The Cost of an MBA: How much will you really be paying?

Cost of Harvard MBA

For example, in 2012, a Harvard MBA cost $51,200 in tuition alone, but when you add in the cost of health insurance plus room and board, Harvard Admissions estimates that the cost of a Harvard MBA totals $84,000 for a single individual. The estimated yearly cost of a Harvard MBA is even higher -- up to $116,800 -- if you are married and have children. If you include the cost of books, travel, study trips and other activities, the cost for a single individual to get their Harvard MBA can go into the six figures as.

While the cost of a Harvard MBA is greater than that of most MBA programs, getting your MBA at any school is a big investment. That's why you need to put a lot of thought into what MBA program you choose.

Value for Money

If you ask business schools how much their programs cost, you'll notice that they avoid using the term "cost" whenever they can. That's because MBA programs are best measured as an investment.

"An MBA is not like a motor car," states a Melbourne Business School MBA alumni. "When you buy a car you use it until, if you're lucky, you can sell it in a few years' time at a depreciated fraction of the amount you paid for it. An MBA is the opposite. It appreciates in value over time."

Even in these tough economic times, the MBA degree is proving its worth. An MBA degree opens up international barriers and allows you to advance your career. According to the salary figures in the QS Global 200 Business School Report, the MBA degree is maintaining a high level of return on investment.

Mary Granger, Associate Director of Admissions and Career Services at ESADE Business School in Spain, explains why: "Despite the tough economic climate in many mature markets, today's MBA graduates are global players with language skills and geographic flexibility who are able to use the knowledge acquired in their MBA wherever companies need them.

"We see recent growth in fast-growing countries such as Brazil, India, United Arab Emirates and South Africa, as well as other emerging markets which have been relatively isolated from the global crisis, and where the MBA skills can be put to good use. So return on investment has remained high on a global scale."

Return on Investment

Generally, return on investment is the amount of time it will take you to pay all the costs associated with your MBA program, taking into consideration that most MBA alumni experience salary increases within a year of completing their program.

How do you calculate return on investment for an MBA program? Let's use Oxford's Said Business School as an example of the steps involved in calculating the return on investment.

Look at business school profiles for Oxford and you'll find that the mean-base salary for MBA alumni taking job offers within three months of completing the Saïd MBA is equivalent to US$98,000. In addition, the profile shows that 60% of alumni go into finance, accounting or consulting. Looking at the page for Saïd MBA tells you that you'll  need US $84,000 for the year in order to live comfortably.

The QS MBA Applicant Survey says that the current average salary among MBA applicants in the UK is just under US$61,000. This shows a salary uplift of US$37,000 per year, therefore the time required to repay that initial investment is less than two-and-a-half years.

Since you have an average work expectancy of around 35 years at a high salary, this seems like a no-brainer, especially when factorining performance-related bonuses and MBA scholarships, which may further shorten the amount of time it takes to pay off the costs of your MBA program.

Nick Barniville, MBA director at the European School of Management and Technology (ESMT) in Germany, feels that this mathematical approach has some value. He suggests applying the kind of financial models that MBA programs encourage to whatever business school program you're considering as an advantageous way of working out whether an MBA degree at a certain school is a good investment.

"Potential MBA students make their decision based on their calculation of the net present value (NPV) of the investment," state Barniville. "[MBA candidates] take the opportunity cost of foregoing their current salary for either one or two years, add this to the price of tuition, minus any financial aid available and living expenses in their target cities, and compare this to the expected increase in income that they are likely to earn over their career post-MBA. All else being equal, the school which has the highest NPV will be chosen."

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