Tuesday, May 30, 2017

Why The MBA Beats The MD & The JD

The cost of getting an MBA degree can be staggering, leaving students with heavy debt burdens after graduation. But the perennial question every new generation of MBA applicants have is, does the degree still pay off in dollars-and-cents terms? 

A new return-on-investment analysis on graduate education shows that the MBA continues to beat all other degrees when it comes down to value.

The study by San Francisco-based Priceonomics to determine which advanced degrees produced graduates with the most (and least) student debt and how that compared to post-degree income immediately after graduation. 

Researchers analysed MDs (medicine), DDS (dentistry), Pharm D (pharmacy), JDs (law), Masters in Science or Engineering, Masters in Arts, and other masters degrees. They also examined the impact of a university’s brand on a graduate’s earnings.

The study found that MBAs had the lowest debt-to-income ratios of  0.71. That compares with medical professionals’s debt-to-income ratio of 1.41, master’s of arts at 1.07, or law at 1.0. 

Medical professionals incur the most average debt at  $191,200, followed by law graduates at $139,900 (see below table). The average debt for an MBA was $89.900.

The analysis, moreover, tends to underestimate the MBA’s value: the stated first-year income for MBAs of $127,200 is substantially below the actual figures for graduates of the top schools. Last year, the median total compensation package—including sign-on bonuses and other guaranteed pay— for MBAs at two dozen of the most highly ranked institutions exceeded the reported average in the study. In fact, the total pay for MBAs at Stanford, Harvard, NYU, the University of Virginia, and the University of Michigan topped $150,000, with Stanford GSB grads making a record $163,827.

The analysis also understates the value of an MBA because employment rates out of business school tend to be substantially higher than they are for law school grads and many other master degree holders. Finally, leading business schools tend to be far more generous with scholarship aid than many other graduate schools. At Harvard Business School, for example, roughly half of the school’s MBA students currently receive fellowships, which now cover more half the cost of the annual tuition of $61,225. Last year, HBS gave $34 million in scholarship aid to not much more than 950 students. While this generosity would lower the debt burdens in Priceonomics calculations, the study wouldn’t capture graduates with full rides or substantial awards who wouldn’t need to borrow any money at all for their education.

A study commissioned by Poets&Quants, for example, showed that over a 20-year career a Harvard MBA made $3,233,000 in income, while a Stanford MBA pulled down $3,011,000. At Wharton, the total was $2,989,000 and at UC-Berkeley’s Haas School graduates earned $2,858,000. The higher ranked the school, the more career income MBAs made. Median total compensation for an MBA from the top three schools was $3,011,000 versus $2,759,500 at a top ten, $2,266,000 for a top 50, or $1,771,000 for all MBA degree holders.

School Reputation Matters 

Degrees from the most highly selective schools come with tangible financial benefits. For all disciplines except medicine, graduates of top-100 programs enjoy lower debt relative to their income upon graduation. This trend continues after graduation, with the exception of engineering graduate students, where students from less prestigious schools have more favorable debt to income ratios six years after graduation than their counterparts from higher ranked schools.

The average MBA makes six figures after spending one or two years in graduate school. They typically take on around $90,000 in debt, but consistently enjoy a low debt-to-income ratio. This is doubly true for graduates of top-100 business programs, who enjoy the high income that comes with access to a high-powered alumni network.

For more information, please see Poets & Quants

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