’s no longer the case – if it ever was – that business schools only accept applicants with economics or undergraduate business degrees.
Still, you’ll need to start laying the groundwork for your MBA program application years in advance of your expected matriculation. This is a general outline of what to do and when:
Every business school admissions office has its own proprietary selection process. While these selection criteria are all but universally scrutinized, each office applies its own particular weights and emphases. Talk to past applicants and students to get a general sense of what to expect from candidate schools.
Don’t let anyone pressure you into getting an MBA – or dissuade you once you’ve decided to go for it.
“‘Should I get an MBA?’ isn’t a question that anyone can really answer for you unless they help you draw a decade-long decision tree on a whiteboard,” says Casey Allen.
If you do poll your friends, family, and colleagues about the relative merits of getting an MBA, take their responses with a hefty dose of salt, he adds. You know yourself better than anyone.
Do you have an MBA? Was it worth the trouble?
Brian Martucci writes about frugal living, entrepreneurship, and innovative ideas. When he’s not interviewing small business owners or investigating time- and money-saving strategies for Money Crashers readers, he’s probably out exploring a new trail or sampling a novel cuisine. Find him on Twitter @Brian_Martucci.
Is Getting an MBA Degree Worth It? – Value & Costs of Business School
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