An Insider’s Take on Choosing an MBA Program

So you are thinking of returning to school to get your MBA. You google “MBA Rankings” and start looking for a top-ranked school in a good location at an affordable price. The rankings are a good place to start. Programs that score high deliver on their promises to students (and employers) and help graduates achieve their career goals. But realize that different programs make different promises to students. They attract different people hoping to get different things out of their MBA experience.

Most obvious is the difference between full-time and part-time programs. Part-time, or working professional programs as they are sometimes called, appeal to students that have great demands on their time and are looking for an efficient vehicle for gaining the credentials they need to move up in their current firm, change jobs or start a new career. These students tend to favor practitioner-oriented programs that play to their work experience and stress immediate relevancy over the development of a deeper perspective based on a rigorous conceptual approach. Some of these students will choose an on-line option because they are drawn to the combination of convenience and efficiency offered by such programs. In contrast, full-time students are making a much bigger commitment of time and lost wages and are typically looking for a more immersive experience that will up-grade their conceptual abilities and produce results over a longer time horizon.

You can see these differences in the rankings. The top of Business Week’s full-time program rankings is a list of elite schools presented largely in the order you would expect. Academic prowess and reputation rank supreme. The part-time rankings, on the other hand, offer several surprises. The number one program, Elon has students with very average GMAT scores and almost ten years of work experience taught in very small sections. Number three, Carnegie Mellon has students with half the work experience of Elon, who are taught largely by non-tenure track faculty (i.e. practitioners) in much larger class sizes.

But other differences matter too. MBA programs don’t have a commonly-defined set of pre-requisite experiences, required undergraduate majors, or selection criteria. The general applicability of the degree (MBAs are employed everywhere) attracts a broad range of students with a wide range of interests, talents, and aspirations. Some MBA students hope to start their own business or work for a small firm. They are likely to be drawn to more generalist programs, that stress entrepreneurship, strategy and a comprehensive view of business. Other prospective MBAs are looking to move up in the corporate world. They tend to have strong technical skills in engineering, finance, or the sciences and are looking to augment those talents with managerial skills. Still others want to change careers. They may be liberal arts majors with creativity and strong communication skills who have never taken a business course in their lives and are looking to improve their data-driven decision-making abilities in one or more functional areas of business. And then there is the fifth year business school “senior” who simply can’t leave the fraternity house and thinks an MBA might be the best way to stick around for another year or two. Unless you too want to join the unambitious, run from programs who admit these students. If you are a fifth year senior go get five years of experience before enrolling in an MBA program.

The bottom line is this: Your MBA experience will be heavily influenced by the students around you. Be wary of programs that claim they can be all things to all people. Diversity in students’ industry backgrounds, types of work experience and cultural perspective are big plusses. Diversity in student expectations about program goals, approaches, and outcomes tends to breed dissatisfaction and dissent. Look for a program that has a strong sense of itself, the type of student it wants to attract, and what it is trying to accomplish. Take the time to dig deep and ensure you are joining a program that draws the kinds of people you want to be around and compete with both today in class and tomorrow in the business world.

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Student Loans

I subscribe to several Twitter feeds.  One is on higher education. A lot of posts with the #HigherEd tag are by institutions, but a fair number are by college students.  Following their tweets is a good way for me to see what is on people’s minds and understand the challenges that college students face.  It will surprise none of you that student loans and lending policies are a hot topic.

Interest rates on unsubsidized student Stafford loans are high.  Student loans are for ten years and currently carry a 6.8% rate.  To put this into a comparative context, a twenty-year fixed rate home mortgage is at about 4%, a five-year auto loan at about 3.75%.  And unlike your home or car loan, you can’t walk away from your student loan. Discharging a student loan in bankruptcy is extremely hard in part because the lender can’t repossess your education like it can your car or house. So it is important that you take a good hard look at the numbers when making the decision to finance your education through loans.

A little data can go a long way toward bringing some reality into your decision-making process.  Table 1 reports median starting salaries and earnings at mid-career for people with different undergraduate majors.  I want you to note two things: (1) there are big differences among majors.  The typical chemical engineer earns more than twice as much after graduation than the typical child/family studies major; and (2) these differences get larger by the middle of careers because majors in the top part of the table enjoy much greater salary growth than majors in the bottom part of the table.

Table 2 shows why this is important.  Here I have converted annual salaries to monthly figures for four different majors.  I then assume these majors take out unsubsidized loans at 6.8%, accumulating $60K, $40K, or $20k of debt over four years.  $20K of debt is about what you would accumulate at UNLV if you financed all of your tuition payments for four years through student loans.  $60K is about the current aggregate limit on Stafford Loans for undergraduates.
The percentages in the table show how much of your gross monthly earnings from your first job would go just to repaying your student loan each month.  So a chemical engineer who took out $60K would expect 12.8% of their gross monthly earnings to go to loan repayment.  Notice that this is gross earnings–earnings before taxes.  For a family studies major who took out $60K, that amount is 28%!!  Yes, you can expect some growth in your income over time, but note that at mid-career the typical family studies major still isn’t making the starting salary of a finance major.  A finance major who takes out $60K in loans is devoting almost twenty percent of their gross income just to student loan repayment.   Notice you haven’t eaten, paid your rent, or put gas in the car yet. If you are a family studies major with $60K in debt, pray for inflation–it is a debtor’s friend.

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Now, there is a fair bit of variance around the median numbers reported in Table 1.  Some child and family studies majors, perhaps those that go to ivy league schools, will earn more than the typical graduate with the same degree. And, some chemical engineers, perhaps those who go to really bad schools will earn much less than the typical graduate.  But, I seriously doubt that those ivy league family studies majors are going to earn anywhere near what the typical chemical engineer can expect upon graduation.

The bottom line is this: Getting a college degree is about much more than just dollars and cents, but some majors offer way bigger financial returns than others.  If you believe that your future job will be the sole source of your ability to pay back your students loans (not your parents or a rich spouse), you want to do a calculation similar to this and ask yourself just how much of your expected income over the next ten years are you willing to devote to loan repayment.   Some loan reform is coming that should lower rates, but keep in mind that experts suggest that no more than 10 to 15% of your starting salary should go to loan repayment. Someday soon, the government may do this for you by putting debt limits on student loans based on your expected earnings. Until then, it is up to you to determine just how much debt you are willing to take on to get a particular degree.