For most young professionals considering an MBA, the decision to go back is an easy one. Whether you are stalling out in your current career or are progressing so rapidly, you can hardly be stopped, the appeal of a prestigious MBA degree can be almost too alluring to resist in order to boost the earnings trajectory of your financial future.
Most applicants also hear the tantalizing salary stories of MBA new hires--$100,000+ is just the starting point for most top MBA grads, not to mention signing bonuses and stock options. These high salaries and bonuses when compared to an average pre-MBA salary of $75,000 or so only add more ease to the decision to quit work and go back to school. Before you put in your notice, however, you should make sure you know all the costs, both tangible and intangible, of taking the MBA plunge.
The first and most obvious cost is tuition.
Compared to most graduate degree programs, business school is expensive, and like law school and medical school, has a premium on its cost vs. a regular old master’s degree. You likely know by now that b-schools in the top tier carry an average price tag of more than $120,000, and schools like Columbia tip the scales at almost $170,000 for their two year program. If you are going to graduate Columbia without any debt, and assuming you will not be generating income as an MBA student, then you would need to have saved about $42,500 for each year since graduating college to pay for school, assuming you are about 26 years old (the average age for MBA applicants. Does this stellar savings program describe you? Hat’s off! But before you break your arm patting yourself on the back, make sure you factor in the return you will forgo on that money for two years. Even at a modest 6% return, that’s about $20K in simple interest you‘ll be losing (assuming you take your tuition savings out of the investment market when you start school).
Financially speaking, the lost interest on tuition money pales in comparison to lost wages.
$75K per year you were making of course becomes a $150,000 gap in your budget by the time you finish school. You will get paid for your internship of course, but that’s just three or four months of work in the summer between 1st and 2nd year, and much of that income will probably go to paying for your living accommodations wherever you decide to do your internship (that is, unless you land an internship in the same place your school is located). Then there’s the incidentals, such as the cost of selling your house or breaking a lease and the cost of moving to b-school. If your school is in California or New York or Chicago, the cost to put a roof over your head during school may be more than it was wherever you moved from. Then of course, there’s the cost of moving again when you are finished with school. It all adds up, and your savings can take a real beating.
No matter how you slice it, business school from a monetary perspective is quite an undertaking.
But that’s just half the story. Even if you are financially prepared to go back to school, something else you must consider has nothing to do with the financial cost, but rather the intrinsic value. Most obviously, will the opportunities afforded you by an MBA outweigh the opportunities you would have had with two more years of time on the job? Even outside of your professional arena, however, you should analyze if there are lifestyle sacrifices you would have to make to go back to school which would be detrimental to relationships in your life? This is usually an issue for people who have family obligations which require a significant investment of time and proximity. How about the timing? Does your spouse or significant other have the ability to manage things while you focus on school?
Would your going back create extra stress on your lives which would be difficult to deal with?
Would it dovetail with their plans or hinder their progress in some way? If you can’t find someone to talk to about these issues, give us a call. We have seen it all and might be able to help you think through your situation from an objective point of view.