just procrastinating

Wednesday, May 26, 2004

B-School Value
Craig Newmark at Newmark's Door recently posted that applications to B-Schools are down 15-20% this year and took that as an indication that the economy is growing, because people stick with their jobs and decide to put off grad school. A commenter to that post noted that B-Schools raised their prices and this could also account for the drop, because the cost of getting a MBA has increased and therefore it just doesn't have the same value.

Well since I have some time on my hands, I thought I would do a back of the envelope calculation on that, because I think there is some truth to it. I used data from the University of Michigan's placement for 1999 (the earliest available) and 2003. The total tuition for a non-resident 1999 grad would have been $49,000, and for 2006 grad, will be $75,000.

According to the placement report, here is what it was like in 1999 for average grad who went into Finance:

Cost (Tuition): $49,000
Lost Salary: $100,000
Total Costs: $149,000
Starting Salary: $75,000
Payback 1.987

Say you are a 2006 MBA grad, what kind of salary do you need to have the same payback period?

Cost (Tuition): $75,000
Lost Salary: $125,517 (this is just the above $100,000 five years later growing at 3.2%)
Total Costs: $200,517
Starting Salary: $96,598
Payback 1.987

You need to get $96,947. What was the most recent Finance Salary? For 2003 it was $85,000. Will it be $96,500 in 2006? Actually, it might be in the same ballpark. If you compare 1999's 75K with 2003's 85K, that is a 3.2% increase per year, so if you extrapolate that out to 2006, you get $93,500. So close, but not quite.

I'm actually pretty surprised it was this close, because I thought tuition was getting way out of hand, but I suppose the schools have their own Finance people that keep their eyes on this kind of thing.

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