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:

1. I hate how much they cost.

2. 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).

3. 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.

OK, that’s a lot of hate. I’m really a nice guy, I swear!

Now, 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 look at a few facts and make some assumptions:

According to the Bureau of Labor Statistics, the median salary of a full-time worker with a bachelor’s degree is $57,616. Those with a master’s degree had a median of $69,108.

If I were to go to business school, I personally would be looking to get an MBA at a top 10 business school. According to US News & World Report, in 2013 the average cost of the top 10 business schools in the U.S. was $111,418 for tuition in a two-year MBA program.

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 $115,232. For me, it’s more than that, but I want 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 ($111K ) + Opportunity cost of lost wages ($115K) + Room/board/tuition/other ($50K) = $276K

$276K? 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: $111,000
  • Loan Interest Rate: 6.21%
  • Loan Fees: 0.00%
  • Loan Term: 25 years
  • Minimum Payment: $50.00
  • Monthly Loan Payment: $729.49
  • Number of Payments: 300

Cumulative Payments: $218,847.27
Total Interest Paid: $107,847.27

Total cumulative payments plus lost wages and room/board/tuition/other would equal $386K!

How Long Would it Take to Make your Money Back on a Graduate Degree?

Well, if we’re going by the median income levels for each degree, we’re looking at an average annual salary increase of $11,492 with the grad degree. At these numbers, it would take you nearly 25 years to make your money back on your initial investment. 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.

If you factor in student loans, the payback would be nearly 35 years.

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!

Is Grad School Worth the Money?

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