Which MBAs Offer a Good Return on Investment?

It sounds like a good assignment for a master of business administration class: Which master of business administration (MBA) programs offer the best return on investment (ROI)?

The question isn’t just academic. Obtaining an MBA generally takes two years, attending full-time. Unless you receive financial aid (and many students do), tuition and fees can easily run you $40,000 to $50,000 a year at most schools, far more at the top private ones. Room and board can add another $15,000 to $20,000 or more per year. All told, you could be looking at a cost of $150,000 and up. And don’t forget the opportunity cost of the money you would have earned if you’d spent those two years working instead of studying.

Key Takeaways

  • A master of business administration (MBA) is a two-year graduate degree focused on business and investment.
  • MBAs are expensive, possibly costing $150,000 or more depending on the school.
  • The cost of an MBA does not take into consideration the opportunity cost of not working a job while you obtain your degree.
  • Most MBA graduates confirm the degree is worth it, leading to better quality jobs and better-paid jobs.
  • When deciding on an MBA program, it helps to look at the return on investment (ROI); the salary obtained from a job once graduating compared to the cost of the program.
  • If the graduates from two schools earn the same salary then the lower-cost school is the better value.
  • ROI when comparing schools does not take into consideration the prestige and alumni networks of higher caliber schools.

Fortunately, an MBA is often worth the investment, at least in the opinion of men and women who have one. When asked, “Knowing what you know now, would you still have pursued a graduate management education?” a mere 7% of current MBA holders said they definitely or probably wouldn’t have gone for the degree, according to the nonprofit Graduate Management Admission Council’s 2018 Alumni Perspectives Survey.

But some MBA programs pay off better and faster than others. That’s where the return on investment comes in.

Calculating and Comparing ROI

The long-term ROI of MBA programs is difficult to measure, as is comparing one college to the next. While anecdotal evidence suggests that an MBA from a prestigious school like Harvard, Stanford, or Wharton will take someone further in their career than one from Podunk U., many other factors come into play, including the particular industry and, most importantly, the individual.

Short-term ROI is another matter, however. One common way to look at it is to compare tuition costs to average starting salaries, often referred to as the “value-added ratio.” If two schools’ graduates earn roughly the same amount, the school with the lower tuition is presumably the better deal.

More recently, another measure has come into vogue: comparing average starting salaries and the amount of debt students had to take on to earn their degrees. The advantage of this approach is that it takes into account costs other than tuition; the disadvantage is that it represents only students who borrowed to pay for their programs rather than the entire universe of MBA grads.

One Study’s Top Rankings

U.S. News & World Report published a list on May 13, 2020, of what it called the “38 MBAs With the Highest Return for Grads Earning $100,000-Plus.” The data is from 2019 and the salary figures include any signing bonuses and reflect what students were earning within three months of graduation.

The school with the highest return, for example, was the University of Massachusetts-Amherst’s Isenberg School of Management, with an average salary and bonus of $131,388 and average debt of $18,328, for a salary-to-debt ratio of 7.2 to 1. In second place was the Warrington College of Business at the University of Florida, with an average salary and bonus of $126,162, average debt of $23,176, and a salary-to-debt ratio of 5.4 to 1.

The other eight, in order of highest to lowest salary-to-debt ratio, were:

  1. The Terry College of Business at the University of Georgia
  2. The University of Wisconsin-Madison
  3. The W.P. Carey School of Business at Arizona State University
  4. The University of Texas-Dallas
  5. The Foster School of Business at the University of Washington
  6. The Zicklin School of Business at Baruch College
  7. The Smeal College of Business at Pennsylvania State University
  8. The Poole College of Management at North Carolina State University

Short-term ROI isn’t everything, of course, especially if things like prestige, connections, or a powerful alumni network are important to you. In the U.S. News & World Report’s best business school rankings for 2021, eight of its ROI winners made the top 20.

  1. The University of Washington’s Foster School
  2. Harvard University
  3. The McCombs School of Business at the University of Texas
  4. The University of Virginia
  5. The Haas School of Business at the University of Berkeley
  6. Stanford University
  7. Yale University
  8. The Kenan-Flagler Business School at the University of North Carolina

Do It Yourself

If you want to do your own ROI research, you can generally obtain tuition and living-cost information on the b-schools’ websites (search by the school name “cost of attendance”). Those figures won’t take financial aid into account, so if you think you might be eligible for either need-based or merit-based assistance, a quick call to the schools’ financial aid offices could be worth your time.

Remember that some types of financial aid are better than others. Grants and fellowships, which don’t have to be repaid, will reduce your bill, while loans just stretch your payments over a longer period (and incur interest as well).

Calculating ROI using starting salaries does not take into consideration future salaries that might be higher if one attended higher-ranked schools. However, after a few years in the workplace, it is experience and talent that make more of a difference.

If you don’t already have a good idea of starting salaries for MBAs in your chosen field, check one of the major job sites for current openings and what they pay.

Once you have all that information, you can compute your own salary-to-debt ratio for each school. Even if you aren’t planning to borrow, that can be a good benchmark for comparison.

You can also take it a step further and create a more personalized ROI for yourself. Start by subtracting your current (pre-MBA) salary from your likely MBA salary, then divide the total cost of your degree by the result. Doing that will give you an idea of how many months or years your MBA will take to pay for itself, which might be useful to know if you’re still deciding whether or not to go for one.

The Bottom Line

An MBA degree is a serious investment that can easily run you $150,000 or more, not including lost wages. Unless a generous employer is footing the bill, one of the many factors you’ll want to consider in choosing a school is the return on investment (ROI) for your degree.

If you’ll be taking on debt to finance your education, calculating the ROI for each school on your list can help you determine how long it will take you to pay off that debt, given your likely starting salary after getting the degree.

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