Should I Go to Business School?

Financial Framework

This analysis provides a framework to evaluate the financial benefits (or lack thereof) of a business school degree. Your experience may vary, but I’ve outlined several key points below:

• Required Return: This is the discount rate applied to future cash flows to calculate the present value of an MBA investment. I’ve used the 2018-2019 Federal Direct Unsubsidized Loan rate for graduate students as a proxy, but you should use the most relevant rates for your situation.
• High Growth Income Phase (Undergrad and MBA): Promotions and pay increases tend to come more frequently and at a higher rate early in one’s career. An MBA can partially extend or reset this high growth phase. For example, I experienced a 25% compensation increase after business school, despite initially entering a less-than-ideal role.
• Income Growth (Latter Years): In the mature phase of your career, income growth should be similar whether or not you have an MBA, as both are college graduates. I assumed a growth rate slightly above inflation at 4%. Some may argue that an MBA should lead to higher growth, but I’m not convinced. Adjust this assumption as you see fit.
• MBA Cost/Year: Include only expenses directly related to the MBA, excluding room and board unless you move to a high-cost area. I used NYU Stern’s 2018-2019 budget for MBA1 students, excluding room and board, as a proxy ($85K/year).
• Post-MBA Compensation: I used NYU Stern’s 2018 median compensation (plus 20% variable comp) for this analysis. Adjust based on the programs you’re considering.
• Marginal Tax Rate Post-MBA: Convert annual MBA expenses into post-tax dollars using your expected marginal tax rate, which can be estimated via SmartAsset.

The largest initial value drivers for getting an MBA are (1) the difference in pre-and-post-MBA salaries and (2) the impact an MBA may have in extending or resetting your high growth income phase. I’ve ignored black swan events — such as founding or being an early employee of a wildly successful startup, or reaching the C-level at a Fortune 500 company — because these events cannot reasonably be modeled. More importantly, these black swan events have less to do with an MBA and more to do with good luck. So, may I wish all the genuine and generous people here great luck!