Is the Value of an MBA Worth $100K in Debt? Here’s How to Decide

 August 28, 2019
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Value of an MBA

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The Master of Business Administration (MBA) degree is a valuable one in the world of management and entrepreneurship. In fact, four out of five business school alumni rate the value of their graduate management education as outstanding or excellent, according to a 2018 survey by the Graduate Management Admission Council.

At the same time, fewer of those graduates — 73% — considered their programs to be financially rewarding. Although MBA holders command high salaries, most also take on a significant amount of student debt.

Many graduates of full-time MBA programs leave with well over $100,000 in student loans. Before taking on that much MBA debt, here’s how to evaluate the true value of an MBA.

How to decide if the value of an MBA is worth the cost

1. Think about your expected outcome

Common advice for those pursuing an MBA is to attend the most highly ranked school you get into. But rankings don’t necessarily tell you much about how a program improves your job prospects or earning potential.

Instead, research employment rates and salaries. Learning what your income potential can help you decide if an MBA makes financial sense. To start your research, consult the Bureau of Labor Statistics’ Occupational Outlook Handbook. This tool allows you to compare a variety of professional fields and roles. You can review the median pay, the amount of job opportunities available, and the typical required education level for each occupation.

Remember that a degree is only one element among many factors that can influence your salary. Other factors, like your job history and past earnings potential, count as well.

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 or more after graduating, you likely shouldn’t pay $100,000 for the program.

2. Do a cost-benefit analysis

Before enrolling in an MBA program, calculate its full cost. 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, an MBA graduate and personal finance blogger.

Nardini suggested doing a cost-benefit analysis. Identify your professional goals, and estimate how many years it will take you to pay off your MBA loans. For Nardini, the degree was worth it because he could reasonably expect to break even in five years.

Don’t forget to include personal goals in your cost-benefit analysis, too. If you plan to get married or have kids, consider whether business school debt could impact how soon you can meet those milestones.

3. Make a student loan repayment plan

It’s easy for student loans to feel abstract when you’re in school — when you’re focused on classwork, you may not regularly think about your loans for the length of your MBA program.

But before taking on business school debt, write down the details of your student loan repayment plan. Figure out your future 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, 10 years or more, and aim to get rid of your loans as quickly as your budget will allow.

Let’s say you take out $100,000 in loans with a weighted average interest rate of 7.08%. On a 10-year repayment plan, you’ll pay $1,165 per month and a total of $39,825 in interest over time. If you pay $1,984 per month, you’ll wipe out your loans in five years and save $20,791 in interest, according to our Student Loan Calculator.

Once you have a steady income, you might also be able to refinance your student loans to a lower interest rate. Refinancing allows you to choose new, potentially 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 find ways to reduce it. For example, you could study for your MBA part time and work at the same time. Or you could find an on-campus job to help cover costs.

Explore scholarships and grants from schools and independent organizations, reach out to schools’ financial aid offices to find out about payment plans, and request fee waivers for the GMAT exam and your business school applications.

Or you can pursue more adventurous options. LaKiesha Tomlin, an engineering manager and owner of Thriving Ambition, a leadership and coaching service, suggests MBA students consider international programs that might cost less.

“I’ve known some people [who went to] schools in France and have amazing job prospects here in the States,” she said. “These programs are well-organized and provide an education with a global perspective.”

Is an MBA the right move to make?

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

Companies in the United States offer a median base salary of $105,000 to recent MBA graduates as of 2018, according to the Graduate Management Admission Council. Meanwhile, new hires with only a bachelor’s degree can expect to earn a median salary of $65,000.

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

Jacqueline DeMarco contributed to this report.