Is Your MBA Worth Millions In Lifetime Income?
Maria |
April 20, 2022

A recent study conducted by Preston Cooper, a research fellow at the Foundation for Research on Equal Opportunity, dives into the data on the net economic value of nearly 14,000 graduate programs at over 1400 universities in order to estimate the return on investment (ROI)—the increase in lifetime earnings minus the cost of attending school—for each degree.

The results might make you question whether or not an MBA degree is really worth it.

In this episode of Business Casual, John, Maria, and Caroline give their opinions on this approach to valuing MBAs and debunk some of the data in Cooper’s report. 

Episode Transcript

[00:00:07.270] – John

Hello, everyone. This is John Byrne with Poets and Quants welcome to Business Casual, our weekly podcast with my cohost Maria Wich-Vila and Caroline Diarte Edwards. We are going to talk about something that is always ever present on the minds of people who are thinking about getting an MBA degree. And that is is it worth it? And if it is worth it, how much is it worth? There is a new study out. It’s called Is Grad School Worth It? A Comprehensive Return on Investment Analysis. The primary author, Preston Cooper, is a research fellow at the Foundation for Research on Equal Opportunity. And he really dove into the data on the net economic value of nearly 14,000 graduate programs at over 1400 universities. We look at, obviously, the business school in this study. And what’s interesting about this is that he kind of defines the ROI of a graduate degree as the increase in lifetime earnings a student can expect from that degree, minus the direct and indirect cost of attending graduate school. And he even subtracts out what you would likely earn if you only had your undergraduate degree. So he’s discounting your total earnings on the basis of what you would have earned anyway if you didn’t have the MBA, as well as the cost of getting there.

[00:01:36.970] – John

And that would include tuition and fees as well as the opportunity costs. So what he found was kind of really surprising because he contends that the MBA overall has a negative return. Now, there are a whole bunch of graduate degrees with negative returns. And he also points out that it really is dependent on what school you go to. And it’s probably dependent on a bunch of other things like your location, what kind of career you have, a number of other factors that are going to impact these numbers. But ultimately, he basically concluded that the highest ROI from an MBA occurs at Wharton, where the return on investment median over a lifetime is over $3.2 million. And that’s after doing his subtraction of the cost of getting a degree and the subtraction of what you would have earned anyway if you went to just didn’t have your work in MBA. Maria, what do you think it is?

[00:02:40.730] – Maria

Okay. So I mean, first of all, God bless this guy for what he’s trying to do. He’s looking at tens of thousands of different graduate programs. I don’t even want to think about how many different data points he was looking at and trying to make sense of what is probably an incredibly messy data set. I do think that a lot of the conclusions, though, that he sort of asserts them with a certain amount of confidence that I don’t necessarily think they merit. But overall, I think there are some good points that he makes. So one of the things I liked about his methodology is that he looks at something called counterfactual earnings. And so the idea is that, yeah, like a master’s degree in engineering, you might make a lot of money. But if you got a bachelor’s degree in engineering, you probably would have still made a very similar amount of money, perhaps a little bit less, but not dramatically less. And so similarly, I think with MBA programs, as we have talked about before, if your career is strong enough that you get into a Stanford, a Harvard, a Wharton booth, any of these Kellogg, any of these, you were probably already on a career trajectory to have been making a lot of money anyway, for the most part.

[00:03:48.940] – Maria

And so there are people that I know who like, I think I’ve mentioned these people before. Like, some of the wealthiest people I know were people who went to elite colleges and then went into the finance industry and did really well and thought, oh my gosh, why am I even going to waste two years of my life on an MBA? And instead they spent those two years getting more experience in finance, and now they’re doing very well. So I agree with that aspect of the methodology. But there are certainly some odd results here. And it’s so funny when people try to estimate what is like the lifetime value for Wharton. I think he got something like 3 million. There was earlier, like a year ago, there was a pay scale study that I think, John, you might have reported on that was 8 million. So we’re not talking like a 10% Delta here. This is a pretty dramatic fluctuation. So I don’t know that his numbers are necessarily correct for the MBA. I think there are also some his thing about the dentistry being the highest paid one, I don’t know. I was like, let me see, what is this University of Colorado advanced dentistry program?

[00:04:57.600] – Maria

And I think that it’s like a two year program, a three year program, but you already have to have a dentistry degree, which is a four year degree on top of your bachelor’s degree, if I’m not mistaken. So, yes, technically, it is a quote unquote two year Masters, but you need a lot of education before that. And so it’s not the same as comparing it with like a two year Masters of Fine arts or Masters in playwriting or acting or something. Anyway, I think some of the overall takeaways are interesting. I think it’s a little bit strange that given the messiness of the data set, that he then tried to come up with such specific numbers to quantify his results. But they are what they are. And at least, again, at least I would have looked at that data set and been like, Nope. I would have noped out of there pretty quickly and not even tried. So good for him.

[00:05:47.360] – John

Yeah. Caroline, what’s your take?

[00:05:49.740] – Caroline

Well, it’s not surprising, right, that professional degrees have a much stronger showing in an examination of return on investment than master’s degrees in the arts, for example. I think that is not something that we would have anticipated differently. Right. But as Maria said, and it’s a bit like the ranking sometimes.

[00:06:10.840] – Maria


[00:06:11.190] – Caroline

I mean, you look at the list and you roll your eyes because at the end of the day, who is going to look at that list and say, oh, well, I’m going to turn down my offer from Harvard Business School because it’s a much lower in this list than some of the other schools. So that suggests that HBS is so far down the list, to me, undermines the credibility of the list. But I think there is a useful message in that going to a strong program is going to have a better return on investment than going to a program that is not as highly regarded and doesn’t attract such a strong community of students and give you the benefits of a fantastic network post MBA. I think that’s something that we all agree with, and that does come through as one of the sort of larger messages here. Something else that’s important to keep in mind is that people aren’t just going from our sister’s degrees to make more money. Right. And I think that’s increasingly true, actually, of the people going off to graduate school these days and including people going to business school.

[00:07:23.960] – Caroline

There’s definitely a trend compared to ten or 20 years ago, people wanting to improve their education so that they can have a positive impact on the world even through going to business school rather than just going to business school to earn a bigger salary. And so people have greater choices, and that’s much more difficult to quantify. Right. I think that if you compare the career satisfaction of people who have graduated from some of these programs compared to people who haven’t gone to master’s degrees, I think the fact that coming out of a lot of these graduate school programs, you have doors that are open to you that otherwise would have stayed closed, and therefore you’re able to pursue something that you’re much more passionate about, whether or not that generates a higher financial return, that’s a very positive thing. Right. And anecdotally from my small sample of my network of people who I’ve seen who’ve gone to business school versus people who’ve gone into business because they’ve got a background in accounting or finance from the undergraduate degree. Often, as Maria said, they’ve done incredibly well financially also, but they haven’t been able to make the career switches that people who have gone to business school have been able to make.

[00:08:43.260] – Caroline

And that may have worked out very well for them.



[00:08:45.100] – Caroline

They may have chosen the right path and stayed along those lines, and it’s worked out very well. But I think having the option to switch careers and choose a different path is incredibly valuable, and that’s not something that’s so easy to quantify.

[00:09:02.040] – John

Yeah, true. And in terms of weird results, both of you mentioned this briefly, but didn’t actually give the number. According to this analysis, the Harvard Business School MBA is actually worth less than a million dollars at $972,000. That compares to that Wharton degree where the authors estimate the value of well over 3 million. Kellogg is at 3 million, Chicago Booth is at 2.5, Columbia Business School at 2.6, MIT Sloan 2.6. And a little extra. There are MBAs from fairly prominent schools that are not necessarily in the top 25 that have negative returns. The author contends that the University of Texas in Dallas, if you get an MBA from there, you’re going to have a negative return of $62,863. How’s that for precision? Or if you get an MBA from Northeastern University, the more McKin Business School, the deficit that you’re going to experience will be $472,000, which is a pretty big negative number. While this is very interesting, to look at the numbers and the data like rankings, you need to take this with a really big grain of salt. Stanford, which is where Caroline’s husband went, is also surprisingly low, particularly because you just wouldn’t imagine, I mean, coming out of school.

[00:10:35.220] – John

Stanford MBAs tend to have some of the highest pay packages in the world. But this also contends that an MBA lifetime advantage from a Stanford MBA is only 2.1 million. Now, Maria referred to a pay scale study that we had actually paid for and sponsored at Bolton once, and the pay scale study showed that the lifetime return on Stanford MBA was 8.3, not 2.1%. But of course, that number did not discount the lifetime earnings by the cost of getting the degree, the opportunity cost of losing income for two years, nor the value that a person would have had on the basis of just her undergraduate degree. So there are adjustments to the numbers that would explain some of the differences, but not all of them. What other weird results do you see in here, Maria?

[00:11:29.430] – Maria

There were several that jumped out at me. One that I thought was kind of funny was that Duke University for Business appeared twice. So their Masters in Business Administration, the earnings at age 45 were predicted to be $228,000. But the Masters in International Business from Duke University was 347. And I don’t know if the Masters and Masters in International Business, if that means NBA with international focus, or I don’t know if that’s the Global Executive MBA at Fuqua, which in that case, that might be like older senior executives who are like, anyway, there’s just so many I was like, wait a minute, Duke has a Master’s in Business Administration and listed separately as a Masters in International Business with a pretty dramatic difference in that pay estimate. I’m not really sure. I tried to understand the methodology for predicting the future pay estimates, and I really don’t think that they are very sound. It looks to me like he just basically sort of slapped looked at what people were making immediately after business school and slapped a growth rate onto it. So for the Wharton number, for example, I think he estimated that at graduation it was something around 179,000.

[00:12:43.180] – Maria

And then by age 45, that number went up to 287,000, which because I’m an MBA, I calculated the compound annual growth rate, and that was about 3.2% of a growth rate per year, which doesn’t test it doesn’t pass the smell test. Right. Because that makes sense if you never get a promotion, if we assume that the average well, this year doesn’t count. But historically, inflation in the US has been roughly 2% a year. So he’s saying that these people are doing better than the average worker in terms of cost of living increases or pay increases. But most people don’t stay in the same job at the same level that they enter post MBA. So, yeah, they might be making if they were to stay, let’s say, as a manager level at Bain, that might be there after 15 years, that might be what they make. But they’re not going to stay at that level. Right. They’re either going to get promoted to higher and higher levels or they’ll be kicked out. So it’s this kind of odd. It doesn’t really take into account. I can see like perhaps if you’re a dentist, which is the dentistry being the highest one.

[00:13:59.740] – Maria

Okay. You start off as a dentist and you have your own practice, and maybe it grows a little from year to year to year. But in the business world, there are opportunities to really jump between manager level to director and then director to vice President or what have you. That is not a sort of 3% slope straight line for the most part.

[00:14:19.010] – John

Yeah. There’s no way that a Wharton MBA or an MBA from any school like that is going to have pay increases of only 3.1% a year into their mid 40s. It’s just not possible, given what the degree means and given the increased responsibilities at work and promotions, and these people are in organizations that are not bureaucratic and reward employees with 2% increases every year. The other thing that’s not adjusted for, of course, would be equity awards and probably bonuses as well. I mean, he’s really looking at base pay more than anything else because he has no database with which to extract the value of equity and award or even the value of a guaranteed bonus. Look, if you’re on Wall Street and you’re investment banking, your bonus often exceeds your salary. So there are a number of problems with the methodology and the calculations that get in the way. What is kind of interesting, though, overall, is that even though there’s quirks in the data, basically what he does show is that if you go to a brand name MBA program that has a great reputation and is ranked highly and is highly selective, you’re going to buy and large earn more than someone who goes to a second or third tier program.

[00:16:03.990] – John

And that’s pretty universal across the entire data set, no matter what industry a person enters. And it goes to why I think, Caroline, there is this obsession with getting into an NCR London business school in SSA Paris, an ISC in Spain, or Harvard, Stanford, Wharton, Columbia, Northwestern, Chicago. It’s understandable, right. I mean, there is this obsession that all of you deal with because every time you get a client, what do they tell you? I want to go to Harvard, Stanford Ward, right?

[00:16:40.740] – Caroline

Yeah. Vast majority of people that we work with are applying to the very top schools. I think whilst this exercise was interesting to me, it’s probably more useful to look at the data on the class that’s graduating and the salaries that they’re getting, the employers that they’re going to. I think that’s more useful to help candidates understand what their options are going to be post MBA, because it seems that there are so many assumptions that are made in this data. Just looking at two years post MBA and then extrapolating out how that evolves over time, it’s impossible. Right. Unfortunately, there is no good data that’s going to tell us actually how the graduate careers and salaries evolve over the long term. And I think the assumptions in this are flawed. So to me, it’s more useful to look at the actual data that is reliable, which is where people are going when they graduate from the school, which employers they’re going to, how much they’re making, if that’s something that is critical to you and see whether people are going into positions that really excite you and it’s going to enable you to land the type of job that you’re looking for post MBA.

[00:18:05.320] – Caroline

So I think those career statistics are much more useful for decision making purposes than this particular study.

[00:18:12.560] – John

True. The other thing here is can you really say that if you get a Wharton degree, your lifetime earnings are going to be an excess of 3 million more than they would otherwise be? I think an MBA, even for an elite institution, gives you an advantage right out of the gate and maybe a lifetime advantage in the sense that you have a networking, a group of networking colleagues that you can confer with who might see opportunities and bring them to your attention. But there comes a point in everyone’s career where where you went to school really doesn’t matter. What matters is what you deliver at work, what’s your performances. And that is almost not accounting for it all here because it can’t be right. It’s an intangible thing that can’t really be measured. Now, you might say that the selectivity process at really good Ivy League and prestige schools is such that they can identify people early who have the most potential and are probably more ambitious and more willing to work really hard to earn these large sums of money. And that I think there’s definitely some truth in that because, as I was mentioning before, he does seem to show that if you go to an elite institution, you’re going to do better than if you don’t.

[00:19:37.060] – John

So his study overall found that while 8% of master’s degrees overall offer a return above 1 million, that share rises to 41% for people who go to Ivy League or comparable universities. So clearly, Brand seems to matter. Or maybe it’s the selection process. Maybe it’s people like Caroline at NCAAW making sure that when she was ahead of admissions, she only entered people who she really believed had the great potential to have a successful life and a successful professional life and a career. So there is that as well. Okay. I’m going to just say it’s fun to look at this, and there may be some value here in saying, hey, in setting expectations. So if, in fact, you go to a second tier or third tier school and you look at the numbers and they’re well below what the numbers are for a top 25 or top 50 school, I think it’s probably helpful for you to know that, in fact, overall, not necessarily for you, the return may not be nearly as high. Last words on this, Maria.

[00:20:54.010] – Maria

A couple. So first of all, as you were saying a second ago, I think there’s a difference between correlation versus causality. Right. As we’ve said before, the reason that these elite schools, even with the law school results. Right. Oh, Columbia, Harvard, they’re the highest paid. Well, they probably accepted the strongest students in the beginning of the pipeline. And so those people then when they graduate, they work really hard and they grasp things more quickly or whatever it is you need to be to be a good lawyer. So I think just don’t confuse correlation with causality. And also my husband and I were sort of laughing at the because if you look at the chart, it has dentistry, but then it has several law schools. Like at age 45, you’re making a lot of money. If you went to Columbia Law School or Harvard Law School and we were laughing and it was like, yeah, but then you’d have to be a lawyer. I’m like, you know, I’m good because to be able to to admit be making that level of money in law and to be having to do it, it’s not just the hours of work.

[00:22:00.380] – Maria

I think the work is also itself pretty tedious.

[00:22:03.270] – John

It’s the numbing nature of the work.

[00:22:06.750] – Maria

Exactly. I’m fine with not looking at people drilling holes in people’s mouths and giving them fake teeth and not being a lawyer at Crevasse at age 45.

[00:22:20.590] – John

Doing people and trying to take advantage of situations and technicalities. Yes. Caroline, last words.

[00:22:27.450] – Caroline

Well, I think it is a very good point that you don’t have to go to Harvard or Stanford or Walton to do well in life.

[00:22:35.680] – Maria


[00:22:36.410] – Caroline

I don’t know if any studies have been done looking at business schools. But certainly there have been studies done looking at College graduates and, for example, people who are admitted to Ivy League schools but chose not to go and went to other schools. And what those studies have shown is that it’s not necessarily going to that school that drives your future career success and salary. It’s who you are as an individual. Right. I think they say that to the class coming in at Harvard that you would be successful in life regardless.



[00:23:15.240] – Caroline

They’re well aware of the fact that they’re picking people who are going to achieve great things regardless of the school. So I do think people over index the impact of going to a top undergraduate school and sometimes also the case with the graduate school. But Nevertheless, I think there’s a lot of value in the options that it gives you and being able to choose your career path and define your future in a way that you might not be able to if you haven’t gone to business school and have all those opportunities that suddenly open up for you. So to me, it’s more about being able to define your own version of success and being able to access opportunities and open doors that might otherwise have been closed rather than necessarily making vast amounts of money.

[00:24:12.150] – John

Well said. Well, there you have it. So if you want to check out this article and see how much your MBA is supposedly valued at, go to Poets and Quants. See Calculating the value of your MBA. Is a Wharton MBA really worth $3.2 million? Whether you think it’s just total BS or not, it’s fun reading. Maria and Caroline, thank you once again for great discussion. This is John Byrne with Poets and Quants. You’ve been listening to Business Casual our weekly podcast.

Is Your MBA Worth Millions In Lifetime Income?
Maria |
April 20, 2022


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