Business School Admissions: MBA Worth the Price Tag?

Posted by Math Mechanic on 5/9/13 9:52 AM

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Business school hopefuls tend to be most stressed about two daunting prospects: getting a great GMAT score and paying the cost of tuition for a great school.

The best schools in the country cost upwards of $140,000, not including living expenses. Factor in the fact that these schools are in expensive big cities like New York, Boston, Chicago, and Philadelphia, and the two years of business school can easily cost upwards of $200,000.

On the other hand, business school offers relative certainty in lucrative employment after graduation.

These same schools see graduating classes depart with average salaries of $120,000, making the heavy tuition bill less burdensome and more manageable. Of course, in extreme cases, students may need to borrow the entirety of their education in loans, and choose to take entry level management positions or nonprofit work. In this case, debt burden may amount to $150,000 and starting salary may be just a fraction of this obligation. Under these circumstances, it is reasonable to say that the cost of an MBA is not worth the benefits.

Synthesizing these considerations leads to a seemingly obvious but often disregarded conclusion: to justify the price tag, students should decide what they want to do as early as possible (during the business school admissions process) and research how much they will be paid in that role.

In business school, case studies and valuation exercises repeatedly hammer on calculating ROI to evaluate an investment, acquisition, or project.

ROI, which stands for return on investment, essentially calculates the percentage gain you hope to achieve by spending money now in order to gain increased future cash flows. As applied to an MBA itself, the money spent now in tuition and living expenses must be justified by a higher salary in future years. If the net present value of these cash flows is higher than the bill for business school, an MBA is a good investment; if it is not, then applicants are better suited using this money elsewhere.

Anecdotally, I have been amazed by how many smart business school students have not applied this MBA 101 lesson to their own lives. Many students unwisely used the two-year experience as a means of discovering what they enjoy – or simply enjoying “time off” as much as possible. Those who have left most satisfied with the investment are the ones who made a thoughtful ROI calculation early in the process, and recruited for companies intelligently as a result. 

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Tags: MBA admissions