Is an MBA Worth the Money?

A recent edition of The Economist magazine rated the top business schools. My b-school, the University of Maryland came in 51st in the world behind the other likely suspects within the U.S. such as UC Berkley, MIT, Harvard, Wharton, Northwestern and University of Chicago.

It got me to thinking about the financial and time commitment necessary to obtain an MBA - particularly in this age of a depressed economy and an increasing dissatisfaction with profit at all costs.

CNBC did a quick study comparing the costs of a b-school education at a top 10 university (sorry this did not include UMD) in 1998 and again in 2008. They then compared the earning differential which came as a result of the MBA.

"...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 the break-even point for an MBA today is 6.3 years as compared with 2.9 years only a decade ago. That is a disturbing trend.

What this would seem to indicate is that an MBA is still worth the money, but it is a better investment at a younger age. It was always thus, but the 6.3 year pay-off would seem to indicate that anyone over 45 think twice about investing $85k to $125k for an MBA at a prestigious school.

As a program manager I am often in the position of needing to manage expectations of the stakeholders to whom I support and to whom I report. Managing expectations involves providing realistic expectations between myself and my stakeholders and forever being honest. I wonder sometimes about the honesty of the b-schools as they seek out students to fill their classrooms.

Recently I received a note from UMD offering a $5,000 bounty to alumnus who direct a b-school candidate to College Park. At first I thought that was a new way for the school to recruit and after some consideration I have developed a distaste for the idea.

I enjoyed my time at UMD and have recommended prospective students to UMD without any fee. The idea of paying a bounty to direct b-school candidates to UMD creates the wrong set of incentives for me and for other prospective students. Let's say that I recommend someone to UMD: does that person believe that I am being honest with my recommendation, or does he/she think that I am merely setting myself up for a payday?

Bottom Line: My MBA from UMD was worth every penny and has opened multiple doors for me. I would hate to think that I might have gone to another school just because an alumnus was paid a bonus for recruiting me.