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Why Graduate Degrees Are a Rip Off: Crunching the Numbers
This one should fire you up one way or the other. I’ve been in many a heated debate about this very topic before. So let’s have some fun with it. I’m going to come out and say it – I HATE GRADUATE DEGREES. My hatred for them can be boiled down into three main reasons:
- I hate how much they cost.
- I hate the implicit pressure that comes from corporate America for people to slave away to earn that piece of paper if they want to get promoted and have a future career in management (even though those with further hands on experience typically excel in comparison).
- I hate that I have seen those in management positions with an MBA perform at levels far below their much less numerous sub-MBA peers. Seemingly, that extra education did absolutely nothing for their real world skills – and actually probably added a little bit of complacency and entitlement in a lot of cases.
This is coming from someone who had a glorious undergrad experience, excelled academically to the tune of a 3.96/4.0 GPA from a major university, and appreciates the doors that my bachelor degree opened for me (above and beyond what a high school diploma ever could have).
With my work experience and educational background, I am fairly confident that I could get into a top 10 MBA program. But I have ZERO desire to because of the above reasons.
Before you cave in to rat race pressure, you’re going to want to crunch some numbers yourself and do some background research. I’ve decided to crunch some numbers here as a guideline for you. I fully admit that these numbers are not applicable to everyone, but I have not gone out of my way to skew them to favor my argument. Feel free to run your own and share them in the comments.
Crunching the Numbers on an MBA – Will it Pay Off?
Let’s make these assumptions:
According to a recent Wall Street Journal article, the average salary of a full-time worker with a bachelor’s degree is $50,900. Those with a master’s degree averaged $61,300.
If I were to go to business school, I personally would be looking to get an MBA at a top 10 business school – which would cost me about $95,000 in tuition alone, according to Investopedia.
Then there’s the opportunity cost of an MBA: In other words. The lost income during the two plus years you are going to school full time. Let’s just take the average annual bachelor’s degree salary and double that, which would equate to $101,800 (for me, it’s more than that) – but I’m trying to be conservative here.
Oh, but let’s not forget books, room and board, and other peripheral costs. Those could add up to another $50K fairly quickly.
The final math would look like this:
Tuition ($98K ) + Opportunity cost of lost wages ($102K) + Room/board/tuition/other ($50K) = $250K
$250K?? That’s crazy!! Yes, but it’s even crazier when you factor in the cost of the student loans, if you were to use them. Here’s what that mess might look like.
Loan Balance: $98,000.00
Adjusted Loan Balance: $98,000.00
Loan Interest Rate: 6.80%
Loan Fees: 0.00%
Loan Term: 25 years
Minimum Payment: $50.00
Monthly Loan Payment: $680.19
Number of Payments: 300
Cumulative Payments: $204,057.52
Total Interest Paid: $106,057.52
How Long Would it Take to Make your Money Back on a Graduate Degree?
Well, if we’re going by the WSJ averages above, we’re looking at an average annual salary increase of $10,400 with the grad degree. At these numbers, it would take you nearly 25 years to make your money back on your initial investment (I’ll be kind and leave out the cost of the loans). And that is IF you find a job right away upon graduation AND they are willing to pay you a premium for that piece of paper.
What age would that put you at? Well, considering the average grad student starts at 28 and takes two years to finish, on average, grad students wouldn’t make back their investment until age 55 (again, factoring in zero in loan cost). Factoring in the cost of the loans? Well… yeah, you’d be able to apply for social security in retirement.
I don’t know about you, but I hope to be retired long before then on my measly bachelor’s degree wages.
Grad School Discussion:
- Have you gone? Can you speak to the numbers I ran in this article?
- Did you run your own numbers? What did you come up with?
- Still excited about grad school after reading this? Tell me why I’m an idiot.
- Take the poll!
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My name is G.E. Miller and 
I disagree. I’m in graduate school right now and it is definitely worth the money. First, my undergraduate degree was hardly sufficient; I’ve only been at grad school for a month and it’s ridiculous how much my thinking and skills have improved. Second, it’s actually quite affordable if you get an assistantship, which are plentiful. They pay my tuition and for health insurance, and I get a stipend of $14/hour, which is more than most people in America probably get paid. It’s enough to cover gas, utilities and housing, and I’m only working 20 hours a week.
Definitely worth it.
How did you get the stipend and assistantship?
Any grad student can apply. I don’t know of anyone who wanted an assistantship and didn’t get one. It might not be the exact job they wanted, but it pays the bills the same.
I manage 4 PhD programs and we have almost 90 people on the waiting list for assistantships, and you must be lucky enough to live in a VERY low cost of living area. It definitely doesn’t pay the bills here, and I don’t live in a very expensive city.
I think a large part of someone’s decision to attend a program should be based on whether they can get financial aid. I chose my school because of its reputation and the aid given to graduate students. I know a lot of PhD programs are fully-funded, and I’ll be looking at the ones that offer the best financial aid package when I’m applying.
I would agree with that – think of it as, if they didn’t promise to fund you for the entirety of your program, they didn’t *really* admit you. Every student in the PhD program I actually attended was funded, it’s a bit different where I work now (though different fields, as well).
I think you also need to take into consideration inflation. This would have an affect on the amount owed over time obviously. Also in a bad economy companies tend to hire those with advanced degrees and 5-7 years of experience. It’s another tool to get a job over someone like you who may be more than capable but do not have the credentials needed.
Thank you for this and I agree although sadly a few blogs isn’t going to change the system that has been working long before your parents were born and in order to see the results we want in our careers and life we must cooperate. If we don’t the rest of one’s life will be a never ending constant struggle without a degree. I don’t understand it but my degree has worked magically for me and I had to get some private lending? Does anyone have any better ways to pay for college?
Wow, now that’s some serious hatred against MBA. I agree in a sense with you because I have seen several MBA people not so good at what they were doing but they had all the credits. The problem is if you ask me right now if I would do a MBA if I had the choice, I would probably go for it. The main reason is that you have to go with the flow in such system. Rebels are not appreciated in corporate America and if you want to do things on your own, you better start off your own company!
Doesn’t seem like you’ve done a whole lot of research here regarding top 10 MBA programs. Average starting salaries out of a top 10 school are at or above $100K. My ROI will be 5 years out from graduation, and I’m only 25.
I think you way over-estimated your cost analysis of what graduate school students could pay. Here’s why:
*I’d guess that most grad students aren’t living on campus and paying room and board fees. Even if they are, they still need food and a roof over their heads for those two years, so that shouldn’t be factored in at all.
*You can go for your degree part-time and still work, so the opportunity cost of lost wages is irrelevant for those who choose to do that. Two-thirds of the students at my graduate school are also working.
*If you’re working, you might not need a loan! At least not for the full amount.
*The value of having the degree goes far beyond the additional salary: some companies might not even consider a candidate for a certain position unless they have a graduate degree. That could mean years of unemployment = lost salary, if you really want to make an extreme estimate.
I’m attending a private university with a decent program, and it will end up costing me around $40,000 (although some classes were waived for me because of my undergraduate courses). You could factor in the whopping $150 per book, but I’m sure I save that much over the course of a semester by not going out to bars and restaurants when I have class or school work.
And if I may say, your 3rd point of why you hate the degree is a pretty wild assumptions. The people I know with degrees seem to be the hardest working people I know, so some actual research to prove one of us wrong would be nice.
I hate that I am expected not to work for the summer months but must pay 2500 in tuition for a summer semester for a summer class. Im pissed, I hate grad studies right now, but in the long run, I will probably change my mind when I am not in the thick of things.
It is obvious that you did not go to grad school. I can tell you right now that the #1 mistake in your analysis is that you are comparing the cost of a TOP 10 Business School with the average MBA salary. MBAs from top 10 schools are making an average of $110K, and not %60K. If you are going to compare with average salary, you might want to use average cost as well. You might want to go to grad school and learn how to do this kind of analysis in a more accurate way. Just saying.
And if you had worked instead of going to business school, you might have learned that you do not have to condescend someone while pointing out some flaws in their argument. If you major in undergrad in something that doesn’t translate well to the real world, then yes, perhaps graduate school is good for you to pick up some skills to make you more attractive to hiring companies, however, you could have also done that while in undergrad and conveyed your knowledge during interviews. I read this article a few months back, has some good insight on grad school. http://www.openforum.com/articles/dont-hire-people-who-went-to-grad-school
The educational system (public or private) is a business like any other. Foremost, they are there to make money. As with many industries, you can pay as much or as little as you want for a product or service. It is the value of that product or service that you should examine. I cannot dispute your numbers that detail the cost, but that is a bit one-sided. The value (personal satisfaction, a new skill, opportunities) can only be assessed by each individual.
I do not have a graduate degree yet, but I am getting close to deciding on it and this is the approach I am taking. I will be going part time because, to your point, experience counts for a lot. However, I am evaluating the value of the programs along with the costs.
Joe
I love that most of the people pro-grad school are still enrolled IN grad school. Which means they haven’t seen the paycheck from the other side, just have the numbers.
I looked at getting my doctorate, but it was in science, not business, and all of the programs I looked at were fully funded if you had an assistantship…and most promised that all enrolled grad students would, if under x yrs, etc. Plus stipend.
I found something else that worked better for me – I’m several years post bach, and have four kids – but if I was childless I’d have gone back in a heartbeat, and if I’d realized that most doctorates in my field were fully funded, I’d have considered it after graduation.
Of course, the other thing my research turned up is a glut of postdocs…plenty of people with the degree but making the minimum in their field because, well, the positions were filled. I’ve seen other friends with masters in more liberal fields struggling to find work, as well, despite respectable grad schools.
All of that said: my husband has a high school degree and makes six figures in a construction position. Prior to that, he worked in an office in telecommunications, and made 60k. This was in his mid-to-late 20s, mind you.
So yeah. I’m of a mind that most people just assume “degree=good” and don’t think about what they’re given up – though I’m not totally certain of your numbers. At the very least, people should stop and analyze things.
Also – randomly – have had several friends who got their MBA while working full time. Was tough but doable, even with families.
Hello,
Good analysis. However I feel you left out one aspect that is a career change which people seek from an MBA. I for one would like to work in management consulting or investment banking and do see myself breaking through into a top firm without a leading MBA.