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Trying my best not to imitate Dolly Parton, “He’s Alive!” The Centsei is back in action, here today keeping you up to date on the latest goings-on and analyzing a real-life personal finance decision that has kept me from this blog for over two years.
In the summer of 2021, I started my Master’s in Business Administration, more commonly known as an MBA here in the U.S, and I’m pleased to announce that I finished earlier this week. The program is a post-tertiary degree that covers a broad spectrum of business-centered topics such as accounting, economics, entrepreneurship, finance, leadership, marketing, and technology. Many programs, like mine, also allow for a specialization, much like a college “minor,” that provides a focus area for electives.
The choice to acquire additional education, at its core, is a personal finance decision. Even those of us strange enough to enjoy school will understand the tradeoffs involved in an expensive endeavor such as this. On the one hand, MBA graduates tend to earn higher salaries, improve their professional network, build stronger resumes, and learn valuable skills that could help propel their careers. On the other hand, the degree can cost $60,000 in the states, requires 500-600 hours of class time alone (plus another 1,000-1,500 hours for homework and studying), and may not be applicable to a variety of professions. Furthermore, not all degrees are created equal.
There are many things to consider, so let’s examine a few scenarios that come into play when contemplating an MBA.
Estimated Salary Increase
According to a 2022 Fortune Study, the starting salary for an MBA graduate is $115,000 compared to an undergraduate $75,000. There may be some “correlation not causation” here if the MBA’s are a self-selecting group who were prone to higher earnings anyway. We can nevertheless posit that at least half of the delta, or $20,000, likely results from the degree.
Full-Time vs Part-Time
A part-time MBA student can complete their degree in three to four years while working full-time alongside their studies but may not have access to the highest quality programs, as many don’t have a part time offering (see below). A full-time MBA student can complete their degree in two years and can attend any school but does so at the cost of not being work, gaining experience, and earning a salary. We’ll assume the full-time MBA student foregoes $100,000 in after-tax wages over two years: the $75,000 cited above, minus taxes, plus two years professional experience. For this reason, it’s recommended to only go full-time if you either (a) got into a top program, or (b) can afford to delay working for two years.
Quality, Type, and Cost of Program
There is certain a difference between excellent full time schools (Standford, Wharton, Booth), great part-time schools (Booth, U.C. Berkeley, Northwestern), and less-reputable options that you might have heard on late-night TV or seen in an online banner ad… if you know of them at all. Top programs can cost $100,000 but will put you in the best likelihood for long-term earnings.
It may also be worth considering a traditional MBA vs an executive MBA (EMBA). EMBA’s are designed for more experienced working professionals and tend to have longer, more rigorous courses on nights and weekends that can be completed in fewer years. Some EMBA’s require or strongly recommend employer sponsorship, so these may not be accessible to everyone.
Find the one that is right for you based on your location, needs, and academic background. Do your homework from reputable third-party sources, alumni, and research.
Employer Sponsorship, Scholarship, and Student Loans
A major factor to consider is whether your employer will pay for some (or all) of your degree. An employer that pays $5,250 (the federal tax-free limit) per year over five calendar years can cut the cost of a $60,000 degree in half and double your return on investment, though you may not wish to take that long.
Similarly, the school itself may offer scholarships to well-qualified students. Fortune also reported in 2021 that 50% of students at Harvard Business School receive aid, with the numbers falling to 20% at less expensive schools. Scholarship amounts range from 10-50%, so the financial impact can be considerable.
For the portion that you pay, consider how much you have and savings, as well as the total cost of any required student loans including interest. Borrowing the same $60,000 at 6% interest (optimistic in today’s environment) and repaying it over 10 years could halve your return on investment.
As a graduate student, MBA’s are able to submit the Free Application for Federal Student Aid (FAFSA®) here in the U.S., which may qualify you for government aid via loans or grants. Some loans have a small chance of being forgiven if you meet certain conditions.
Your Age
While many MBA students and programs prefer having five or more years’ work experience, there is no question that someone in their 20’s or 30’s will see benefit for more years than someone in their 40’s or 50’s. This isn’t to say an MBA later in life is bad, just that you’ll likely have fewer working years to recoup your time and money.
Personal Goals and Family
For me, higher education was a personal goal as well. I admit I love learning and feel a sense of accomplishment for powering through the challenge. Regardless of the financial implications, if school is important to you, you should consider that.
Your family situation is a critical factor as well. Students with children often need to consider the cost of childcare or the impact this commitment will have on their spouse (and their career). Those without children still need to consider what part of their day they will give up during the degree, whether it’s time with family, friends, fitness, sleep, hobbies, or even blogging!
THE 60-SECOND TEST
SHOULD I GET MY MBA?
This quick test will help you determine whether an MBA is right for you. Write down the number (1, 2, 3, 4) of your answer for each question.
How much do you expect an MBA would increase your earning potential in your current/future industry?
- A lot. I work (or want to work) in finance, banking, healthcare, technology… or similar area. I would want to be a manager or entrepreneur someday.
- A little. I work or want to work in one of those areas, but I may not want to be a manager/entrepreneur.
- Not sure. I just want to keep my options open and an MBA might help.
- Not much. I work in a non “business” area and would likely continue to after the degree.
Would you be attending full-time or part-time?
- Part-time while working full time
- Full time while not working
- Executive MBA
- Part-time while not working
What is the quality and cost of the program?
- Top 10 MBA program
- Top half program but under $60,000 for all classes (2022 dollars)
- Top half program but over $60,000… or bottom half program but under $60,000
- Bottom half program but over $60,000
*If you’re outside the U.S. use “one year’s gross salary of an average worker” in place of $60,000
Would you receive employer aid or scholarships, and how would you finance the rest?
- Scholarship and employer sponsorship, and I’d pay the rest from savings/income
- Scholarship and employer sponsorship, and I’d pay the rest from student loans
- No scholarship and employer sponsorship, and I’d pay the rest from savings/income
- No scholarship/sponsorship, and I’d pay the rest from student loans
How old are you?
- 20’s
- 30’s
- 40’s
- 50+
What best describes your goals and family situation?
- Formal school and education are important to me, and I do not have significant family obligations for the next few years
- School is important, but I do have family obligations
- School is just a piece of paper, but I do not have family obligations
- School is just a piece of paper, and I do have family obligations
SCORING
For each of the six questions, add the following:
- Answer 1 = 5 points
- Answer 2 = 3 points
- Answer 3 = 2 points
- Answer 4 = 0 points
If your total is:
20-30 points: An MBA is very like right for you. Begin researching the best program for you and the right options for paying for it.
10-20 points: An MBA is might be the right choice but consider all options. The specifics are critical here, so be sure to carefully weigh the personal and professional pros and cons very closely and consider if there are better ways to reach your goals or other degrees that would be a better fit.
0-10 points: Don’t waste your time. There’s very likely a better option for your elsewhere, and it’s 100% OK to say that an advanced degree is not for you.
My Experience
Getting an MBA was the right choice for me.
Upsides:
At the time I started, senior leaders in my company all had MBAs. Although it was not explicitly required, this signaled to me that the degree was relevant for my career progression. Halfway through the degree, I started a new job. The “in progress” MBA alone was likely not the main reason I got the job, but even if it was a small factor, I believe the payoff is already underway. A few high-level execs even applauded my being done, so I feel like the work has been noticed.
Logistically, I was fortunate to have a great part-time program near my house with a hybrid option to attend in person or online on a class-by-class basis. This made networking, both with professors and other students, easier and more enduring.
Academically, I found the coursework challenging and rewarding, but not overwhelming. The most demanding class required about 16 hours of work (class + homework) per week for 17 weeks, and the least demanding class maybe 6 hours per week. The prerequisite classes like marketing and accounting were good if you had no experience but do try to get them waived if you’ve taken them before. The core MBA classes (ex. technology, value & supply chain, leadership, strategy, global, law & ethics) were valuable. Lots of learning by studying cases and examples with the “theory” being broad. The electives were overall amazing and really let me focus on the areas that interested me the most.
Financially, I was extremely grateful to have a combination of a scholarship and employer tuition reimbursement for two years, which combined cut the cost of the degree in half. Between savings and careful budgeting, I did not need to take out student loans to cover the rest.
Downsides:
You hear that MBA’s are “all about networking,” but I didn’t find that to be the case. Don’t get me wrong, I liked my classmates and will stay in touch, but I didn’t get the impression that everyone was oozing to network. Maybe the pandemic and hybrid classes changed things to where networking will be primarily virtual. However, I wasn’t expecting to network with professors, but that might prove to be the more valuable piece. We will see.
While no class was a waste of time, some parts of some classes felt that way. Some of the curriculum felt a little more relevant to what you’d expect from an MBA of the 70’s-90’s rather than the 2020’s, and my school was more progressive than most as it relates to staying on top of current issues (which we did). For example, we studied six sigma and LEAN in three classes, which itself is becoming more outdated by the minute in our modern, tech-driven, service-oriented economy.
Overall: 9/10. Would recommend to a friend… if they scored high on the test!
