Is taking on debt to go to a top 20 MBA school worth it?

Are you better off making $55K to $100K staying in a career like corp fin for life or taking on $200K in debt to get into a top 20 MBA school to get into these high finance jobs?

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Comments (37)

Jul 5, 2017

If ever there was a time this would probably be it given the low interest rates.

Honestly though, if you want to have actual figures to speak for themselves, plugging the numbers into excel and building a mini model would take less than 15 minutes.

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Best Response
Jul 7, 2017

Did you just ask if it's better to make ~$75k with a 2-5% annual raise every year for life or if it's worth it to put down $200,000 in order to make ~$150-$250k plus a ~10-20% annual raise every year for life?

If you can't handle that math, you might want to consider the prospect that you won't be able to get in to a decent program anyways.

EDIT: I've read the comments on this post, and I regret the tone I took above (this one time). Personally, however, I think there are so many benefits to attending a top MBA and that if you're making less than $100k, you're ambitious and your career aspirations align with an MBA that it is almost unilaterally worth it to attend a top school. If you are a direct to associate consultant, associate in IB, in PE, have some traction for a start-up etc the benefits become more of a toss up in the short to medium term, but in many cases I think the network and late career benefits are understated even in those roles.

If you're trying to build an ROI calculator, bear in mind a few things:
*It's almost always worthless to model past 5 years on these things, there is too much uncertainty. However, I've spoken to older alumni who claim that they didn't realize the true value of their MBA until late career, when they were seeking senior management positions or starting their own professional services firms to capitalize on their knowledge. The network value is very strong at this career stage.

*Most financial models miss a lot of factors - summer income (which can be significant for a consulting or banking intern), tax writeoffs (MBA deduction if you qualify, student loan writeoffs), other benefits that are less quantifiable (i.e. career optionality, ability to fail more than once in the startup scene while in school and still recruit for top consulting, tech, etc roles after, better visibility to recruiting firms in the future, the skills you will gain regarding interviewing and resume writing, discounted/subsidized experiences in school, etc, etc).

*Loans are typically at pretty low interest rates for top MBA programs. Also, there are companies that specialize in refinancing loans at top MBA programs for even lower interest rates once you have gainful employment. If you land a role paying $150k+ all in (any banking role, 50-60% of consulting roles, any other high finance role, most tech, some corporates) your payback period can be anywhere from 3-7 years even with a nice increase in your pre-MBA disposable income and savings (if you're making under $100k). This fast payback period also minimizes interest costs.

*Most people underestimate post-MBA salaries. Do your homework. Don't estimate top bucket for yourself for your target industry, and look at a range of prospects (i.e. don't assume you'll land a job at McKinsey) to make sure your comfortable with your compensation prospects for plan A, B, and C for recruiting. Plan B should tie somewhat into your prior experience and plan C would be what you'd make returning to your old industry (for example - I would have made $60-70k more than before school going back to my old company as an M7 MBA in the role above the one I left at).

*Factor in the greater growth potential in earnings, not just the higher earnings. Bear in mind that again, modeling past 5 years is pretty much worthless, so you're probably only getting a small piece of this picture. If I were to venture a guess, a large majority of M7 MBA's reach $300-500k in annual earnings 10+ years out of school (including corporates). I don't have data there but I'd put money on that bet. 6-8 years is partner track for most up and out firms, so you'll have plenty of people in the $500k-$1MM and up range.

*Many MBA professors both have extensive networks and utilize them for students who take their classes. I know students who have gotten C's in classes and the professors still help network them in to jobs. They often are willing to speak to alumni about challenges they are facing as well, providing a lifetime of professional support.

I'm not going to touch on the development experience of an MBA, which is more variable by student, but which I found to be much better than I expected.

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Jul 1, 2017

I have lots of respect for @BreakingOutOfPWM and others on this board who put in the time to contribute, but I think the base scenario noted above for your average top 20 MBA is pretty optimistic. This is coming from someone with a "good" job (also a Booth grad), but I just don't think it's that the decision of whether or not to go is that simple.

I do think the advice to put some #s (conservative ones) in a spreadsheet and look at the results is definitely a good recommendation and should be worth the time / thought exercise.

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Jul 1, 2017

Agreed. Recent MBA grad here and the numbers seem more like a $400k sacrifice (tuition + foregone income) to make $115-250k. Based on the original question, the compensation range might be more like $175-250k if you are able to secure the high finance job you're targeting. Scholarship money also makes a significant difference, obviously.

Lots of other factors to consider though - geography, value of work-life balance, personal life timing, value of the network, value of the time to really think about your career.

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Jul 5, 2017

When you think about foregone income do you take into account the income you would earn as a Summer Associate?

If someone is making ~75k before attending an MBA program, foregone income might be minimal if they can score a BB IB Summer Associate position.

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Jul 5, 2017

if you want to play models I bet that you will sure find bits here and there not fully measured. e.g. summer salaries are often prorated to a full-time counterpart. The big picture is that salaries matter, and you'd lose a lot by attending a program without paying for 2 years straight - but it's relatively unknown of how much you "could have" earned if the MBA wasn't ongoing.

M7 MBA, iBanking. Top MSF grad. AntiTNA. Truth is hard to hear! But... :
DickFuld: Yeah....most of these people give terrible advice.:
Jul 4, 2017
ConsultingQuant:

I have lots of respect for @BreakingOutOfPWM and others on this board who put in the time to contribute, but I think the base scenario noted above for your average top 20 MBA is pretty optimistic. This is coming from someone with a "good" job (also a Booth grad), but I just don't think it's that the decision of whether or not to go is that simple.

I do think the advice to put some #s (conservative ones) in a spreadsheet and look at the results is definitely a good recommendation and should be worth the time / thought exercise.

Agree. While the T20 MBA jobs can be "more fulfilling", you got to be sure that you're OK with the pain coming along.

post-MBA jobs Typically has more hours, and the stress of on-job performance, stress of loan repayment (even when you know you'll get it paid off), is inevitable.
also an EMBA might be free If you climb high enough to your corporate ladder, further reducing opportunity cost for late-careers.
Lastly, MBA will likely make you move to wherever the hell your MBA job brings you to. You'd be recruiting during school time and not serving your family duty very much.

M7 MBA, iBanking. Top MSF grad. AntiTNA. Truth is hard to hear! But... :
DickFuld: Yeah....most of these people give terrible advice.:
Jul 4, 2017

Lol, go sit on a cactus

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Jul 5, 2017

Lol,

Jul 1, 2017

What I would do in the case of a top 20 MBA is look for one where you might be able to go part time and get tuition reimbursement from your employer. I was a career changer- total MBA cost for me was about $20k. Salary and job increased and I met my goals same as the other top 50 MBA students I work with. Granted top 50 isn't top 20. But it's still something to consider. I would say the MBA is worth it.

Jul 5, 2017

Look, you didn't post data general comp/firms/roles that you and your classmates landed. But the opportunities available across that spectrum for career changers are in no way equal. If you're staying in industry, I can see equal or close success from top50/top15/top5PartTime. But if you're seeking high finance roles (top consulting, banking or asset management roles) than it's pretty clear that "Top7>>Top8-15>Top5PartTime>>>>>Top20-50". An M7 full time program will put almost 200 students into top banking and consulting roles (I'm not even counting the Houlihans and KPMG's etc in those figures), A top 8-15 might place half that. A top 5 part time program like Booth/Kellogg/UCLA might place 20-30 at top firms, I'm not sure. A #35 MBA is going to cream when they place even a handful of students at MBB or a top bank.

If your career goals align with what an MBA does, you really get what you pay for. It sounds like your goals aligned well for where you went, and I congratulate you, but comparing the $20k expense vs $150k in tuition at a top 5 doesn't even begin to paint the full picture.

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Jul 6, 2017

Maybe I should have been more clear- my OOP for my MBA was $20k. I was comparing getting your employer to pitch in and going part time versus FT $150k OOP for top 20. No where was I saying a $20k MBA is as good as a $150k MBA. Because it's not.
My employer picked up the majority of my tuition and scholarships covered a lot of the rest. Financially and career wise it worked for me but I was really careful in my planning and hustled my ass off. I do think if best you can do is top 20 and can't do top 5/7 then it's worth it to consider P/T with tuition reimbursement.

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Jul 1, 2017

What hasn't been considered here is the element of risk associated with this commitment. In my opinion, there is less risk associated with a close to home program somewhere you are familiar with. To boot, who knows if you will be topping 100k after graduation from a top school? There are plenty of people who aren't able to go on and do that the way that they planned. Yes the average for many schools sit above this number, but there are many factors that put people below. There are also top schools where the salaries don't average as highly afterwards.

Basically, I think the risk would be lower for a public institution or even a school that someone genuinely wants to attend not based on credentials but based on comfort, livability and likelihood of success. It is truly the student who decides their own worth after graduation.

Jul 4, 2017

Yeah but those close to home programs a) sometimes cost nearly as much and b) don't generally provide you with the resources and opportunities that the more prestigious programs did. I went to a grad school that is very far out of the top 20, received no help whatsoever in getting a job, interviewing, or the like, and getting paid very little at my first job (for my city).

Jul 5, 2017

If you take out people who go to startups, public sector, etc, the % of students from a top 20 making under $100k is small. The distribution skews to the right, not the left. In the M7 it's even smaller. I have only one friend I know of that had a corporate offer under $100k. He sent them Booth's employment report and they upped the offer over $100k. He ended up taking a different offer for even more money.

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Feb 26, 2018

I jumped from slightly above 100K comp package to 140K comp package between 2016 and 2017, which is how you justify your business school experience post-MBA

Jul 4, 2017

Obtaining a higher paying career via MBA can certainly be value Accretive to your networth and for some folks their well being- but don't lose sight of the fact that you have to survive in that higher paying Career path which will very likely carry way more competition, stress and potentially less job security (like many high powered/pay careers).

I know several of my MBA classmates who took top jobs after taking on plenty of debt, then burned out in 2 years and chased less lucrative gigs for more personal time. They still had the tuition loans to service as you can imagine, not the best outcome per se. They wanted the prestige but maybe didn't flesh out whether it fit their overall goals.

Life changes a great deal in your mid- 30s as well , and many mbas are just slightly more mature undergrads just under 30 and chasing a goal they think will be fulfilling. My point is , think hard about what do you really think would be fulfilling to you - BC just jumping into some new job, however prestigious it may be, will not necessarily resolve current issues with a career/role.

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Jul 5, 2017
  • Good post. Were the roles that they burned out from in IBD or Consulting?
Jul 5, 2017
techjobsyankee:

- Good post. Were the roles that they burned out from in IBD or Consulting?

1 consulting, the other Citadel (buyside)

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Jul 5, 2017

Lever up baby

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Jul 5, 2017

For those that doubted the skepticism underlying my first comment, run some very basic math to see how the scenarios painted are wildly optimistic. Taking the most conservative salary expectations for the average T20 MBA path that is predicted above ($150K / yr starting with 10% raises) the predicted annual compensation for an average top 20 MBA at retirement is ~$2.62M ($150,000*(1.10^30)) which is clearly insane. Taking the high end would predict average compensation of ~59.3M / year by retirement. There's tons of misinformation on this board re comp since lots of folks just accept claims at face value.

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Jul 5, 2017

That's not how I'd think through this.

The issue is that literally no personal finance model is frankly worth anything after 10 years (I used to run cash flow models and hold the CFP/CFA). Modeling out more than 5 years is shaky at best.

So the difficulty is that you need to run a reasonable ROI model within that 5-10 year time frame, and then make some broad assumptions for the value of all that stuff that happens after 5-10 years.

For post-MBA ROI, I'd focus on 5 years since there's so much variability in who gets the promotes etc in consulting/banking and where folks end up after.

A few other thoughts:

Earnings should generally spike from a % standpoint for a few years after school, then might plateau for a while, then pre-retirement see another spike. If you're a consultant/banker/in high finance, and manage to stay in those roles, making $2.5mm a year isn't unrealistic especially with 15-20 years experience. I don't know any 60 year old consultants so that's another perspective haha.

If you expect to do 2-4 years in one of those roles and then pivot to somewhere where you plateau through middle management, you need to adjust for the lower growth rates. It can be helpful to take inflation into account too when thinking in terms of purchasing power.

If, by contrast, you stay a career consultant, bear in mind that people who go this path tend to retire at 15-20 years (burnout + earnings = R&R time). 15 years at MBB, at $175k starting all in and 18% growth rates, puts you at about $2.1mm in comp. Again, this sounds about right for an experienced partner. If you're not worth that much at 15 years you probably would have been out a long time ago. I agree that you shouldn't run your ROI on this, because it's too long and you can't account for all the variables.

But generally, again, I think it's trash to make assumptions as to where you'll be in 10+ years when modeling ROI. Especially talking about 30 years. Which means you can't really model the long term ROI of an MBA. But, really, this makes sense. There is absolutely no way to quantify what might happen when you're in your mid to late career and how the MBA network might benefit that situation.

When I modeled my MBA assumptions, I focused more on payback period. In any other investment, this would be a bad approach, but I think it's useful to see both in gross terms when you'll pay off the loans in your assumed career path, and also taking the annual or monthly difference in your expected post/pre MBA situation and calculating payback based on that. You can stop at 5 years and see how far along you are as a fair proxy.

When we take the 5 year time frame at your $150k/10% assumptions (i.e. most corporate roles/T3 and below consulting), we're looking at making $240k after 5 years. At 18% (consulting growth rates) and $175k (consulting starting all-in comp for top 6-7 firms) you're looking at $400k in 5 years - about right for a post-manager/pre-partner level role. I don't know what banking growth rates are but 18% at a starting all in of $250k gets us to $500-$600k in 5 years, which also sounds about right.

Finally, if you insist on looking at things on an until retirement time frame, than you should be taking the opposite approach. Personally, to analyze this I'd first determine what you want your purchasing power to be at retirement (net of social security, pension, etc) and when that would be , run that through different inflation expectations and then build a model around what you need to earn in order to get there, factoring spending, taxes, loan payoffs, investment returns on savings, etc. Build it with pre-MBA comp and post MBA comp and build in your payback schedule to the MBA loan (don't calc it, decide the time frame and just add in the amortization schedule). Then solve for the different discount rates in each scenario (i.e. what earnings growth rate would you need under each scenario to get where you want to be) and determine which look more obtainable, if any look lower than you would expect than that means you'd have extra money at retirement, if higher, you'd run the risk of shortfall.

Simple? No. Small changes in variables have big effects? Yes. Impossible to account for all variables? Definitely (case in point: something like 25% of people end up on disability at some point in their career). It's still absolute trash planning that far out, but it can give you a benchmark to start thinking long term.

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Jul 10, 2017

What are these $150K + 10% corporate gigs that you speak of? My understanding is that most corporate roles fall in the range of $120-130K all-in (with tech giants being the notable exception).

I am attending a T15 this fall and am a little concerned about my ROI given that A) I prefer corporate and not banking or consulting and B) my pre-MBA salary is decent (~$90K).

Jul 10, 2017

It's a fair question and I've pulled some numbers from known MBA employers. Bear in mind that corporate recruiting correlates with prior experience in many cases (or you need to show you know the industry/company really well). I've ignored the tech giants below.

Bear in mind that these numbers do not include sign on bonuses, nor do they tend to include things like 401k matches etc (which I would factor in to an analysis). I've gotten my figures from transparentMBA, and added average salary, average bonus and average "other".

Fidelity - Management Consultant (internal)
186k

JP Morgan - Management Associate
200k

Pepsico - Finance Manager (marketing manager is similar)
150k

Samsung MLDP (program managers and global strategists are also 150k+)
150k

Clorox
120k-130k

General Motors
120k-130k

Johnson & Johnson
120k

Medtronic
140k

Prudential
150k

DaVita
150k+

Disney
122k-162k

Hilton
90k

So yeah, you're right, there's definitely plenty of roles in the 120-130k range. Those $150k figures are pretty blue chip employers. But there's still plenty of examples in that 150k range. I'd encourage you to do your own research in your target industry and with your target companies. I don't know the salary growth rates for sure, but I'm still confident that they should largely best out pre-MBA growth rates for the first 5 years out of school. I'm also not 100% certain I've picked the right titles in each case, I'll leave that for you to decide with your own research. There's probably also a skew towards M7 over t15 for the higher paying roles. So another thing to factor in.

If you're at or under $80-90k in earnings pre MBA, then I still think it's definitely worth attending b-school for the tangential benefits in addition to the immediate salary boost. Under $80k, I think it's still a no-brainer if the roles align with your career goals. If you're around $100k and want to join a corporate in an industry that pays less, then you have some thought to put into the decision. However, those roles are also more negotiable. Consulting etc is take it or leave it and so are many of the LDP rotationals. But if you're an experienced finance professional or have hospitality experience and were making $80k before school, I bet you can negotiate up with Hilton for example. TransparentMBA also has a research report on negotiation data, seen below:

http://poetsandquants.com/2016/08/02/mbas-can-cant...

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Jul 10, 2017

My thought is that "other" is one-time comp. (i.e. signing bonus)... so the run-rate comp that raises are based on is a bit lower.

Jul 10, 2017

Check the website. Most if not all of those firms break out their signing bonus separately. I did not include them.
There might be reporting issues somewhere, but it's largely accurate. The offers I can validate from personal experience and friends are spot on. They also give bonus ranges, which is fairer than the top bucket estimates that you sometimes see reported.

Feb 24, 2018

Overall a good post. I wonder where you get a gig that increases by 10% a year, every year for an extended period of time. I have been in corporate jobs where merit increases were 1.5% a year and at worst, 0% during the recession.

Feb 27, 2018

I never stated that they'd increase by 10% a year, every year, for an extended period. I'd expect total comp, though, for someone in a program like JPMorgan's MAP or another prestigious corporate role to average ~10% a year with promotions and bonus increases. If you're only looking at merit increases, of course not, but that's not a true reflection of comp growth. For example, I worked for a PWM firm where I got a 1-2% merit increase a year but doubled my total comp in 5 years.

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Jul 5, 2017

Was worth it for me. Was in tier 2 consulting before that had a significant pay gap between analyst promote vs. MBA hires. I borrowed 100%, went into banking and survived to be a 3rd year associate. We have lost 50%+ of our class (both from my school in banking and my bank overall), but I've fully paid off all the debt earlier this year (didn't even try the save a lot). Making at least 2x of what I would have if I didn't do MBA and stayed in old job and got promoted. Don't have any hard assets (e.g. a house / apt / condo) or significant savings given I've been focused on paying down the debt, but I didn't skimp on life either (e.g. skipping eating out or going on nice vacations).

As stated above, depends on where you are now, what's the trajectory and if you can land a high paying job and survive.

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Jul 5, 2017

SB'd and I agree. Business school was well worth it for me too. I borrowed most of tuition but was able to have most of my living expenses covered through savings and my SOs income. I haven't paid off the debt yet as I'm saving for home, children, etc., but the annual debt service is definitely manageable and I'm still well ahead of what I made pre-MBA even after netting out the debt service.

I'm a fan of the process, you just gotta think it through for yourself as @abacab said.

Jul 6, 2017

Agree with this and would point to your situation as a good benchmark. You don't have to become MD in banking to make the MBA worth it; you most likely will be able to pay off the debt 3-5 years post graduation. Afterwards, you're left with a degree and a more successful career profile (even if you exit into corporate or other less demanding jobs).

Having said that, the likelihood of 1) getting a high-paying job that allows you to payoff debt in 3-5 years and 2) secure a brand/network that will allow you better career opportunities in the medium-long term are exponentially better if you attend a top 5 school. Guy that went to University of Miami MBA will probably not land at GS or have the network to raise capital / become SVP at Google 5-7 years post graduation.

Jul 7, 2017

Thanks for the useful info. As someone considering IB post-MBA, your use of the word 'surviving' is concerning. Are you able to elaborate at all? Is that people being cut for performance reasons or purely the hours are so brutal that people choose to leave? What do you think has enabled you to survive?

Jul 7, 2017

It's mixed. I don't think hours are brutal to the extent you'd imagine (e.g. not 100+ hours weeks every week - think more like 70-80 max). But it does take away lot of free time to do anything at nights or weekends. The job is also not for everyone. If you get easily shaken up or have a thin skin - doesn't really work.

Just the way the pyramid works, 30-40% associates can move up to VP anyway. My group didn't have to lay off anyone, but might be different in other places. Sometimes you are just nicely told to leave in near future. That was true in consulting too.

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Jul 5, 2017

This obviously doesn't apply to T20 but a buddy of mine did a local non-target PMBA. Made what I believe was $60-70K. Graduated and switched firms and now makes $85K. I'm pretty sure he has $100K in debt but he seems to be doing well. Shrugs

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Jul 6, 2017

Definitely worth going to MBA even if you don't get 'high finance'. You asked about top twenty and many people responded with M7 answers. If you're making $75k and get a random corporate job at P&G or some other Fortune 500 company, you'll still be better off.

Feb 25, 2018