But this isn’t a money-only decision.
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It’s been widely reported that of all graduate degrees, MBAs are most likely to pay for themselves. But how fast, and is it worth it? The smart move is to consider your payback period when deciding whether to get your MBA—but don’t ignore the emotional side of the decision, either.
A payback period is the length of time it’ll take to recoup an investment. Companies use it to decide whether to spend big on capital-intensive projects, but you can also use it to decide whether it’s financially worth hitting the books again.
You’ll need to compare the difference in your pre- and post-MBA earning potential to the cost of your MBA. Let’s try out an example; here’s the word problem:
- Say you earn $100,000 post-tax at your pre-MBA job. That’s a fantastic salary, but you know that you can take it to the next level.
- You do some research and figure that you can earn at least $180,000 post-tax, post-MBA.
- The difference between your pre- and post-MBA salary is $80,000.
Divide that $80,000 delta by the cost of your degree, including all those pesky fees and loan interest. If that diploma costs $250,000, it’ll take you 3 years and 1 ½ months for your MBA to pay off ($250,000 ÷ $80,000). The average payback period for MBA programs globally is about 4.5 years, according to the University of Illinois.
In other words, if you put every penny of that $80,000 pay bump toward paying off your MBA debt, it’d take you just over 3 years to be debt-free. All the money you make after that is pure profit, baby!
But the calculation ignores a few things: Opportunity cost, or the salary that you’d give up by going back to school full-time, is one. It also ignores the time value of money, a concept I wrote about in the early days of Money Scoop.
From a nonfinancial perspective, payback periods don’t account for the pride and prestige associated with an MBA and the types of jobs you can do after getting that degree. If you want it, go get it! If you don’t, keep pushing paper with me.
