Investing in Your Career: What's the ROI of an MBA?
Tuesday, March 13, 2018
If you're thinking about investing in your career by applying to an MBA program, understanding the possible return on investment (ROI) of a graduate degree in business is likely top of mind.
Both cost and benefits of an MBA need to be considered before you make your final decision. For most people, the clearest way to determine the full picture is to assign numbers to these items and do a little math.
One tool to determine ROI of an MBA is calculating the salary-to-debt ratio. To calculate, you'll need all costs associated with your MBA and an estimate of future salary. For a more accurate calculation include forgone salary and interest incurred on any loans in your cost.
Determine the Costs
Start with tuition rates for the MBA program you’re considering. The average yearly tuition costs for an MBA may be around $50,000 or more. Here at Krannert, our Full-Time MBA program starts at $44,836 a year.
It should be noted that many schools offer graduate assistantship opportunities and scholarships, — information on Krannert GAs, financial aid, and scholarships can be found here — as well as the ability to apply for federal aid.
In addition to the cost of tuition, you need to determine living expenses, including possible cost of living changes if you move to a new city. Cost of living needs to be part of the equation and can make a huge difference in the amount of debt, if any, MBA graduates exit with. While major metropolis cities like New York City and Chicago may be tempting destinations, consider the substantial difference of costs on items like rent, groceries, and even taxes when comparing to programs from other areas. We have a cost of living chart that can help with obtaining your numbers.
Your Return: An MBA Salary
When looking into different MBA programs, most universities include post-graduate information from prior classes that will tell you the employment rate and average salary.
Calculate Salary-to-Debt Ratio
Now that you have your numbers ready, it's time to determine the MBA program’s ROI. Subtract your current salary from expected future salary and then divide that number by the total cost (debt, forgone income, and accumulated interest on the loan).
Keep in mind, a low salary-to-debt ratio doesn't necessarily mean a low return for your investment. It doesn't take into consideration salary a few years out from graduation, and, instead, only looks at the salary immediately after graduation. A few years after graduation your salary will likely increase, resulting in a higher return on investment. It is estimated that MBA graduates earn $500k to $1M more than their non-MBA colleagues during a 20-year span.
We hope this information helps you determine the costs and benefits of an MBA. Deciding to invest in your career can be daunting, but the good news is 19 of the past 20 years have seen a positive ROI on an MBA investment by three years after graduation. If you choose a highly-ranked school with an affordable cost of living, like Krannert, the return will be worth your investment.