For MBAs, Breaking Even is a More Distant Dream

The hits just keep coming for the MBA Class of 2010.

First, the economy crashed just as students were stepping into their first B-school classes. Then the job market tanked. Jobs were scarce, salaries dipped, and students scrambled simply to find summer internships, let alone full-time positions. Now, a new study done as part of Bloomberg Businessweek's ranking of top full-time MBA programs suggests it's going to take graduates longer to see a return on their MBA investments than their peers did from earlier graduating classes.

Two years ago, Bloomberg Businessweek calculated that it would take members of the MBA Class of 2008 an average of 5.6 years to recoup their MBA investment. For the Class of 2010, the number jumped to 6.5 years. Why the difference? First, post-MBA salaries were lower in 2010 (down 6 percent from the 2008 average), while pre-MBA salaries were higher, meaning the pay differential between what a grad made before and after earning the degree was not as large. In addition, the overall cost of attending B-school increased, putting the Class of 2010 in a less-than-ideal climate to begin earning a return.

The MBA ROI figure was calculated using a few different data points. First, the total dollar amount the average student spends on a degree (tuition, fees, living expenses) was added to the total salary given up to attend B-school. The median pre-MBA salary was then subtracted from the median post-MBA salary, and the difference was divided into the total amount spent on the MBA. The resulting number represents the length of time, in years, it will take the average student to make a return on their investments.

European B-schools in the Lead

Based on this calculation, it will take members of the MBA Class of 2010 anywhere from two and a quarter years to more than 14 years to recoup their money, depending on the school. The data aren't perfect: They do not take into account annual salary increases, bonuses, or stock-based compensation. But the numbers do give prospective students an idea of what kind of return grads from the top MBA programs can expect.

At the top of the list for best MBA ROI are five European B-schools, with Milan's SDA Bocconi (SDA Bocconi Full-Time MBA Profile) leading the way. At Bocconi, it takes students just over two years to move into the black, thanks mostly to the fact that it only takes one year to earn the degree, compared with the two-year commitment that most U.S. programs require. This means less time away from the workforce and a lower total cost.

The next three schools—HEC-Paris (HEC Full-Time MBA Profile), Manchester Business School (Manchester Full-Time MBA Profile), and Cranfield School of Management (Cranfield Full-Time MBA Profile)—also allow students to graduate in less than two years, and each requires fewer than three years to begin generating a return on the B-school investment.

Good Showing by State Schools

The U.S. MBA programs that fare the best are predominantly those at state schools. Texas A&M's Mays Business School (Mays Full-Time MBA Profile) gains the fastest return, in just under three and a half years. Mays benefits by being one of the few U.S.programs that is a year and a half in length, so the total expenses, at just under $70,000, are considerably lower than at most other U.S.schools.Michigan State's Broad College of Business (Broad Full-Time MBA Profile), where grads get a 145 percent salary jump after B-school, on average, and the College of Business at the University of Illinois (Illinois Full-Time MBA Profile), also have strong showings in the ROI calculation.

Interestingly, the schools that suffer most in the ROI ranking are the top U.S. programs. Grads from the top five schools in Bloomberg Businessweek's full-time MBA ranking will need an average of 10 and a half years to achieve a return on their investment. Why so long? These programs generally have the highest tuition costs, and they also attract applicants with high pre-MBA salaries, two negatives in the ROI calculation. The average pre-MBA salary at such schools as the University of Chicago's Booth School of Business (Booth Full-Time MBA Profile) and Harvard Business School (HBS Full-Time MBA Profile)—where students earn on average more than $80,000 before starting their programs—is higher than many graduates earn after they graduate.

True, grads from these elite B-schools graduate with salaries north of six figures and with high-powered alumni networks that will propel their careers forward for decades. But the actual percentage increase in salary is not as large as it is at schools with lower pre-MBA compensation. This is especially important when considering forgone salary over the course of a two-year program.

On average, a student at Case Western's Weatherhead School of Management (Weatherhead Full-Time MBA Profile), gives up a total of $78,000 while in B-school.An MBA at Stanford's Graduate School of Business (Stanford Full-Time MBA Profile) forgoes more than twice as much ($170,000). When you consider that the total B-school costs at top schools can easily eclipse $300,000, it makes sense that it would take longer for a grad at a school such as Stanford to recoup the costs associated with the degree.

As the job market rebounds and MBA salaries get back to prerecession levels, the time it takes MBA grads to earn a return on their investment is expected to decrease. Until then, patience will be a virtue.

Before it's here, it's on the Bloomberg Terminal.