What’s the return on investment of an MBA? GMAC, the makers of the GMAT, sought to find the answer by surveying 14,279 alumni of 275 business programs around the world. Though any assessment of ROI is fraught with assumptions, GMAC concluded that for alumni of two-year, full-time programs, it took on average three and a half years to completely recoup the cost of their education. For shorter or more flexible MBA programs, such as one-year, part-time, online, or executive MBA programs, as well as other graduate business degrees, it took less time to completely recoup the costs. Alumni of part-time, online, executive, or one-year programs had to work an average of two and a half years after graduation to earn back the cost of their education.
This difference between two-year MBAs and other programs is due to the differences in tuition costs, as well as opportunity costs of each program — the amount of income a student gave up in order to pursue her education. To calculate opportunity cost, GMAC took survey respondents’ base annual salary before they began their program and multiplied it by the duration of their program. GMAC then added this cost to the total out-of-pocket expenses students took on to finance their education, including tuition, loans, and fees, but excluding scholarships and other forms of assistance that students didn’t need to pay back.
With this total investment cost calculated, GMAC then looked at respondents’ salary boost post-graduation and their salary a few years later to obtain and estimated their rate of annual salary growth, which GMAC then used to calculate how long it would take for graduates to earn back a return on their investment.
The median cost of investment for a two-year, full-time MBA student was found to be $105,000, while for an executive, online, or part-time MBA student, the median investment cost was $25,000. However, two-year MBA alumni enjoyed a larger initial boost in salary.
Salary is just one aspect of ROI. Alumni also rated their educational experience according to their expected outcomes including personal development and growth, knowledge and skill gains, and increased job security. Overwhelmingly, respondents were highly satisfied with their education’s ability to meet these expected results.
While GMAC’s report casts a graduate business degree as a smart economic and professional choice, remember that the decision to pursue more education is as much subjective as it is objective. Don’t forget to also take into account lifestyle benefits that are less quantifiable, but are nevertheless important, such as time with family, personal development, and more. Also, benefits like a higher salary and greater professional opportunities are great, but they don’t make compelling application statements. Make sure that your decision to pursue an MBA matches your current needs as well as your goals.