grad student sitting on a pile of books pondering the value

Is an MBA Really Worth It?

Why it always pays to look beyond the surface

Is an MBA worth it? I hear this question all the time. No doubt, for many middle managers, the idea of a piece of paper that seems to magically guarantee higher pay and movement up the corporate ladder is tempting. And all for the price of two years of your life, lost income, and $25,000 to $105,000 in tuition and fees.

The general consensus is firmly entrenched. An MBA is always worth it. Take a recent study by the Graduate Management Admission Council (GMAC), which meets “the needs of management schools and students like yours through a wide array of products, services, and programs.”

According to their new study of 14,279 graduate school business alumni, as reported by Fortune:

  • MBAs reported base salaries that totaled $1 million more over the two decades following graduation than if they had not gone to B-school.”
  • People who graduate from two-year, full-time MBA programs recoup their investment, on average, in three-and-a-half years.”
  • And ROI after five years range from 221% to 491% depending on whether you’re in a full-time or part-time program.

All in all, Fortune reported that 89% of MBA alums found their degrees “professionally rewarding.”

Well, who can argue against such overwhelming evidence?

Like any investment, you have to look past the surface information. As a real estate investor, I often get slick-looking advertisements from brokers who rely on my purchase to make a living. Never once do any of them say, “This is a bad investment! Don’t do it!” No, they all look like golden geese. But nine times out of ten, when I look beyond the surface, the numbers don’t pan out.

Here’s some below-the-surface information to consider as you think through the value of an MBA.

Follow the money

Let’s start with the sponsor of this survey, GMAC. As they say, always follow the money, and if you do, you’ll find that GMAC is firmly and economically entrenched in the world of graduate studies. Their standardized GMAT test has a monopoly on most graduate school admission requirements. And they do much more than that. Founded in 1953 by nine business schools, they’ve since blossomed into “so much more,” according to their website. In their own words, “The people, events, and innovations at GMAC over past 50-plus years have helped graduate management schools and programs worldwide flourish.”

Notice who they exist to help “flourish.” It isn’t you. With profit margins reportedly greater than that of Apple, the GMAC is “ arguably the most successful educational product of the post-war period. ” As reported by Fortune two years ago:

GMAC says it collected $87.7 million in fees in 2012, yet it cost the organization only $45.7 million to administer the test, according to documents filed with the Internal Revenue Service. The effective gross profit on the actual exam is roughly 47.9%.

Now ask yourself this: would an organization with $45.7 million in profit on the line conduct a survey that said anything other than an MBA was worth it? Again, follow the money.

Count the unspoken costs

Most people who go on to get an MBA end up working as high-paid employees or self-employed consultants—those on the left side of the CASHFLOW Quadrant. I’ve written many times in the past that those who are in the E and S quadrants pay the most in taxes.

While the study by GMAC on the surface seems to show that those who get an MBA are richer, it doesn’t take into account the hidden costs of being a high-paid employee. Because when it comes to being rich, it’s not about what you make, it’s about what you keep.

Indeed, the four wealth-stealing forces of taxes, debt, inflation, and retirement work against high-paid employees and the self-employed. As I’ve written before, “High-earning professionals are some of the highest taxed in the US, don't have any investments that provide cash flow and hedge against inflation, are overly-burdened with debt, and aren't ready for retirement—meaning they need their paychecks or they're broke.”

For the owners of MBAs, their salary is everything. If it goes away, they’re screwed. I’m sure there were more than a few MBAs during the Great Recession who didn’t consider their MBA “professionally rewarding.”

Consider the alternatives

Many MBA programs tout the education you receive and the network you build as worth the price of the degree. But do you really have to spend hundreds of thousands of dollars for such a privilege?

Dale Stephens, writing for The Wall Street Journal, doesn’t think so:

If you want a business education, the odds aren't with you, unfortunately, in business school. Professors are rewarded for publishing journal articles, not for being good teachers. The other students are trying to get ahead of you. The development office is already assessing you for future donations. Administrators care about the metrics that will improve your school's national ranking. None of these things actually helps you learn about business.

Stephens encourages would-be MBAs to take the money they would spend on a graduate education and to instead invest it learning the skills and building the network necessary to thrive in your chosen industry. He lists websites that have the same courses MBAs take where you can watch lectures for free, using the money you save to move to a city conducive to your chosen field, and networking on your own.

By doing so, you’ll create a much more targeted education and network that will benefit you for a fraction of the cost.

Recognize the world is changing

Many people now consider that MBA to be a step behind the business world. Things are changing so rapidly that taking two years off or more to study today’s business management philosophies (and that’s all they are, not real world business skills), already puts you behind the ball.

Rather than rely on institutional education in a fast-paced, ever-changing world, spend your time continually growing and learning. The beauty of the Internet is that there is a wealth of readily-available educational resources at your fingertips at any given moment.

Stay on top of the trends as they happen and put them into practice in real life, learning from your real failures and successes rather than the case studies of others.

Decide who you want to be when you grow up

If you want to be a high-paid employee for the rest of your life, then maybe an MBA is right for you after all. If you’re going to commit to the left side of the CASHFLOW Quadrant, you might as well make as much as you can doing it.

But if you want to be a business owner or investor, the B and I on the right side of the quadrant, you’ll need much different skills than an MBA can give you. And those skills can only come from real world learning and practice, from a self-prescribed course of study, and from networking with likeminded individuals.

In short, I’d say if you want to look rich, get an MBA. If you want to be rich, skip it and double down on your financial education.

Original publish date: March 22, 2016