Is Getting Your MBA Worth $100K in Debt? Here’s How to Decide

business school debt

The Master of Business Administration (MBA) is a valuable degree in the world of management and entrepreneurship. In fact, 95 percent of business school alumni rated their education as valuable, according to the Graduate Management Admission Council (GMAC).

At the same time, only 76 percent of those surveyed considered their programs to be financially rewarding. Although MBA holders go on to command high salaries, most also take on a significant amount of college debt, too.

Many graduates of full-time MBA programs leave with well over $100,000 in student loans. Before taking on that much MBA debt, take a minute to consider whether the investment is worth the cost.

How to decide if business school debt is worth the cost

1. Think about your expected outcome

When it comes to MBA programs, common advice is to attend the most highly ranked school. But rankings don’t tell you much about how a program improves your job prospects or earning potential.

Instead of focusing on rank, do some research on employment rates and salaries. For instance, U.S. News highlighted 11 schools, including the University of Arizona and the University of Connecticut, for their high value.

MBA grads from these schools made over $100,000 within three months of graduation. Plus, they had a manageable debt-to-income ratio, with their first year salary exceeding their MBA debt. And as it turned out, only one of these schools — the University of Texas at Austin — had a ranking in the national top 20.

Of course, these outcomes represent the average grad. You should also think about your own qualifications and experiences.

“An MBA will leapfrog your career, but it doesn’t replace your job history and past earning potential,” said Cyrus Shepard, former business school financial officer and owner of StudentPop. “What you make post-MBA is greatly influenced by these factors.”

Before taking on business school debt, make sure you feel confident about both your own experiences and the value of the degree. If you do, the MBA debt could be a smart investment in your future. But if you don’t expect to make $100,000, you probably shouldn’t pay $100,000 for the program.

2. Do a cost-benefit analysis

Before enrolling in an MBA program, you need to calculate the full cost of the program. Beyond tuition, you’ll pay for books, lodging, and student fees. Plus, you might not be earning an income while you’re in school.

“List the costs of the program, including all expenses associated with getting the degree, as well as lost wages if you will be taking time off work to study,” said John Nardini, MBA grad and personal finance blogger.

Nardini then suggested you do a cost-benefit analysis. Identify your professional goals, and estimate how many years it will take you to pay off your loans. For Nardini, the degree was worth it because he could reasonably expect to break even in five years. But if it took 10 years to pay it off, it wouldn’t have been worth the investment.

Of course, you can’t control the economy or job market when you graduate. But if you set specific career goals, you’ll have a better sense of your future earning potential.

And don’t forget to include personal goals in your cost-benefit analysis. If you plan to get married or have kids soon, consider whether business school debt could postpone or impact those important milestones.

3. Make a student loan repayment plan

It’s easy for student loans to feel abstract. You take out the recommended amount to pay for grad school and then forget about your loans for two years.

But before taking on business school debt, write down the details of your student loan repayment plan. Figure out your monthly payments and how much you’ll spend on interest overall. Compare payments based on whether you will pay your loans off in five, seven, or 10 years. This will help you understand how much money you’ll need to pay off and when.

Let’s say you take out $100,000 in loans with a weighted average interest rate of 6.80%. On the 10-year repayment plan, you’ll pay $1,151 per month and $38,096 in total interest. If you pay $1,971 per month, you’ll wipe them out in five years and save $19,854 in interest.

Once you have a steady income, you might also be able to refinance your loans for a lower interest rate. Refinancing allows you to choose new, better terms so you can pay your loans off as fast as possible.

4. Try to cut costs

If the cost of an MBA program seems too high, you can always find ways to cut back. For example, you could study for your MBA part-time, so you can work at the same time. Or you could find an on-campus job to help pay costs.

There are also scholarships and grants from schools and independent organizations. More than 25 percent of MBA students earned merit-based financial awards, according to GMAC.

Others received tuition assistance in exchange for teaching or helping faculty members. And 28 percent of full-time MBA programs offered need-based scholarships in 2016.

If you’re concerned about tuition, speak to financial aid offices and search for scholarships. You can also snag fee waivers for the GMAT and your business school applications.

Engineering manager and owner of Thriving Ambition, LaKiesha Tomlin, has unconventional advice for lowering costs. “I suggest that MBA students take a look at international programs,” she said. “I’ve known some people to go to schools in France and have amazing job prospects here in the states. These programs are well organized and provide an education with a global perspective.”

Whatever you decide, know you have options to reduce costs. While the sticker price of a school starts high, you could ease the financial burden with scholarship money or part-time work.

Is an MBA worth the high cost?

With business school tuition higher than ever, an MBA degree means MBA debt. But an MBA remains one of the most valuable graduate degrees in the world.

The median entry-level MBA graduate makes $75,513 a year, according to GMAC. And the median C-suite executive earns over $440,000.

Your earning potential after graduating largely depends on the quality of the program and your work history. By examining both alumni outcomes and your professional experiences, you can make an informed decision about how much you should pay for your MBA.

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