Does It Matter Where You Get Your MBA?


New research suggests that the value of a master’s of business administration (MBA) programs cannot be measured in one way. The consensus that the best schools for professional success are Harvard, Stanford, and Wharton might not be true, according to several new studies that have used different metrics to measure return on investment.

In recent history, most surveys conducted to measure the quality of an MBA degree primarily focused on post-graduation starting salaries. However, recent studies have begun comparing additional factors that might influence optimal MBA program selections.

The Financial Times defines return on investment (ROI) as “the profit on an investment in relation to the amount invested.” This financial ratio is a metric or performance measure. Usually expressed in percentages, the results of ROI calculations help to evaluate the efficiency of an investment or to compare the efficiency of several investments.

One way to express this ratio is through the simple formula: (Investment Gain – Investment Cost) / Investment’s Cost = ROI

This expression of ROI permits an easy, standardized comparison of payoffs—i.e., the returns from different investments. However, some significant limitations tarnish this metric’s usefulness.

Simple ROI calculations do not account for the time value of money—in other words, interest on the investment, unlike the superior but vastly more complex discounted cash flow model. What’s more, most simple ROI analyses only include one or two metrics. With other types of metrics, we can more completely value an investment and offer more accurate and comprehensive insights.

Nevertheless, simple ROI valuation analysis remains popular because of its straightforward versatility. Accordingly, one can apply simple ROI percentage calculations to help value and compare educational investments.

ROI analysis on education investments, such as academic degree programs, is not new. In this context, the ROI is used to compare MBA degree programs. However, they typically do not focus on the salary-to-debt ratio, which compares a recent graduate’s starting salary to their total amount of student loans used to finance the degree. In this way, salary-to-debt ratios provide a standardized way of comparing the value of different degree programs.

Below are several new studies each using novel metrics to measure ROI for MBA programs.

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The Salary and Student Loan Comparison

Several articles recently appeared that applied salary-to-debt ROI analysis to help compare MBA programs in new ways. One such article appeared in Quartz, an upstart business news outlet owned by the Atlantic Media corporation.

Quartz reporter Amy X. Wang used newly reported salary and student loan data of the top 14 ranked schools from the U.S. News and World Report and provided salary data not by post-graduation salaries but by salary-to-debt ratios. The results were significantly different from previous studies:

When looking at the return on investment (ROI) of various schools, the rankings shift dramatically. That’s partly because the most so-called “prestigious” schools also charge students higher tuition—meaning that an MBA from a lesser-known school might actually have a better payoff… So moderately ranking institutions like the McCombs School of Business at the University of Texas at Austin and Emory’s Goizueta Business School normally come in at 17th and 20th, respectively, but soar to the top when it comes to financial payoff.

Indeed, on the basis of ROI, the University of Texas at Austin and Emory University beat higher-ranked luminaries like Harvard University, the University of California at Berkeley, Yale University, and the Massachusetts Institute of Technology (MIT)—all business schools generally considered more “prestigious.”

Gregory Yang of Poets & Quants further analyzed this information explaining that “seven of the 10 highest-ranked programs in terms of ROI are ranked outside the [U.S. News] top 10, including 17th-ranked Texas McCombs, which achieves a near 2:1 pay-to-debt ratio to start.”

Quartz Top Ten Business Schools

  1. The University of Texas at Austin
  2. Stanford University
  3. Emory University
  4. Harvard University
  5. University of California—Los Angeles
  6. University of California—Berkeley
  7. Carnegie Mellon University
  8. University of Virginia
  9. University of Michigan—Ann Arbor
  10. University of North Carolina—Chapel Hill

The Return on Education Study

Quartz is not the only outlet to have analyzed and published this kind of data. Student loan refinancing vendor SoFi considered three years of data from MBA grads applying to refinance loans, calculated salary-to-debt ROI statistics, and then published rankings of the business schools according to highest salaries, best salary-to-debt ratio, and worst salary-to-debt ratio.

In this study, the University of Wisconsin topped the rankings, followed by Brigham Young University. Those two schools beat Harvard University and Stanford University, which ranked in the following two slots. No other top-tier MBA program placed on SoFi’s top ten list.

SoFi Top Ten MBA Programs by Salary-to-Debt Ratio

  1. University of Wisconsin
  2. Brigham Young University
  3. Harvard University
  4. Stanford University
  5. Villanova University
  6. University of Pittsburgh
  7. Loyola University of Maryland
  8. North Carolina State
  9. University of Florida
  10. University of Houston

The Ten Year ROI

Quacquarelli Symonds (QS), the World MBA Tour vendor famous for compiling global statistics relating to business school performance, also released an ROI study ranking business schools. Their study compared the ten-year ROIs of MBA programs.

The QS results include a relatively even mix of schools, with prestigious Stanford, Michigan, Carnegie Mellon and MIT occupying the top four slots. Yet even with ROI data spanning an entire decade, a pattern emerged bearing similarities to the two studies above. This time, Emory University, Pennsylvania State University, Indiana University, Georgia Tech, and the University of Illinois at Urbana-Champaign ranked ahead of such top-tier schools like UCLA, Oxford, and Harvard.

Suggesting that the generally accepted mid-career milestone of ten years was still too soon after graduation for the prestigious schools’ graduates to dominate the rankings, the QS study’s editors offered this curious analysis:

Quacquarelli Symonds Top Ten Business Schools

  1. Stanford University
  2. University of Michigan
  3. Carnegie Mellon University
  4. Massachusetts Institute of Technology
  5. Emory University
  6. Pennsylvania State University
  7. Yale University
  8. New York University
  9. Indiana University
  10. Georgia Institute of Technology

While the names included can hardly be described as obscure, it is notable that many of North America’s most prestigious schools have not made the list. In a few years though, this trend may continue to evolve as high salaries begin to kick in. At this point, though, these new studies are an indication of the ability of MBA programs outside the M7 to pay for themselves and offer considerable dividends beyond.

The Value-Added Ratio

In a 1985 article for the Atlantic Monthly titled “The Case Against Credentialism,” the renowned journalist James Fallows coined a phrase for a new, slightly different ROI metric: the value-added ratio (VAR). The VAR measures how much an MBA degree adds to a person’s salary, relative to the cost of the degree.

The current value-added ratio chart now appears in Poets & Quants. Once again, six of that study’s top ten schools don’t appear among the top ten on the U.S. News list. Those schools include once again the University of Texas at Austin and the top four universities are all public institutions.

Poets & Quants Top Ten Business Schools

  1. The University of Washington
  2. The University of Texas at Austin
  3. Indiana University
  4. The University of California, Berkeley
  5. Stanford University
  6. The University of California, Los Angeles
  7. The University of Notre Dame
  8. Rice University
  9. Emory University
  10. The University of Virginia

The Payback Period Research

Payback periods express how many months on average it will take graduates to recoup their tuition, plus the opportunity cost—their forgone salary while studying for the degree. Although this guide does not cover European business schools, it is interesting to note European dominance in these rankings. This is because the one-year MBA degree format predominates across Europe and UK employers pay MBA graduates some of the highest salaries in the world.

A current ranking for programs by payback period also appears in the report from Quacquarelli Symonds. In this case, only Carnegie Mellon University in tenth position appears as the only top-tier school listed by U.S. News.

Across the U.S. and Canada, MBA candidates tend to recover their losses in around four-and-a-half years. At a handful of schools, however, candidates typically recover their losses in under three years. Among U.S. schools, the University of Tulsa leads the pack with the shortest payback period of only 30 months, followed by the University of Illinois at Urbana-Champaign, Babson College, and Pennsylvania State University, each with relatively brief 31-month payback periods.

QS Top Ten Business Schools With The Shortest Payback Period

  1. The University of Tulsa – 30 months
  2. The University of Illinois at Urbana-Champaign – 31 months
  3. Babson College – 31 months
  4. Pennsylvania State University – 31 months
  5. The University of South Carolina – 32 months
  6. The University of Texas at Dallas – 34 months
  7. University of Georgia – 36 months
  8. Texas A&M University – 36 months
  9. University of Connecticut – 36 months
  10. Carnegie Mellon – 37 months

The Salary Uplift Metric

Some students admitted to highly selective full-time programs and executive MBA programs likely had successful and handsomely paid careers before attending these programs. However, most candidates view an MBA degree as a critical stepping stone that usually boosts careers to higher levels.

Salary uplift metrics compare the “bump” in salary between the average salary prior to admission of the incoming class with their average alumni salary. The metric recognizes the schools that are best able to propel their alumni to higher earnings levels.

QS’s aforementioned study remarks that “the U.S. again dominates this metric, with well-reputed schools that sit outside the top-tier offering the greatest increase. While the MBA salary levels might not rival those of the highest-ranking schools, it is clear that these schools can certainly provide a considerable premium for their MBA students.”

QS Top Ten Business Schools With The Highest Salary Uplift

  1. Willamette University
  2. The University of Illinois at Urbana-Champaign
  3. University of Connecticut
  4. University of Georgia
  5. Pennsylvania State University
  6. Arizona State University
  7. University of Minnesota
  8. State University of New York, at Buffalo
  9. Indiana University
  10. American University

Does ROI Analysis Suggest That School Choice Does Not Matter?

By now, readers may have noticed an interesting pattern in the study results presented above. Overall, none of these ROI analyses argues overarchingly in favor of striving for admission to a top-tier business school.

The only analysis that convincingly argues in favor of admission to Harvard, Stanford, Wharton and similar schools depends exclusively on total compensation. Every student has to take into account his or her own individual situation and consider different metrics, such as salary-to-debt ratio, payback period, and salary uplift, which is where top-tier business schools may not win.

However, issues exist with strictly applying these ROI valuation techniques to MBA programs because this type of quantitative analysis framework does not account for all the important factors. The following explores other metrics as well as more qualitative factors that all prospective students must consider.

Lower Early Career Salaries

First, depending on a graduate’s field of concentration, entry-level and early career salaries like those used by the Quartz and SoFi studies can be far lower than peak career salaries. They can accordingly skew the analysis against the better business schools. In fact, data provided by the online salary database PayScale to Poets & Quants disclosed that some MBA program concentrations lead to careers that start out with more modest earnings but double in salary by mid-career.

Such tracks include international business, marketing, entrepreneurship, and innovation management. For each concentration, students begin with an average salary of about $60,000 and double their income post-graduation. The top concentration for salary bump is innovation management, which sees a 114 percent increase.

Other concentrations displaying 80 percent growth or more include finance, general business, economics, management information systems (MIS), business finance, and global business management. Students are encouraged to see the BSchools MBA Salary Guide for a more detailed analysis.

Moreover, even assuming higher mid-career salaries, the QS editors seem to suggest that even ten years is not enough time to fully account for peak earnings potential among alumni from the highly selective schools.

Networking: Relationships with Capable, Experienced Classmates

Attending a better school carries tremendous educational benefits in terms of networking opportunities to build lifelong relationships with extremely capable classmates who already have first-hand experience tackling a broad range of crucial business issues.

Peter de Vroede, who earned his MBA from the top-ranked Haas School of Business at the University of California at Berkeley, explains these advantages on Quora:

The school where you get your MBA will determine who your fellow students will be. If you are going to a top MBA program, you are likely to learn as much from your fellow students as you will from your professors.

In my cohort, we had people with an amazing array of professional backgrounds. They were knowledgeable, experienced and extremely smart. We seldom had a case study where someone in the class didn’t have first-hand knowledge of the industry being discussed. And on several occasions, they had direct knowledge of [the] deal or strategic situation being discussed. We had several MDs, and a couple lawyers. We had a couple of PhDs with impressive track records in research—one in computer science and one in materials science…

If you go to a mediocre program, the professors may still be there, but that cadre of successful, experienced and informed fellow students probably won’t be. So the textbook part of the education will be there, but that intense, highly collaborative interaction that can be so serendipitous and valuable just won’t be. And for a top-tier program, that’s a lot of the value.

That, of course, extends to the network you will become a part of after you graduate. A top-tier MBA program will have year after year of cohorts of similar distinction — all there to be tapped into whenever your career requires.

That’s not to say you can’t get value out of a lesser program. There is definitely some amount of an MBA education that really is “textbook” and the value of learning it in the company of a more accomplished cohort of students isn’t as great.

But for the most part, the MBA experience is about gaining those “textbook” principles and learning about how to apply them in a number of business situations from practitioners who have had direct experience doing so.

Yes, Where You Get Your MBA Matters

Quartz journalist Wang points out how her analysis seems to imply that “brand names are not nearly as important to future wealth as many MBA candidates might think.” And indeed, she may be correct.

Nevertheless, the BSchools editors agree with de Vroede that the benefits from the experiences shared by classmates at the best business schools seem so compelling that striving for admission to the best MBA programs remains the wisest long-term strategy.

Fortunately, these days, an education at one of the nation’s better business schools falls within the reach of vastly larger numbers of applicants, especially with the proliferation of part-time or online MBA programs from some of the nation’s top schools.

For additional research and analysis about these possibilities, explore other BSchools guides:

Douglas Mark
Douglas Mark

While a partner in a San Francisco marketing and design firm, for over 20 years Douglas Mark wrote online and print content for the world’s biggest brands, including United Airlines, Union Bank, Ziff Davis, Sebastiani, and AT&T. Since his first magazine article appeared in MacUser in 1995, he’s also written on finance and graduate business education in addition to mobile online devices, apps, and technology. Doug graduated in the top 1 percent of his class with a business administration degree from the University of Illinois and studied computer science at Stanford University.