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« Content Management | Main | Big In Japan » April 14, 2005Plastic: Where Have All The MBA Candidates Gone?Plastic has a thread on "Where Have All The MBA Candidates Gone?" in response to an article in BusinessWeek Online. Applications to the top business schools are down (30% since '98, according to BW), and the business school industry - faculty, staff, program offices, etc. - are starting to freak out. What to do? Business school is a hard sell. It's a two-year commitment, coming for most people at a time when their careers are just starting to get traction. Average age of the UW Class of 2005 is 28 years old, which means our folks have, generally, about 6 years of work experience. That's a few promotions, a few merit raises, and, generally, a salaried (not hourly) job. As memory serves, the average incoming salary for our class was about $55,000 a year. So you're going to put your budding career on hold for two years. That means you're losing both forward job momentum and the wages you'd have earned while working. On top of that, you're going to need to pay tuition/fees/books, cover your living expenses, and have some kind of cushion in case your job search doesn't go swiftly. Add it all up (or just take a look at the page on the UW server): Foregone wages: $55,000 x 2 = $110,000 So, your rough cost to do business school is $169,482. If you go to a school like Stanford, you're going to spend close to $40k a year on tuition alone. If you're living in an expensive metropolitan area like New York, your living expenses will go up. And if you don't like Top Ramen, you might want to figure more like $20,000 in living expenses so you can go out once in a while. Ten thousand here and there, and pretty soon we're talking real money. A friend of mine at Kellogg was talking about amortizing his loans over 20 years, in order to make his cash flow more manageable. As a point of reference, my folks bought their first house on a 20-year note. Back in the go-go '80s, when people believed the degree was an immediate ticket to a six-figure salary and opulent retirement at the age of 40, a lot of those concerns were less relevant, seen as the price of entry to an exclusive club where, once admitted, cash would not be a problem, anyway. Party on. But looking at how the UW Class of 2004 did, it's pretty clear that the variance in salaries is high, and the chances of placement are less than 100%. (And we've got the best placement scores in the world for two months after graduation!) Is all this giving prospective applicants pause? You bet. Let's say that you're making $55,000 a year right now, and you're thinking "MBA." If you're in Seattle, the mean MBA starting salary is $75K. So the MBA is going to give you a $20,000 "pop" in your wages. Taxes will take between 25% and 28% of that, so you're left with about $15,000 a year in new income. If it cost you $169,482 to go to school, then you'll pay it all off in 11.3 years (barring interest on your loan, promotions you get, raises, inflation, yadda yadda. This is for illustration only. Maybe I'll link in a spreasheet when I have more free time.) Like I say - prospective applicants aren't stupid. If the degree looks like it's more trouble than it's worth, they're going to find other ways to spend their time and money to improve their lot in life. Don't get me wrong: I think the MBA is a fantastic thing. I don't feel - ever - that my time would have been better spent doing "something else" for the last two years. Of course, my circumstances are pretty particular and specific: I came in knowing what I wanted out of the program, what I wanted to do after graduation, why I wanted to do it, and what I needed to do to make sure I got it. (And I've also been very, very lucky.) So I'm in the minority. And, as near as I can tell, most of my classmates at UW are also in a minority. None of us are after "big money" - we all want the degree because we think it will be helpful in our lives, whether we want to work for T-Mobile, Amazon, or a small, renewable-energy nonprofit. But are there enough of us minorities to sustain the current infrastructure? Honestly, I doubt it. I suspect small, boutique programs like UW will be fine, but the larger, 900-person programs are going to have to start finding ways of making the MBA relevant - and accessible - to larger groups of people, or face dramatic change. UPDATE, January 1, 2006: One or more of the original hyperlinks on this page expired, and has been dereferenced. The hyperlinked text is now underlined. Posted by Gavin Shearer at April 14, 2005 7:21 PM. Posted to UW MBA. CommentsI don't know how I missed this post in the past. In our finance class we were posed with this same question - is the MBA worth the cost? It was basically an amortization exercise, learning to use Excel, and I honestly don't remember all of the assumptions we made for the model. But generally, the model did include the UPSIDE of the MBA, which strangely, your post does not. You're only looking at the immediate short term cost. Of course you are going to see a huge drop here, because an MBA is essentially and INVESTMENT, and like most investments require a big initial output of money (just think of buying a house - similar). Your earning power is so significantly increased (that $20k "raise" is almost a 50% upswing!) and those three stupid little letters after your name continue to contribute to your earning power in the future. Suddenly that $169k doesn't seem like it's so hard to pay back anymore. Esp if it's amortized, and the value of your payments becomes a smaller and smaller percentage of your income (inflation helps in this way - again, think about your house payment over time. You also have refinancing options too). Perhaps this is why you almost never (there are a few exceptions) find an MBA who got a scholarship to go to school. Really it's because most everyone will have the means to pay it back. In the end, it does almost always pay off. The conclusion from the analysis in our Finance class - Get the MBA as soon as possible to maximize your return! Go for it! Posted by: E.Chen Post a commentThanks for signing in, . Now you can comment. (sign out) (If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.) |
