I earned my MBA in 2010, and I attribute quite a bit of my financial success to this degree. However, for many people an MBA may be unpractical or simply a waste of money. George Diaz recently finished his MBA at New York University, one of the top business schools in the country and, on a personal note, my grandpa's PhD alma mater. If you are debating getting an MBA, George's insights are particularly valuable.
Without any further ado, take it away George!
I recently got my MBA from NYU Stern's business school. I was inspired to write this because I want to give my opinion on the value of an MBA degree for anyone thinking about attending business school. This is not some fluff piece extolling the virtues of an MBA. This is the cold, hard truth as I see it.
Numerous studies have shown that those with more education typically live longer, are healthier, and perhaps most importantly, earn several times more than their less educated counterparts. After all, education is supposed to help us develop our skills. Now, we can have a debate about what in-demand skills a liberal arts degree or a philosophy degree actually impart on thousands of students every year, but let’s save that for another day.
For now, let’s focus on “harder” skills like programming, business administration, finance, medicine, and law for example. There have been numerous debates about the value of an education these days as millennials are increasingly burdened with crippling student loan debt without feeling as if they are getting a good return on their investment with a degree from fill-in-the-blank university.
This post is not about the merits of a four-year degree. However, a bachelor's degree is a prerequisite for getting into business school, so suffice it to say that I believe that one should get their bachelor's degree. It's a requirement for most good entry-level jobs, and you'll have a much tougher time competing with your bachelor degree-wielding peers for good jobs without one.
Now, for the million-dollar question, should you get your MBA? Well, it depends. Let me explain.
For Whom Is An MBA Best Suited
The Degree Monger
Maybe you went to law school already but decided that practicing law wasn't for you. Maybe you got a graduate degree in some other field that now bores you to tears so you decided to go back to school and attend business school.
If you want to learn about the fundamentals of business, save your money. Buy a book. Here's a great list. You just saved $100,000. Feel free to tip in the form of cash, check, or credit cards. That's not what B school is for.
The Ladder Climber
If you have worked for at least a few years, had some real world job experience, and have a (fairly) good idea of what you want to do, and how a degree can help you get there, then you are on the right path.
For example, you aspire to be a Manager, Director, VP at your company and a good portion of upper management in your company have business degrees, having an MBA is probably an unspoken requirement. There may be people who are in higher positions in the company without graduate level degrees, but if you dig a bit deeper, there's a good chance that they either worked at the company longer than their counterparts or had serious connections.
This isn't a be all end-all, but typically you'll need an MBA to advance quickly in the following industries:
- Consumer Products and Goods (CPG).
(For a complete list, see this article here)
The Career Switcher
You hate your job. You're stuck in a rut. If you have been working for at least a few years and don't want to start in a new field at the bottom of the pay scale, the easiest way to switch careers is through an MBA.
One huge caveat I should point out is that the other (and much cheaper) way is through networking. Now, if you can successfully switch departments within your company or network your way into a position at another company into your desired field, then by all means pursue that route. However, more often than not, it is difficult to get hired for a position or industry for which you have no skills or experience solely through networking. Few employers will take that risk.
An MBA is a great way to develop marketable skills and gain some experience in your chosen industry. However, you must attend a full time program. This is not optional.
I have friends who attended Columbia Business School, Northwestern's Kellogg, Chicago Booth, University of Maryland, Georgetown…and they are all pretty much in agreement that it is an entirely different experience attending a part time versus full time program.
An MBA gives you access. That is essentially what you are paying for.
- Fortune 50 companies send their HR recruiters to the top business schools.
- “Day in the Life of…” outings where students get to meet top executives at firms and spend the entire day shadowing, learning from, and speaking with employees at top companies only occur at top business schools.
- Summer internships, while open to everyone on the surface, are fiercely competitive, and are typically won by those who attended top business schools.
At the end of the day, you're paying for access–access to potential angel investors in your startup business, access to a powerful alumni network, access to that summer internship at that prestigious corporation, or access to face time with recruiters at top companies. If you don't attend a top 25 business school, there's a good chance that you may not get the same level of access. By not having the same level of access, you face a greater chance of not getting an immediate role at a great company.
However, it's not enough to have developed skills and attended a good business school. You actually have to gain some experience before someone will hire you. The best way to gain experience is through a summer internship. First year MBA students spend a good amount of time worrying about their summer internship because they understand its importance.
If you do well over the summer for an employer, there's a good chance that you will be hired upon graduation. This is how people not only advance in their current industry, but switch industries altogether.
If you're in a part time program, you still have access, but it's not quite the same. The summer internships are reserved for full time students. After all, you can't just take three months off your current job, right? Well too bad because this is where jobs are won and lost for career switchers. I'm not saying it's impossible to switch careers without a summer internship, but it will be much harder.
Paying For School
I remember when I first contemplated the idea of going to business school. I did a ton of research, listened to friends and family, and read tons of blogs. However, I was still undecided until I received one piece of invaluable advice. It came from my boss, the CEO of the company I was working for, and my uncle all within the same week.
They all said: “If you cant get into a top 25 school, or get your employer to pay for it, then don't do it. The ROI is simply not worth it.” These were smart people who attended Michigan, Harvard, and Georgetown respectively.
I had taken the GMAT but I scored below the median the first time around, and definitely didn't have a 4.0 in undergraduate school. Therefore, I was certainly worried. Still, when they explained it to me it made sense and once I ran the numbers.
Scenario 1 – Full Time
- The average business school tuition is at least $100,000
- If you attend a full time program, you have to factor the cost of not earning a salary for at least 2 years (opportunity cost).
- Let's say that you were earning $60,000/year.
- That means that the full cost of attendance is: $100,000 + $60,000 (opportunity cost) = $220,000.
Scenario 2 – Part Time
Let's run the numbers for attending school part time:
- $100,000 tuition.
- Continue to earn $60,000
- Full cost of attendance = $100,000
Scenario 3 – Employer Sponsored
Now what if you can get your employer to pay for school.
- Most likely will have to remain at your job for at least 1 year post graduation
- Full Cost =$0
Congratulations, you hit the lotto. Forget a matching 401K, this is the pinnacle of free money. If you can convince your employer to pay for business school then it truly doesn't matter what school you attend or whether you want to switch careers. It's free! Run, don't walk to the nearest business school before your employer changes their mind.
For those who can't get your employer to sponsor their education, the real question is whether or not the increase in earning power you hope to accrue upon graduation is more than ~$220,000.
Now this will vary depending upon the industry in which you work, as well as the seniority of your current and future position. For this reason, I'm not going into some detailed calculation of average 3% salary increases accounting for inflation an whatnot because, again, there is far too much variance in industries and position. In general, this is how you should view the ROI of a degree:
- If your salary will increase by at least $20,000 upon graduation, then you should attend business school.
- The chances of getting a big bump in salary increase drastically with the quality of your program due to access to a prestigious network.
In a nutshell, if you had spent two years with your head down at your current job, you probably would have been promoted and earned an additional ~10K. However, if you hit a ceiling and most likely will only be promoted to upper management with an MBA degree, then it's worth it to attend. Alternatively, again, if you're a career switcher, then you should attend a FULL TIME program.
With the additional $10,000 per year you will be making, the degree will pay for itself in less than a decade. Moreover, you will most likely be promoted more quickly than your peers who do not possess that degree.
Bootcamps vs MBA
But what if instead of spending an estimated $100,000 on your degree over the course of four years and ending up in debt, you were able to spend only ~$12,000 and three months in school? Bootcamps.
The interest in so-called boot camp programming is on the rise. Multiple reports note the increase in students attending bootcamps. Originally, boot camps were promoted as a way for low-income students to gain access to a quality education at a fraction of the cost of traditional private universities. However, boot camps have increasingly become a source of valuable talent in the eyes of employers.
Generally speaking, most higher education institutions have not really tackled the issue of the growing skills gap between what is being taught in academia versus what many employers in the “real world” are seeking.
Boot camps such as General Assembly, Hack Reactor, and Dev Academy have recently sprung up to meet the demand from employers seeking students who have an increasingly rare skill set. Rather than students spending time on their own brushing up on their skills through books, one-off classes, or one-off coaching, these boot camps have given a more focused, collaborative, rigorous, and supportive environment in order to foster a more refined knowledge of the skill looking to be developed.
If you're attending business school because you want to develop your analytical capabilities, then you should attend a bootcamp. Data science, data visualization, marketing analytic, and the like are all hot fields. There's big data, artificial intelligence and machine learning! People who understand these fields and have the skills to understand and interpret the huge amounts of data being generated are going to be in demand for the next 20 plus years. The fastest way to a role in one of these exciting new fields is through bootcamps.
Ok, now let me step back for a moment here. I attended one of these fancy, expensive MBA programs so why am I talking about bootcamps? Well you think that I would be making 200K at some fancy Wall Street Firm right? It was all worth it? Sadly, the jury is still out (and no I’m not making 200K at some cushy job).
Don’t get me wrong, I loved my MBA experience and I learned an awful lot. However, I now face the reality that I will probably be paying student loans for the next 10 years if I continue to work a 9-5, and that I have a nagging feeling that I could have gotten my current job working in digital media without my fancy degree. Perhaps I could have even spent the past 2-3 years building experience (rather than education), and making even more money!
So which is it? Should you attend a traditional university, gain a bigger network, and have a more-well rounded education? Or should you attend a three-month boot camp, save a considerable amount of money, but be well versed in only a much more narrowly defined set of skills? Which do employers prefer? Well, as with most things, the answer depends. Let’s do a quick Pro/Con (MBAs and their damn spreadsheets I know, I know)
|Well Rounded Fundamentals||2||Defined Skill Set||2|
|University Degree for Life||4||Stepping Stone to Advanced Learning||3|
|4 Years (Slow)||1||3 Months (Fast)||1|
|Expensive (50-125K)||Cheap (Free-15K)|
|Established Work Samples (paper, projects)||Fewer Work Samples|
|Recommendations from Faculty & Alumni||Recommendations from Faculty|
This is merely an example, but you can use it as a template. You should basically list your goals and assign a score to each item in your table to weigh its importance.
For example, having to relocate and pay for housing in another city to attend school may be huge negative to some, but not a big deal for others. Total up the score for each column and the one with the most points wins.
Look, in my humble opinion, and coming from a clearly biased perspective, it comes down to pure ROI. I work in digital media and aspire to be a successful entrepreneur with my new website. It is debatable whether one can go to school to learn how to be an entrepreneur. Moreover, I probably could’ve acquired digital marketing skills (such as paid search, SEO, HTML) through a much cheaper online course, coupled with real world experience. Not sure if I needed to pay 100K+ for a grad degree.
If there's one thing I can take away from my MBA experience, it's the idea of risk. You'll need to assess the risk of what your degree will cost you. Is the investment worth it?
Call me a fool, wise, ungrateful for my education. I can handle it. It's just my opinion. Would love to hear yours. Let me know your thoughts in the comments section!
George Diaz is a personal finance blogger at Sobre Dinero. Where he helps readers deal with debt, mortgages, and more.