The past 12-18 months have been immensely difficult for everyone around the world in many ways, not least of all financially. Millions of people have faced pay cuts and layoffs as businesses around the world scrambled to stay afloat.
Business schools have had to adapt as well, with most of them moving to an online or hybrid delivery model at least for the time being. While the impact these changes have brought about in the MBA experience is a fascinating subject to discuss, one thing that hasn’t changed in the past year, or indeed in many years, is the huge cost of top MBA across the world, particularly in the United States.
With the increased financial pressure felt across the globe, we’re going to look at the cost of attending an MBA program, and whether attending these programs justifies their cost.
What does an MBA cost today?
The cost of higher education has been a pain point for many applicants over the decades, and it’s not hard to see why.
If we look at the top schools in the United States, thirteen schools have an estimated total cost (tuition + living + related expenses) in excess of $200,000, with the next dozen not too far behind.
At the time of writing this article, the highest tuition fees in the US are charged by the Dartmouth Tuck MBA at a whopping $77,520 per year.
The annual cost of MBA programs in the rest of the world can be just as high, however the fact that most programs in Europe and the UK are 1-year programs, the total cost would typically be close to half of their US counterparts. For example, the tuition fee alone for the London Business School MBA program is c. £92,700 (c. $130,000) while the 10-month MBA at INSEAD could cost you close to $130,000 in total as well.
We know. Yikes!
As per Investopedia, the median household income in the United States was close to $65,000 in 2018, the disparity between income and the cost of these programs is clear. Not to mention the fact that typical MBA candidates are in the 4–8-years’ experience bracket and therefore haven’t scaled to the top of their income capability by any means.
For candidates who come from other countries, the situation can be even more difficult. Many Asian countries for instance have an average annual income of under $5,000 a year due to the disparity of development and currency exchange rates.
We’ve looked at a lot of numbers and clearly, the cost: benefit of an MBA doesn’t quite add up.
Because while the costs are undoubtedly high, to gain a better understanding of this situation we need to examine three other key elements of this equation as well, to reach a logical conclusion.
Funding and Scholarships
Business schools are aware of the financial burden the program cost can put on its students, and the top programs try to provide the best financial support to those who need it the most.
Schools have enormous endowment funds, often supported by alumni, which are used to reduce the burden on students. To quote the Harvard Business School website, “At HBS, we consider getting your MBA a shared investment in your future.”
They don’t just talk the talk, which is seen by the fact that they give out $43 million in aid every single year, and also provide an average need-based scholarship of $84,000 over the two-year program. HBS is by no means alone in this, and you can find similar contributions and scholarships available at most of the top schools in the world.
As the name indicates, need-based scholarships go to those who come from weaker financial backgrounds, such as the low-income households and countries we spoke about earlier.
In addition to need-based scholarships, schools and external organizations also offer merit-based scholarships to deserving students. Some of these are open to all applicants, while others are for specific sub-segments based on gender, economic background, prior industry experience, etc.
Most school-funded merit-based scholarships are awarded just based on your MBA application itself. That’s why even if you feel you have a strong profile, it is vital to craft a perfect application and tell your story the right way so that you not only secure a seat but also can get a massive financial advantage!
Immediate financial return
One of the key factors which are considered when schools are ranked against each other is indeed the statistics related to compensation received by their graduating students. As per a report by US News, the average salary paid to MBA graduates in 2020 among 132 colleges in the United States was $101,034. If we look at the very best colleges (top 25), this number rises even more and is well in excess of $150,000. Stanford University ranked highest on this list, with an average total pay of $176,083 received by its graduates.
What’s clear from the above is that graduating from these top programs pays extraordinarily well. While there will always be some exceptions, the bottom line is that even if a student had to fund their entire MBA through loans or borrowings, their income level upon graduation will allow them to pay it off reasonably quickly if they make sensible financial decisions and prioritize repaying their loans. Beyond that, they’re free to enjoy the benefits of their high-paying jobs for years to come.
How do post-MBA salaries compare to what students were earning before they enrolled in these top programs? A quick look at the salary percentage increase statistics in the top 50 schools as per Financial Times shows us that, on average, MBA graduates can expect a pay rise ranging from 70% to close to 190%.
It is important to remember that not every student will experience a dramatic increase in their pay immediately after they graduate, particularly those who were already working in high-paying sectors in developed economies (think Wall Street bankers or management consultants from London).
However, that should never be a reason to discourage them from applying to the best programs. One reason for this is that MBA graduates are likely to command the highest salaries in low-paying industries, such as education, non-profit, etc. And even more importantly, the benefits one can derive from these programs far exceed salary metrics. This argument conveniently brings us to our last factor!
The Long Game
Let’s say you bought 10 shares of Apple last year. It’s an amazing brand and company that continues to grow, so the share price is likely to have gone up, so you’d make a decent return if you sold it today.
Now consider how much exponentially higher the return would be if you invested in it for not a year, but a decade.
In a similar vein, most people tend to be quite narrow-minded when thinking of what the return on a top MBA is. If you were to ask that question to prospective applicants or even students, most of their answers would reflect our earlier point i.e., what’s the job I get after my MBA going to pay me.
While that obviously is an important factor, thinking this way ignores two massive considerations.
Firstly, your salary continues to rise the longer you’re working in a role. A job that pays $150,000 when you’re 28 might sound great but many don’t stop to consider that figure could easily double in less than a decade. For example, as per a survey by QS in 2018, Stanford GSB graduates could make a return of up to $6,000,000 on average in the 20 years post their graduation.
Yup, that’s a lot of zeroes.
The other element of the long game to consider is the power of the brand of your school and alumni network, and how it will continue to provide you with benefits over years and decades.
There’s a reason that MDs and CXOs at the biggest companies tend to be top MBA graduates, and so are the ones who replace them. The goodwill of these brands among alumni and businesses, in general, can never be underestimated.
If you want to start your venture a few years down the line, who can you approach for funding?
If you want to make a C-suite shift in a major company, who can help you out?
If you need experienced partners with great expertise to get something off the ground, who can you go to?
No points for guessing 😉
So, after considering everything, what’s the conclusion?
The best MBA programs are very expensive, there’s no denying that. However, as we’ve discussed, there are ways to bring that cost down during the program itself, and certainly plenty of opportunities to make a return many times over once you graduate from these programs.
The most important thing to remember is to think of the cost of an MBA not as an expense, but as an investment. Because when you invest in the best, you get the best returns 😊