Are M.B.A. Degrees Worth It?

Summary

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Podcast Summary: WSJ Your Money Briefing

Episode: "Are M.B.A. Degrees Worth It?"

Date: October 27, 2021
Host: J.R. Whalen
Guest: Patrick Thomas (WSJ Reporter, Business Education & Careers)

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Episode Overview

This episode explores the true value of an M.B.A. degree, discussing whether the high cost pays off in future earnings. Reporter Patrick Thomas joins J.R. Whalen to break down data from nearly 600 graduate business programs, compare MBAs to other advanced degrees, and offer insights on financing, paying off debt, and the risks involved.

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Key Discussion Points & Insights

1. Motivation for Pursuing an M.B.A.

(02:21 - 03:18)

• Career Pivot & Advancement:
  Many students pursue an M.B.A. to switch industries, move into management, or position themselves for C-suite roles.
• Credential Value:
  An M.B.A. can be a "way over time to kind of just build your resume to get that credential" (Patrick Thomas, 02:46).
• Drawbacks:
  The extremely high cost ($100,000 to $250,000) remains a concern, but the possibility of a "bigger payday" keeps enrollment strong.

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2. MBA Earnings vs Debt: How Does It Pay Off?

(03:18 - 04:22)

• Strong Debt-to-Income Ratio:
  Of 600 programs analyzed, 98% of MBAs had graduates making more two years after finishing than their debt load—an indicator of quick ROI.

• Comparison to Other Degrees:
  For law degrees, only 6% of programs showed median earnings higher than debt, highlighting that MBAs generally "win out a little bit there" (Patrick Thomas, 04:09).

  "98% of those business schools typically made more money two years out of school than they had borrowed."
  — Patrick Thomas (03:31)

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3. MBA Debt Loads

(04:22 - 05:28)

• Typical Debt Amounts:
  Median debt is "in the 60s" (thousands), lower than many law schools but still significant.
• Top School Advantage:
  Graduates from elite schools often borrow less, sometimes around $41,000, because they have more savings, better access to low-interest loans, or "are very savvy about the interest rate they're getting on their debt" (Patrick Thomas, 05:18).

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4. Financial Aid and Loan Options

(05:28 - 06:54)

• Federal Loans:
  $20,000+/year available at relatively low interest rates; about $41,000 for a typical 2-year program.

• Grad PLUS Loans:
  No borrowing cap but interest rates around 7%. Used for those who need to cover high tuition amounts beyond subsidized loans.

• Private Loans:
  Used by ~10% of students, especially at top schools, for even lower rates (2-3%) due to strong credit or affluent backgrounds.

  "MBAs at top schools, they're pretty good at finding ways around high interest rates and giving themselves the most manageable debt load."
  — Patrick Thomas (06:39)

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5. Strategies for Managing & Paying Down MBA Debt

(06:54 - 08:11)

• Quick Repayment via High Salaries:
  Consulting and finance jobs (e.g., at McKinsey) commonly offer $200,000+ packages allowing fast repayment.

• Alternative Strategies:
  Some alumni refinance and invest spare cash rather than rapidly paying down loans; confidence in their earning potential allows flexibility.

  "With the MBA you knew you were going to pay it off eventually, but you can kind of make it work for you."
  — Patrick Thomas (07:43)

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6. Risks and Caveats: No Guarantees

(08:11 - 09:23)

• Not Always a Golden Ticket:
  Not all graduates land high-paying roles, especially outside top programs or in tough job markets (e.g., during COVID-19).

• Personal Factors Matter:
  Prior debt, cost of living, location, family obligations, etc., should be weighed carefully.

• Value of Brand:
  "Top brands are still kind of worth their weight in gold," but those outside the top 100 schools should be especially cautious.

  "It's important to take in consideration other life circumstances around you. Do you have over $100,000 in undergrad debt still hanging over you? ... Just take into consideration where you are in life."
  — Patrick Thomas (08:19)

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Notable Quotes

• "The promise of a bigger payday, the ability to pivot to a new industry ... it's very popular among career switchers." — Patrick Thomas (02:37)
• "98% of those business schools typically made more money two years out of school than they had borrowed." — Patrick Thomas (03:31)
• "MBAs at top schools, they're pretty good at finding ways around high interest rates." — Patrick Thomas (06:39)
• "Just take into consideration where you are in life." — Patrick Thomas (08:23)

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Timestamps for Important Segments

• 02:21: Why pursue an M.B.A.—motivations and career goals
• 03:18: MBA earnings vs. debt; comparison with other grad programs
• 04:25: Typical MBA debt loads and top school advantages
• 05:33: How MBAs finance their degrees; federal and private loans
• 06:54: Graduates' strategies for paying down loans and alternative approaches
• 08:11: Risks, caveats, and when an M.B.A. may not pay off

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This episode delivers a nuanced, data-driven look at the real costs and benefits of business school, balancing optimism about MBA payoffs with insights into the risks and strategies for prospective students.

Transcript

[Small Business Owner]

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they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

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[J.R. Whalen]

Here's your money briefing for Wednesday, October 27th. I'm J.R. whalen for the Wall Street Journal. Many people seeking a graduate school degree to jumpstart their career choose a master's in business administration. But an MBA can cost hundreds of thousands of dollars. So is it worth it?

[Patrick Thomas]

A lot of experts say it's important to take in consideration other life circumstances around you. Do you have over $100,000 in undergrad debt still? Ha. You might want to double check that because that's a pretty big deal.

[J.R. Whalen]

On today's show, graduate degrees in debt. How do MBAs stack up against other grad programs? We'll talk with our business education reporter Patrick Thomas about it after the break.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Infliction is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.

[J.R. Whalen]

After completing four years of undergraduate education, many students are on the hook for years of student loans, but some on to borrow even more money to pursue an mba. So does a business degree pay off? And what options for borrowing and repaying an MBA loan are available? Patrick Thomas covers business education and careers for the WSJ. He was part of a team of reporters who studied federal loan data from about 600 graduate programs. And he's here to discuss what they found. Patrick, thanks so much for being with us.

[Patrick Thomas]

Thanks so much for having me.

[J.R. Whalen]

So, Patrick, you know, an MBA degree typically comes with a steep price tag. They can run anywhere from 100,000 to $250,000. So why do some students choose take such a pricey path? And what do they hope to get out of it?

[Patrick Thomas]

Well, many students pursue their MBA for the promise of a bigger payday, the ability to pivot to A new industry. It's very popular among career switchers. If you're in something like, especially if you're in something like engineering or medicine and want to kind of pivot to the management side of that, if you want to run your own firm, that's a very popular way to get into it or launch themselves onto an executive path. Maybe you were a consultant and want to go work in the C suite at a Fortune 500 company. This is a way over time to kind of just build your resume to get that credential that you would be able to do that. And yeah, it's a, it's expensive and that can turn some students off. In recent years, that's definitely been an issue for schools, but a lot of students keep coming for the promise of that bigger payday.

[J.R. Whalen]

Now what do we know about how well an MBA pays off in earnings after graduation?

[Patrick Thomas]

In the data we analyzed from the education department of nearly 600 programs. So not just the top ones you hear about it, but all of them on a one to one debt to income ratio. 98% of those business schools typically made more money two years out of school than they had borrowed. Which is kind of the metric to show when, if it's kind of paying for itself, like right after graduation. And compared to other graduate programs that the MBA fared much better. Where we know where law degrees, only 6% of programs had graduates with higher median earnings than debt MBAs, it was 98%. So it's a much bigger difference in terms of how this degree, just the volume of schools that can pay off compared to other graduate programs and even top schools. But like in, compared to law, which is another kind of popular degree if you're a career switcher for students, a lot of students decide between the MBA or law school. This just kind of shows that the MBA wins out a little bit there.

[J.R. Whalen]

What about the amount of debt that a typical MBA grad faces?

[Patrick Thomas]

How does that compare compared with other graduate programs? I mean it's fairly similar, but it's, it's definitely. The median is less. It's in the 60s, so it's not as high as some places. Like again, not to harp too much on law school, but it is lower in terms of the programs like at places where the salaries are lower. I mean typically some of these debt loads are lower in terms of state school, but some of the debts were really, really low at the top schools. And there's a couple reasons for that. In terms of students going to Harvard only took out like $41,000 in federal loans. And there's a variety of reasons of why that is. Including the data we look at only accounted for federal loans and they only wanted to take out a small number at the best interest rate. A lot of the top schools have students going there who are very savvy about the interest rate they're getting on their debt. So naturally they found ways to make it look a lot lower. They maybe have more savings. If they come from an affluent background in finance or consulting, they're going to have a decent amount of savings. There's a couple of different factors that go into that.

[J.R. Whalen]

Now you mentioned federal loans. If MBA students do need financial assistance, how do they typically find it?

[Patrick Thomas]

Well, so the federal government allows graduate students to take out a fixed amount of relatively low interest loans. They can do that for about a little more than $20,000 annually. So for a two year MBA, that comes out to about about $41,000. For, for two years, that's a very popular option for those who, who want some of the lower ones. And if they need more money, they can always turn to the Grad plus loans. And those have no cap on the amount that you can borrow. They have a little bit of a higher interest rate, around 7%, but there's no cap on the amount you can borrow. So if you need to borrow 100 to $150,000, that's the way you do it. If you don't want to go into the private loan market, there is a smaller about 10% that, that do rely on more private loans, especially at top schools, because they think they can get better interest rates because they might be from a more fluent background, have more work experience, better credit rate, and they can get a loan for about 2 to 3% as opposed to the grad plus program which is more around 7%. So MBAs at top schools, they're pretty good at finding ways around high interest rates and giving themselves the most manageable debt load and make their numbers look better just by using all kind of these tricks and mixing and matching loans. But for everybody else, the Grad plus program is kind of one of the main ways they finance these debts.

[J.R. Whalen]

Now you've spoken with several MBA graduates who've managed their debt, so it doesn't put them too far in the hole. Can you tell us about what they've done?

[Patrick Thomas]

Yeah. Those students especially, again, if you go to one of the top schools and you end up in consulting, you end up in finance, especially if you don't have a lot of other expenses or are married and don't have kids yet. Like, you can pay these off pretty quickly with the salaries they're making. I mean, one of the students we talked to, they expect, you know, they're going to make $200,000, which is pretty standard with bonus signing bonuses at consulting firms. Or if you're going to work for McKinsey, I mean, you can, the expectation is you can pay them off quickly. And that's what these students have largely done. There's a few other ways. Like one of the student alums we talked to had decided not to pay him down right away because she felt that she refinanced her federal loan, felt like she would make more money by putting a little bit of her savings in to not pay it down immediately, but by putting some of her new salary into the stock market and her 401K. And that there was no rush because with the NBA you knew you were going to pay it off eventually, but you can kind of make it work for you. I mean, the best way they pay it off is really just when you go into a higher paying career. You can get it off your books pretty quickly with some of those jobs.

[J.R. Whalen]

But we should note that attending an MBA program isn't necessarily a guarantee that you'll jump into a higher income bracket.

[Patrick Thomas]

Right, right. That is a really important point. A lot of experts say it's important to take in consideration other life circumstances around you. Do you have over 100,000 in undergrad debt still hanging over you? You might want to double check that because that's a pretty, you know, do you have mortgage, car payments, rents? I mean, just where are you in life? What city are you going to live in? How old are you? All of those different things. And we know some students, it didn't pay off for them right away. They had trouble in the job search. Now the data says a lot of this does happen. But like one of the students we talked to graduated into 2020 and there was a pandemic and the job search got really tough for a lot of students last year who graduated at the start of it. And that means they weren't able to find a job immediately after a year after year and six months after it was tougher. So those students are going to be behind to start off with their paying it down or just at a disadvantage. So it's definitely not a guarantee. A lot does go into these top brands and experts will tell you that top brands are still kind of worth their weight in gold. So if you're not going to a top 100 school. Just take into consideration where you are in life.

[J.R. Whalen]

All right? That's Wall Street Journal reporter Patrick Thomas. Patrick, thanks so much for being with us.

[Patrick Thomas]

Thanks so much for having me.

[J.R. Whalen]

And that's your Money briefing. I'm J.R. whalen for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.