MBA Return On Investment

Business Schools Seek to Reinvigorate the MBA Using More Personalized Degree and Course Offerings

Just as the decline in the number of applicants to two-year, traditional MBA programs has spurred changes in the MBA delivery model, it has also incited innovation within graduate business school curriculums. Administrators and educators are working hard to ensure the MBA remains relevant to prospective students and employers alike. An article published earlier this year on, identified key trends within the MBA. In addition to changing program formats (increased use of online, flexible, and part-time programs) and an increase in shorter, specialized graduate management education programs, the article calls out two trends affecting the substance of the MBA: STEM designation and “breaking boundaries.”

The first trend, “STEM” (Science, Technology, Engineering, Mathematics) designation, granted by the U.S. Government, can cover either the full-MBA degree or component programs within the MBA that have a strong emphasis on data, analytics, and quantitative skills. This designation is not only appealing due to the number of tech employers who are recruiting MBAs, but it also makes an MBA program more attractive to foreign students. The STEM designation means that program graduates are eligible for a work visa that allows them to remain in the U.S. for up to three years post-graduation as opposed to just one. The STEM designation also broadens the appeal of business school to a more diverse array of prospective students. In mid-September, Johns Hopkins was the latest school to announce that its MS in Marketing will be STEM designated starting in 2020. And there are many other programs with the designation throughout the country. Currently, the University of Rochester Simon Business School is the only one that has the designation for all specializations within the full-time MBA, but others including the University of Wisconsin-Madison, Notre Dame Mendoza, and Duke Fuqua offer some certified specializations.

The second trend, “Breaking Boundaries” references programs that are challenging and expanding upon the traditional core business curriculum. Some programs are collapsing the core courses in finance, marketing, and communications into one interdisciplinary course. This allows students to obtain the information in a more organic and comprehensive way, as well as freeing up time for students to take additional electives within their areas of interest. MBA programs are also partnering with other academic departments at a greater rate to create cross-disciplinary degrees that appeal to employers and students who want to start working with a higher level of industry expertise. Michael Wiemer, senior vice president and chief officer of the Americas at the Association to Advance the Collegiate Schools of Business says, "The emerging demand is for shorter, condensed, and highly relevant offerings offered in a variety of convenient formats." In August, UT Austin’s Dell Medical School and McCombs Business School announced a partnership for the Master of Science in Health Care Transformation. Even more recently, HEC Paris announced the creation of a double-degree program along with the cooking school L’atelier des Chefs, as a direct response to increasing demand from its students for careers in the hospitality sector.

Further demonstrating business schools’ commitment to offering the most relevant curriculum, a Poets and Quants article published last week noted that in 2019 182 new courses are being offered across all top-25 ranked schools. This is an increase from 2017, when 21 of the top-25 schools offered 132 new courses. Ten of the top 25 schools are offering at least ten new courses, which is also higher than in 2017 (four). Dartmouth Tuck and Harvard have the highest number of new offerings at 13, followed by Columbia and Rice (12), Texas McCombs (11), and then Michigan Ross, Yale School of Management, NYU Stern, Chicago Booth, and Stanford GSB each with ten. The courses range in topics but include 20 with a focus on Data and/or Analytics, ten on AI and/or Machine Learning, 12 on Entrepreneurship, and ten on Tech. While, the majority of new course offerings fall within the more typical MBA disciplines of Management (22), Operations (21), Marketing (20), Strategy (20), or Finance (18), relatively few additions were categorized under traditional topics such as Economics (six), Accounting (four), and Real Estate (three).

These trends are very positive for prospective business students seeking to gain an increasingly personalized and beneficial degree. Anyone considering an MBA or other business degree should understand how the curriculum and structure of the program will support their short and long-term goals, keeping in mind the questions below:

  • If technology is an interest, does the school offer any STEM-designated programs or certifications?

  • How many credits are used on the core curriculum and how many are available for electives? When was the last time the school made updates to the core curriculum?

  • What certifications are offered by schools of interest? Which certifications might help you garner an interview, internship, or job at companies you’re interested in?

  • What relationships, certifications, or degree-programs exist with other academic disciplines? Are you able to take courses in other schools? What industry knowledge would help you to impress a recruiter in your desired field and is it attainable through the business school?

  • How many new courses are offered each year? Is the curriculum staying current with market trends, particularly in your areas of interest?

Despite Significant Debt for Graduates of Elite Business Schools, the Return on Investment for an MBA is High

Earlier this month, the Wall Street Journal reported that MBA graduates from the classes of 2016 and 2017 had an aggregate federal student loan burden of $3.7 billion, an average of $39,900 per student, according to data from the United States Department of Education. Graduates of elite MBA programs held even more significant debt on average. Northwestern’s Kellogg graduates averaged $116,420 and NYU’s Stern graduates averaged $105,931; similarly, alumni of Yale University’s School of Management, Chicago Booth, and UVA Darden all had average debt between $85,000 and $100,000. Notably, these data points only include federal loans and not money obtained from the private loan market, suggesting that the estimates do not represent the full debt load.

A Bloomberg Businessweek Survey on MBA debt was also released earlier this summer with similar findings. The survey, which included the responses of more than 10,000 2018 MBA graduates globally, found that close to 50 percent of students at top business schools had borrowed at least $100,000 to fund their MBA. Among the top U.S. programs, a minimum of 40 percent of the MBA graduates at Duke, Dartmouth, University of Michigan, Cornell, and University of Chicago said that they had taken on at least $100,000 in debt. The percentage was lower at MIT, University of Pennsylvania, NYU, and Northwestern, at around one-third of graduates.

The same Wall Street Journal article notes that “The cost of a traditional two-year MBA has more than doubled since the global financial crisis sent droves of college graduates back-to-school starting in 2008, to an average of $30,100 a year in 2016, according to the latest figures available from the Education Department.” Currently, however, according to the U.S. News and World Report, the tuition for the top 15 ranked two-year full-time MBA programs in 2019 exceeds $50,000, with some priced higher than $70,000.

Even if this summer’s announcement that Harvard Business School and the University of Chicago Booth will freeze tuition for the upcoming school year portends a broader slow-down in tuition hikes, the cost of an MBA will remain significant. Despite the high cost, however, the MBA has still been shown to have a strong return on investment. Last year, QS Quacquarelli Symonds, a data and research company specializing in education, released findings from its Return on Investment Report for the full-time MBA, which include:

  • The average global ten-year ROI of an MBA is $390,751, which accounts for tuition, cost of living, and foregone wages. The highest ROI is found at Stanford at $1,023,150, the only school to enter seven-digits.

  • The average global payback time is 51 months. Europe offers the quickest return at 39 months versus 55 in North America, which is likely due to shorter program lengths.

  • The U.S. is home to 19 of the top 20 schools for highest post-MBA salary. The global average is $79,829 ($89,037 in North America) and Stanford is at number one with an average of $140,600.

  • North America also has the highest average salary increase at 74 percent.

While the prospect of taking on large debt as an investment in an MBA shouldn’t necessarily deter prospective students, the means for financing the degree should be considered as thoughtfully as the school selection.

Even After Obtaining an MBA, Women and Minorities Continue to See Pay Gap Compared to Men and Non-Minorities

Earlier this year, the Forte Foundation released survey results reporting that a pay gap continues to exist, even after an MBA, between non-minorities and minorities and men and women. The survey, which included 900 men and women who graduated from MBA programs between 2005 and 2017, collected respondents’ pre-MBA salaries as well as their salaries from their first post-MBA position and currently.

Between non-minority and minority graduates, the pay gap improves somewhat over time, decreasing from 24 percent to 16 percent between pre- and post-MBA salaries, and then continuing to decrease to 12 percent on average for the reported current salary. Minority students, identifying as black, Hispanic, or Native-American, did see the largest return on investment from the MBA with an average pay increase of 76 percent. Minority men reported an 84 percent increase between their pre-MBA salary and their first job after graduation and minority women gained a 70 percent increase on average.

Conversely, the pay gap between men and women appears to increase over time. Pre-MBA, women were paid 3 percent less than men, this gap increases to 10 percent for the post-MBA salary, and widens to 28 percent among the current salaries. The pay differential between white men and minority women is the largest with a difference of 52 percent.  Both genders reported a positive return on investment from the MBA with women gaining a 63 percent salary bump after graduation and men seeing a larger increase of 76 percent.

The gender differential may be explained, partly, by a tendency for men and women to gravitate towards different job functions. Women enter marketing and human resources at higher rates than men, while men are more likely to pursue finance, general management, consulting and IT careers. The study shows that finance and operations are the job functions which contribute most to the gender pay gap, with men earning 60 percent and 48 percent more than women, respectively. Marketing is the only job function where women reported earning more than men (2 percent).

Forte Foundation CEO, Elissa Sangster, warned against attributing the entire gap to job functions. “While some salary disparity can be explained by the job functions women choose, there is likely unconscious bias and other factors at play,” Sangster added. "When we asked women MBAs how they intend to address the gender pay gap they’ve experienced, it’s more common for them to leave the company rather than speak about it with their manager, human resources, or company leadership. This is a wake-up call -- companies need to take proactive steps to lessen the pay gap, or risk losing highly skilled women employees."

While there is a tendency to assume that the differences in men and women’s salaries are related to women’s presumed unwillingness to negotiate, research is now showing that this is not the case. Berkeley Haas Professor, Laura Kray says, “We know that people who negotiate get more than those who don’t, but that’s not a ‘women’s issue’—two-thirds of men don’t negotiate. Women are asking, but they’re not always getting what they ask for, and they’re more likely to be told things that aren’t true.”

Kray recently published research with Margaret Lee, a postdoctoral research fellow, sponsored by the Center for Equity, Gender, and Leadership, showing that the differentials in total compensation are even more exaggerated than those spotlighted using salary data. The two reviewed surveys from Berkeley Haas alumni who graduated between 1994 and 2014 and work full-time. The data showed that “while men’s base salaries were on average about 8 percent higher than women’s, it’s in the bonuses, share values, and options—which tend to not be tracked as publicly as salaries—where the men’s salaries outpaced women’s. Overall compensation for Haas women MBAs averaged about $290,000, or about 66 percent of men’s $439,000 average. Kray and Lee also linked part of the pay gap to the fact that men manage larger teams than equally qualified women.”

 The Forte Foundation study also included career advancement statistics and found that men on average have garnered more promotions (2.3 vs. 1.8), have more direct reports (3.3 vs 1.8), and have achieved higher organizational rankings (Director level vs. Senior Manager) when compared with women. There were no statistically significant differences in career advancement for minorities versus non-minorities. Just as Sangster suggested, it appears that bias is at play, whether consciously or unconsciously, which contributes to men receiving management and leadership opportunities, earlier than women, with greater associated pay.