People pursue MBAs for a variety of reasons. Unsurprisingly, the most popular reason is still to earn more money.
And, in fact, many MBAs do earn more money upon graduation. Across the board, MBA salaries are high. For graduates of elite schools, they’re very high. At the same time, however, there are significant costs associated with pursuing an MBA.
Tuition and fees for top programs in the US and abroad continue to rise. For many, paying for school means taking on debt, which can linger for five to ten years or longer. For full-timers, there’s also a huge opportunity cost associated with taking time off from work (usually during prime working years) to pursue an advanced degree.
Unless you’re already an Excel wiz, determining the potential return on a full-time MBA education can be tricky business. This tool will help you do the math, accounting for the cost of the program, student loan interest, and foregone earnings.
Getting To Know This Calculator
There are two paths in front of you: one in which you pursue your current career track and one in which you pursue an MBA. This calculator will help you estimate how those career paths compare in terms of net earnings.
o avoid complicating matters, the results are shown as non-discounted cash flows. That might annoy some finance types among you but, if you’re looking for summary metrics like NPV, you can probably do this analysis yourself. (If this sounds foreign to you, don’t worry, the tool is easy enough to use without any knowledge of finance.)
The MBA ROI CALCULATOR tab
On the MBA ROI CALCULATOR tab, enter your pre- and -post-MBA salary details, expected tuition and fees, and student loan info. You can’t see the future. So, in some cases, you’ll need to work with best estimates.
On this tab, you’ll also see cumulative earnings summaries for years 5, 10, 15, and 20 years post-graduation.
The ROI SUMMARY tab
On the ROI SUMMARY tab, you’ll see the ROI summary calculations for all 20 years. The Net Benefit is equal to your total earnings, less foregone earnings, tuition paid out of pocket, and student loans payments. For further detail, see the ROI CALCULATION DETAIL tab.
The ROI CALCULATION DETAIL tab
This tab shows the detailed ROI calculations, based on your inputs, that produce the summary line items on the ROI SUMMARY tab.
- Month Column: The month column is fairly self-explanatory. Each row corresponds to a single month in the analysis period. Rows featuring negative numbers represent the months leading up to graduation. Rows featuring positive numbers represent the months post-graduation.
- Opportunity Cost Column: The opportunity cost column shows foregone earnings. In other words, it represents an alternate future, in which you work a job that doesn’t require an MBA. The earnings from this job are subtracted from the net benefit.
- Tuition Paid Column: The tuition column shows tuition paid out of pocket. This calculator assumes that tuition is paid in months 1, 5, 13, and 18.
- Loan Payment Column: The loan payment column shows payments toward principal and interest on student loans. Payments begin the number of months after graduation that you specify on the MBA ROI CALCULATOR tab. Complete details of the student loan repayment plan – which are driven by the payment you specify on the MBA ROI CALCULATOR tab – are shown on the LOAN AMORTIZATION tab.
- Income Column: The income column shows income during the MBA program and post-graduation.
- Net Column: The net column shows the net benefit in each month attributed to the MBA program. The total is equal to income minus opportunity cost, tuition paid out of pocket, and student loan payments.
The LOAN AMORTIZATION TABLE tab
On the LOAN AMORTIZATION TABLE tab, you’ll see the complete details of your student loan repayment plan. The payment you specify on the MBA ROI CALCULATOR page will determine how long it takes to pay off the loan as well as how much you pay in interest over the lifetime of the loan.
- Month Column: This calculator assumes that installment payments are made at regular intervals – one each month. This column marks the month in the repayment term.
- Payment Column: This is the fixed-sum monthly payment you entered on the MBA ROI CALCULATOR tab.
- Interest Column: This column shows how much of each monthly payment goes to interest. It’s calculated by multiplying the periodic interest rate (annual interest rate / 12) by the previous month’s outstanding balance.
- Principal Paid Column: This column shows the amount of each payment that’s applied toward the outstanding balance.
- Balance Column: This column shows how much you have left to pay, after your payment is applied to interest and principal.
The SALARY TABLES tab
The SALARY TABLES tab shows the detailed breakdown of all salary calculations, which impact both the opportunity cost (pre-MBA career track earnings) and post-MBA income.
- Month Column: Each row in the month column corresponds to a single month in the analysis period. Rows featuring negative numbers represent the months leading up to graduation. Rows featuring positive numbers represent the months post-graduation.
- Current Salary Column: The current salary column shows monthly earnings for your current job projected out into the future using the growth rate you supply on the MBA ROI CALCULATOR tab. Figures shown in this column are used to calculate opportunity cost.
- Income During MBA Column: This column shows monthly earnings during the MBA from internships or other part-time work.
- Expected Salary Column: This column shows the monthly earnings from post-MBA employment. Earnings begin after the number of months you specify on the MBA ROI CALCULATOR tab.
Considering All The Factors That Contribute To Return On Investment In An MBA
To determine the ROI of your MBA, you need to take into account all of the costs and benefits, including salary increases, forgone earnings, tuition and fees, and student loan interest.
MBA Tuition And Fees
MBA degrees are costly. While tuition prices vary widely, the annual cost of attendance at top schools now tops $50,000. Still, that’s not all students need to worry about. Many top schools are located in big cities where the cost of living is high. For students who relocate to these areas, this means paying more for housing, transportation, groceries, and entertainment. And, while a lot of companies will reimburse you for travel expenses to attend out-of-town interviews, not all do, and travel costs can add up.
Tuition costs are climbing, especially at elite schools, and MBA students are taking on more debt to fund their educations.
By no means are student loans a good thing. But, in this case, they aren’t all bad, either. After all, federal student loans make it possible for just about anyone to obtain the skills and credentials needed to boost their earning potential. When it comes to MBAs, that boost can equal a salary increase of 100% or more.
In any event, debt does change the equation.
Interest rates on private loans vary widely, depending on the applicant’s credit score, while interest rates in 2018 for graduate school loans from the federal government stand at 6.6%. When thinking about whether an MBA is worth the investment, the total cost of borrowing money to fund your education is an important consideration.
Fortunately, MBA grads typically earn enough to pay off their debt in short order, limiting the amount they’ll pay in interest. Once they start working, they also won’t have any trouble refinancing their student loans at lower interest rates, which can help to accelerate the repayment process.
Opportunity Cost Of Working While In School
Generally speaking, pursuing a full-time MBA means taking up to two years off from work, at least the kind where you’re tied up for 40 hours or more every week. If you’re currently employed and you quit, you’ll obviously forgo your salary, plus any raises that might come your way over the next two years. It’s important to factor this into your decision.
Your Pre-MBA Potential And Career Track
There’s a good chance that you’ll earn more money over your working lifetime with an MBA. How much it will improve your career progression is something you’ll need to consider.
Ask yourself what you can do without an MBA. Can you reach management at your current company? Can you transition to the job that you really want and then advance relatively quickly? If so, perhaps there’s a smaller gap in earnings with and without an MBA than you thought.
At the end of the day, there are multiple paths to success. Try to visualize all of the ones open to you to arrive at an accurate estimate of your non-MBA track earning potential.
Post-MBA Earning Potential
To get a true sense of whether the investment in an MBA is worth it, you’ll need to accurately estimate your post-MBA earning potential. While many schools advertise high average starting salaries, you shouldn’t assume that everyone is clustered around the mean.
In every graduating class, you’ll have high and low earners, who sometimes fall far outside the norm. Sometimes the variance owes to the type of job a student decides to pursue. Finance and consulting jobs, for example, tend to pay more. (This probably isn’t news to you.) Other times, it’s about the student and his or her abilities and attributes.
Consider both your hard and soft skills. Do you have superior technical skills? Are you great at interviewing? Are you the person that’s going to ace the interview for the consulting job that comes with a $150,000 starting salary? Or are you a better fit for an operations role that will net you a respectable, but slightly lesser, starting wage.
Be honest with yourself when trying to estimate your MBA-track earnings potential.
This calculator will help you to estimate the potential return on investment in a full-time MBA. There are a number of built-in assumptions, which will match the real-world experience of a vast majority of MBAs, that are used in the calculations. In case you’re curious, they are as follows:
- From start to finish, the program length is 21 months (e.g., September 2018 to May 2020)
- Loans are disbursed at months 1, 5, 13, and 18
In the near future, we do plan to publish a more flexible calculator, which should better accommodate part-time degree seekers.
What This Calculator Won’t Tell You
This calculator should help you understand what your financial future will look like, with and without an MBA. However, it’s also important to acknowledge what a calculator like this won’t tell you.
You can put whatever numbers you like into this calculator. It’ll do the math, as you see it today.
It’s very hard to predict periods of unemployment, and how long they’ll last. It’s equally difficult to predict how quickly you’ll be promoted or how much raises will net you. This calculator won’t help you with any of that. The further out you go, the more likely it is that your predictions will fail.
What’s more, this calculator isn’t going to help you account for the intangibles, like whether an MBA will bring you a rewarding work life. You’ll need to do that yourself.
Download The Calculator
Do you have questions or comments about this calculator? Do you have ideas about how to make it more practical and useful? If so, don’t hesitate to share them in the comments or via email.