(Bloomberg Businessweek) -- When it comes to enrolling in business school, savvy consumers might already know that spending more doesn’t necessarily mean a better return on your investment. Students tell us that increasing their earnings is a top reason for getting an MBA, so we want to be sure all prospective B-school applicants know this, too.
Bloomberg Businessweek’s new ROI calculator is designed to help students evaluate the numbers to determine whether the time and expense of getting the advanced degree is worthwhile. The tool, which uses data reported to Bloomberg by MBA graduates for our annual Best B-Schools Rankings, includes factors such as loan interest and income foregone while enrolled.
Let’s take a look at some numbers. The median cost of getting a degree from the Wharton School at the University of Pennsylvania was $266,000 in today’s dollars, including tuition and other living expenses, according to survey respondents who graduated from 2014 through 2023. That’s the highest among the 77 US schools in our 2023 rankings. Yet, Wharton was eighth in the estimated 10-year difference between post- and pre-MBA compensation, and 19th in reported signing bonuses, the surveys show.
The bottom line, according to calculations based on survey data and Bloomberg estimates: The typical Wharton graduate could expect a 10-year net return on investment of about $678,000, or a compounded average rate of roughly 9% a year.
Compare that with the Stanford Graduate School of Business. Its expenses were the third highest and about $250 less than Wharton, but it had the biggest 10-year difference between post- and pre-MBA compensation, about $295,000, versus $220,000 for Wharton, more than overcoming a median signing bonus that came in 32nd place, the survey responses show. All that adds up to an ROI of just upwards of $1 million and 11.9% a year.
Our new tool allows you to enter your own figures or accept median estimates for any one of the 77 US schools or the median estimates for all schools combined. You’ll get a net 10-year ROI in dollars and a compounded average annualized ROI percentage. You can also use the tool to compare top-ranked schools with smaller, more affordable ones, such as the University of Kentucky’s Gatton College of Business and Economics, one of four programs with median expenses of less than $50,000.
Gatton has the highest annual ROI percentage we calculated—almost 24%—largely because it’s an 11-month program (most full-time MBA degrees last closer to two years). Shorter programs reduce the amount of time the student stays out of the full-time workforce. (Read our Methodology.)
Of course, selecting a school or even choosing to pursue an MBA isn’t just about the numbers. Students, administrators and employers point to many factors that can’t be easily quantified, including career goals, professional networking opportunities, where you want to or have to live, as well as other personal and family considerations.
“It’s important for a student to enter any education program with a whole heart, and feeling that this is the right decision for them,” says Gale Nichols, executive director of the MBA program at Indiana University’s Kelley School of Business. “They have to be prepared to put in the effort that’s needed to succeed.”
Schools are making more of an effort to help prospects and students evaluate their choices. “How do we align the options in the curriculum, based on your career goals, where you’re coming from and where you want to go, in a way that gets you through an investment and to a place where you want to be?” asks Ayman Omar, associate dean for graduate programs and student services at American University’s Kogod School of Business. It goes beyond asking questions on an application or in an interview: “Our role is not just to say, ‘Good luck, we’ll see you on the other side,’” he says.
From Day 1 at Kogod, the focus is on ensuring students land a job that aligns with their goals, Omar says: “We’re very upfront—as they apply, before they get to campus, as they start orientation and classes—to talk to them about, ‘What’s your next step after the program, and what’s your next step after that?’” Workshops, courses, activities and meetings throughout the 21-month program are aimed at maximizing the opportunities available to students once they graduate.
“Realistically, we’re all starting with those same Day 1 questions,” says Alex Sevilla, vice provost for career advancement and engagement Vanderbilt University who’s also a former vice dean at the University of Florida’s Heavener School of Business. Over the past two decades, Sevilla says, business schools have greatly expanded their portfolios to include part-time, executive MBA, specialized and online programs. That’s in part a result of the focus on ROI, from students of diverse ages and backgrounds. “The conversation of ROI is permeating more and more into the university ether,” he says. “At the end of the day, it’s about the long play of the perception of the institution.”
Tina Mabley, an assistant dean and director of the full-time MBA program at the University of Texas at Austin’s McCombs School of Business, says she and her colleagues don’t shy away from tough conversations with prospects. “The application you put in to business school, that should be your road map for what you’ll do with the MBA. You need to know why you’re coming back and what you plan to do to get the most out of what we have to offer,” Mabley says. “There are so many resources available, you need to know how to optimize those.”
Answers to many of these questions come more easily to some candidates than others. Applicants who’ve been out and working for several years have had the benefit of a job (or jobs) to fine-tune their career goals. While most full-time MBA programs in the US require several years’ worth of work experience to apply, many now accept candidates straight out of college. That timing will affect your earnings over the course of your career. “With the rise of specialty MS programs, we see interested MBA applicants skewing younger,” says Amy Cathey, associate director for graduate and executive education at the University of Tennessee’s Haslam College of Business. “So we always ask, ‘In your journey, what timing is right so that the MBA pays off the most for you?’”
Which brings us back to the numbers. As Mabley says, to make better decisions about which school can best deliver, “you want the numbers to work out, period. You don’t want it to go the other way.” Our tool is here to help.
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