Can I Afford an MBA?
What’s your return on investment for an advanced business degree?
By Sonya Stinson
It’s a smart question. With the price tag of top-rated MBA programs exceeding $100,000, and plenty of buzz from commentators questioning the value of the degree, anyone contemplating a return to B-school is understandably concerned about the affordability and payoff of the investment.
A comparison of pre-and post-MBA salaries shows the income boost from that graduate diploma can be pretty substantial. The deal gets even better if you can take advantage of financial aid to defray your cost. Your cost calculations must factor in not only the tuition and living expenses but also the income you will lose if you take time away from the workforce to pursue your degree. To figure out whether your expected return on investment (ROI) will make it all worthwhile, do some homework to find out what MBA grads in your field are earning, says Lorri Saddler Rice, director of MBA admissions at Clark Atlanta University in Atlanta, Ga.
“If you compare your financial investment [with] what you’re expecting your salary to be, and that salary is greater than the [money] that you walked away from, you can kind of run the numbers and get your return on investment,” Rice says.
Let’s say you’re in the early stages of your business career with a bachelor’s degree under your belt. The median salary for a BBA in accounting with one to four years of experience is $41,018, according to Payscale.com. With an MBA, that figure rises to $54,040 for a financial analyst and $86,634 for a financial controller. A BBA in marketing captures a median salary of $39,889 for one to four years of experience. For marketing managers with MBAs, the midpoint is $72,583, while the median salary for marketing directors with MBAs is $109,690.
Graduates of Howard University’s MBA program typically pull in six-figure offers, according to Kim Wells, director of administration and finance at the Howard University School of Business in Washington, D.C. “We have found that students coming out of the program have total compensation packages worth over $105,000,” Wells says. “That puts us competitive with many programs.”
The University of Chicago’s Booth School of Business, whose MBA program topped BusinessWeek’s 2010 rankings, saw its average pay for graduates reach $102,000, the magazine reported. That’s about even with the $103,360 in tuition and fees that it costs to complete the two-year program. At second-ranked Harvard Business School, total tuition and fees were $112,400, while post-MBA pay averaged $110,000.
But don’t assume that you have to go to a Top 10 school to see your MBA investment pay off. Van Muse, director of MBA programs at California State University’s Fullerton’s Mihaylo College of Business and Economics, points to two recent studies led by Grady D. Bruce, a university colleague, which dispel that notion.
“The conclusion [the studies] came back with was that state schools, in general, had a higher ROI than private institutions,” says Muse, who acknowledges that generality may not hold in the case of private schools with extremely high reputations. “They also saw that schools that are out of the top 50 programs had a higher ROI than schools that are in the top 50, and less time [is] required to pay off your debt.”
Your bet on the MBA will be safest if you choose a reputable business school that’s accredited by the Association for the Advancement of Collegiate Schools of Business (AACSB). “There are other accrediting bodies out there, but AACSB has the most stringent standards that we have to abide by, from the standpoint of faculty, the research they do and the structure of the school,” Muse says.
And when it comes to the competition for jobs after graduation, Muse believes both school name recognition and strength in your chosen discipline are important.
Timing is Everything
If you are still in undergraduate school, or less than two years out of undergraduate school, most MBA programs aren’t that eager to enroll you. They want students with work experience.
“One of the things that concern me greatly is that, with the economy and with the challenging job market, there are candidates that are considering going directly to business school and not getting full-time work experience,” says Julie Barefoot, associate dean of MBA admissions for the Goizueta Business School at Emory University in Atlanta, Ga. “That is just not a good idea, because those candidates are selling themselves short.”
While Barefoot says law schools and medical schools treat students like “empty vessels,” filling them with all of the knowledge considered necessary to enter their respective professions, that’s not so with graduate business schools,where students with a diversity of backgrounds make important contributions to the learning experience.
Jodi Schafer, director of MBA admissions at the University of Iowa, says her school, like most major MBA programs, also prefers students to have work experience. “That being said, if you were going straight into an MBA program from an undergraduate program, the way that you would bridge that gap is to have some internships,” she explains.
B-schools aren’t the only ones who are less than impressed when you jump straight from your undergraduate degree into an MBA program. “The biggest piece with regard to work experience is that it makes the students more marketable to corporate recruiters,” Rice says. “The MBA alone is probably, in this day, not enough. It’s the combination of the MBA and the professional experience that’s going to make for a stronger candidate in an interview situation.”
Wide Range of Resources
Once you start applying to MBA programs, the one thing you don’t want to delay is completing and sending in the Free Application for Federal Student Aid, which is required to qualify for federal grant and loan programs. Muse’s advice is to get the form in at least two or three months before you plan to enroll.
Along with federal aid, there is a broad range of assistance available from private sources. Merit-based awards include national programs like the National Black MBA Association’s scholarships, the Fulbright Scholarship and the Consortium for Graduate Study in Management, as well as university scholarships. Other sources for both merit- and need-based awards include corporations, churches, fraternities, sororities and nonprofit organizations.
“Many of your top accredited business schools offer merit-based scholarships, and you want to put yourself in the best position to be eligible for some of those scholarships,” Rice says. “A lot of them are driven by a combination of your undergraduate GPA plus your GMAT score. Depending on how long you’ve been away from undergraduate school, your undergraduate GPA is what it is, so the only element you can impact is your GMAT score. I think the best thing a candidate can do is really prep for the GMAT and score as high as possible, which makes a good academic profile that puts [the candidate] in a good position for scholarship consideration.”
Schafer says a good starting point for your financial aid search is the admissions office at your targeted MBA school. “The office of admissions typically has merit-based financial aid, and there are certain scholarships that are generally set aside for minority candidates,” she says. “In some cases, those go unfilled.”
Be sure to look into opportunities for graduate assistantships, which can provide cash for living expenses, and research and teaching assistantships.
“For our full-time MBA program…a lot of students receive graduate assistantships,” says Beth Walker, associate dean of the W.P. Carey School of Business at Arizona State University, who adds that at least 75 percent of the program’s full-time students receive some type of university-based aid. “Their tuition is waived and, in addition, they might receive a cash scholarship.”
Sources for loans include the federal Stafford and Graduate PLUS loan programs, as well as private lenders. Rice says even scholarship MBA students at Clark Atlanta typically use loans to subsidize their living expenses. If you think you might need a loan to help finance your MBA, she offers some tips. “Obviously, loans are credit-driven, so having a decent credit rating puts you in a good position to be awarded a loan,” Rice explains. “Whether or not the institution you are considering has access to federal loans plays a role as well. Most programs that are accredited are in a position to award federal financial aid, but you would certainly want to look at that.”
Alternatives to Full-time Study
Those who wish to continue drawing a salary while pursuing the MBA can opt for a part-time program designed for working professionals, such as the executive MBA, or even choose from a growing number of online MBA programs. One drawback is that it may be more challenging to find financial aid.
“Typically, there are no scholarships for working professionals’ programs, but that is changing,” says Barefoot of Emory, which was No. 10 in BusinessWeek’s executive MBA program rankings. “We have had some merit-based scholarships for quite a few years. They are more limited, but we do offer them.”
California State-Fullerton offers the part-time FEMBA (Fully Employed MBA) program at its Irvine campus, and a full-time program at Mihaylo College of Business on the main campus will start in fall 2011. The program is tailored for those who are at least five years out from earning their bachelor’s degrees, Muse says. “Our average work experience in the program is eight-and-a-half years.”
Employer sponsorship is an avenue worth looking into if you are seeking a way to fund an executive MBA, but Barefoot warns those perks aren’t as sizeable as they once were. “In the good old days, companies were very generous with their scholarship support,” she says. “For an executive MBA program, it wasn’t unheard of for the company to fully pay for the degree. But those days are pretty much gone.”
These days, Barefoot estimates that the average amount of corporate aid for employees attending an MBA school is about $5,000 a year. “Sometimes a company will provide more if the employee promises to stay for a certain period of time after graduation,” she adds.
Ashutosh Deshmukh, program chair of the online MBA program at Pennsylvania State University, says the program was one of only a handful in the nation (others included Indiana University, Arizona State University and the University of Florida) when it started in 2002.
“The mission of our program is to take managers who are at the mid-level and want to move into the senior ranks,” says Deshmukh, who estimates that 50 to 75 percent of students in the program receive some level of employer support.
Money Not the Only Reward
The possibility of landing a six-figure job after graduation may already have you convinced that the answer to the question, “Can I afford an MBA?” is “How can I afford to pass it up?” But MBA school reps interviewed for this article say the rewards extend beyond the chance to fatten your paycheck.
“I think [the MBA] is one of the most flexible graduate degrees out there,” Barefoot says. “For individuals who want to perform successfully in a corporate career or in the nonprofit arena, it’s critical that they have analytical and business skills, that they understand how best to motivate people, that they understand how to review financial statements about performance, and that they have a good handle on what makes organizations successful from a financial perspective.”
Says Wells at Howard University, which is making a big push to develop opportunities for its MBA students to study abroad, “The MBA is one of the more strategic ways to become and remain relevant in today’s competitive global market.”
Rice acknowledges that many people have recently questioned not only the value of the MBA, but also the competence of the business professionals holding the credential. Yet she maintains it’s well worth the effort.
“Despite what we’ve heard recently about MBAs and how they’ve thrown this economy into the tailspin that it’s in, I still genuinely believe there is a real value to getting an MBA,” Rice says. “Beyond the academic value and making a good investment is the network — the classmates and alumni connections that you gain. That’s just invaluable.”
In the end, Deshmukh says, in order to decide whether an MBA is worth your investment of time and money, you must first determine your personal objectives in obtaining the degree. “Unless you have a very clear understanding of where you are going, you will get no benefit out of the program,” he says.