The Real Cost of an MBA

After working for eight years in accounting and finance, most of it at PwC, Tully Brown knew it was time to deepen his business skills. So he did what a lot of young professionals in his shoes do: He went for an MBA.

For Brown, who enrolled at Emory University’s Goizueta Business School in 2015, the biggest cost wasn’t tuition, fees, and housing. It was the six-figure job he gave up to attend school full-time. “Being a numbers guy, I actually modeled it out,” he says. “I looked at what would happen, because there was the possibility I’d end up leaving and making the same that I did before going in. I decided it was worth the risk.”

The typical incoming MBA student at Emory earns $67,000 the year prior to enrollment. Multiply that by the length of a two-year MBA program, then add to it Emory’s cost of attendance, and you get $296,536. Using the forgone salaries reported by thousands of recent graduates as part of Bloomberg Businessweek’s annual ranking of the top full-time MBA programs, we were able to create a similar “real” cost figure for several of the schools on our list. Stanford Graduate School of Business had the highest full-freight cost, more than $434,000, because those in its MBA program earned more when they enrolled.

Each year, we rank business schools by polling students on topics such as academics, career services, and campus climate. We also ask employers about the skills they seek in MBA hires and which schools best prepare their graduates. Starting in 2015, we began surveying alumni, asking them how well their degrees had delivered on the promise of a fulfilling and profitable career.

For the second year in a row, Harvard Business School came out on top—and this time by a wider margin. HBS was rated No. 1 by the more than 1,000 corporate recruiters we surveyed and No. 3 among alumni. Competition for the No. 2 spot overall was particularly close this year, with Stanford edging out Duke University’s Fuqua School of Business by less than one index point.

Unlike undergraduate students who are often giving up low-paying jobs to return to school, MBA students are typically in their late 20s or early 30s and leaving well-paid positions. That makes calculating the opportunity cost even more significant for MBA seekers. Because Bloomberg Businessweek surveys B-school alumni on the salaries they drew before enrolling in a full-time MBA program, we were able to calculate the true cost of the degree. Our formula isn’t perfect. It includes the loss of two years’ worth of wages, even though some students don’t go a full 24 months without working, and some have well-paid internships during the summer break. In addition, we weren’t able to factor in financial aid or scholarships.

Schools’ cost-of-attendance breakdowns don’t reflect the income students give up during their time in school. B-school officials say MBA applicants should definitely add that cost to tuition and other expenses when calculating a projected return on their investment. It’s “a large number, there is no doubt about it,” says Douglas Skinner, interim dean of the University of Chicago Booth School of Business, noting that some students may need to take out loans to also cover the lost wages. Still, Skinner stressed that prospective students need to understand that the knowledge obtained through the degree will help boost their earning power not just immediately after graduation but throughout their careers.

That’s why Brown says he didn’t mind leaving a well-paying job at a community bank in Atlanta to enroll at Emory. “It’s hard to know in 10 years whether I get something I want because I have an MBA,” says the 33-year-old who took out $53,000 in student loans, partly so he wouldn’t have to miss out on student networking opportunities like international trips. “But I decided I wouldn’t want to wonder in 10 years if not having the MBA was holding me back—because then it might be too late to do it.”

Although Brown chose the one-year, or fast-track, MBA at Emory, he still went without income for about 15 months. As he’d hoped, he landed a job at an investment bank, where he’s earning more than he did before.

Data from our surveys show that the typical graduate at the schools we ranked earned a positive return on her investment. Alums of the 87 schools ranked this year earned a median $50,000 prior to starting an MBA program and saw that salary rise 80 percent upon graduation. And six to eight years on, the median salary hovered around $145,000.

Students who enroll in MBA programs are usually further along in their lives and therefore more likely to be married. That can make the degree even more pricey. Spouses who quit their jobs and move to such places as Hanover, N.H. (home of Dartmouth College) or New Haven (Yale) to accompany an MBA student may face poor employment prospects.

That was the case for James Mansour, a recent graduate of Texas A&M University’s Mays Business School, and his wife. They relocated from the Washington, D.C., area, where he worked as a consultant and she as a dental hygienist, pulling in a combined $160,000 a year. After the move the couple learned that they were expecting a child and that she’d have to get relicensed to work in Texas. Fortunately, the couple was able to get by on savings by cutting out vacations, dining out, and shopping. Mansour, who graduated in December, now works at Delta Air Lines in Atlanta, and has a higher salary than he did before he went for his degree.

The typical 2016 MBA graduate from Dartmouth College’s Tuck School of Business earned $80,000 before enrollment. So if a student were to forgo that income for two years and pay the full cost of attendance, his or her real cost would amount to $360,100. Matthew Slaughter, dean of Tuck, says that while most graduates receive a large earnings boost after graduating, that isn’t always the case in the short term. “For a lot of programs like ours, there are a lot of people career-switching,” he says. “So that might entail giving up industry- or company-specific capital to really build capital in a totally different area that’s more satisfying.”

Katherine Earle graduated from Stanford’s MBA program this spring. She walked away from a well-paying position in the technology sector to go back to school. Still, she says she’s confident she made the right choice. “I’m already making more now,” says Earle, “and that increase will hopefully continue to compound itself, partly because of the inherent value of the degree but more likely because I had the opportunity to study my personal strengths and weaknesses and career interests at school.”