Is an MBA Worth It?

As the economic environment continues to soften, many young professionals are contemplating returning to graduate school so they can "take shelter" during the downturn and be set to reenter the workforce as the job market turns around a couple of years from now.

New announcements of job cuts from companies like Citigroup , JP Morgan Chase , and Sun make many individuals look at an MBA as a way to increase their competitiveness in a toughening market. Where they choose to go to school, may have a huge impact on their strategy.

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This weekend, Business Week (www.businessweek.com), released its rankings of the top business schools. The BW rankings have shifted a bit from the past years, but eight of the Top 10 schools were also in the Top 10 ten years ago, in BW's 1998 rankings. While the names remain the same, the economics have changed significantly.

The average cost for a 2-year MBA (excluding room and board) at a Top 10 b-school has nearly doubled since 1998, jumping from an average of $52,000 in 1998 to almost $95,000 in 2008, according to BW data. At the same time, the differential between pre- and post-MBA salaries has narrowed. Ten years ago, the average jump in median salary after earning an MBA from a Top 10 school was about $51,000. Now that number is just under $39,000.

Based on these numbers, it would now take almost 2.5 years at the increased salary to cover b-school costs vs. 1 year ten years ago. Taking into account opportunity cost (i.e., lost salary during business school), the total cost today grows to ~$242 thousand vs. $149 thousand a decade ago. Again, based on the incremental salary gains, a current MBA would need 6.3 years to pay back the total cost of a Top 10 MBA vs. a 2.9 year payback a decade ago.

So does this mean that an MBA is not worth it? Absolutely not. It is just one thing to consider. Back when I graduated from B-School, the top banks and management consulting firms required MBA's. That is not the case anymore. Individuals should understand their career goals, work-life balance needs, and many of the other intangibles as well.

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