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Price Tag Doesn’t Always Equal an MBA Program’s Value

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An MBA degree has value. And while some may still try to contest the fact, the evidence nonetheless appears to prove them wrong: a 2014 study which determined starting pay after an MBA was up 50% from pre-MBA pay, and up 80% from that starting pay 5 years later.

But what exactly is it that gives MBA program’s value?

While there are a number of factors in determining an MBA program’s value, the price tag is certainly not one to be ignored. And yet, the cost of a particular MBA program might not correlate to value as directly as you’d imagine.

Consistent with a general rise in education costs, the cost of earning an MBA has steadily increased in recent years. Ivy League schools have reported a 4% rise in tuition for the 2015-2016 school year, while business schools have increased at a rate of 3 to 5% each year. Nonetheless, increases in price seem to have no deterrent effect on application rates. During the 2013-2014 admissions cycle, 62% of full-time, two-year MBA programs reported an increase in applications.

Even when an increase in tuition that goes above 3-5% occurs, it still doesn’t appear to deter applicants. Six years ago, the Desautels Faculty of Management at McGill University took a leap to try and make their program self-funding. This means a rise in tuition from $22,000 to $79,500 in just five years. Nonetheless, this year the program’s applications are up 15% from last year.

Why hasn’t the increase in price deterred applicant interest?

One theory about why the increased price tag does nothing to deter interest is that a rise in cost means a rise in perceived value of the program.

Even though the cost of MBA degrees in Europe can be significantly cheaper than U.S. programs — especially considering the exchange rate and the length of the program — these schools are finding it difficult to compete with the U.S.

According to the head of the full-time MBA program at Vlerick Business School in Gent, Yoldana Habets, people see less value in an MBA program that seems ‘too low’ in price.

“With the current price we have to answer fewer questions of whether this is a good MBA or not because the cost makes people see a value in it. Before, students were almost suspicious about what was being lost in a lower fee.”

So is the perception of an MBA program’s value solely derived from its cost?

The question about what makes an MBA valuable is a crucial one. If the price tag is all you need to weigh the value of a program, you may be missing some important factors. In particular, one necessary distinction: the value in an MBA shouldn’t be in how much you spend, but in how much you earn.

Typically, business school rankings take a program’s return on investment into consideration. The value is truly determined by how much you invested in your degree compared with how much you earned as a result of that program. Considering this kind of evaluation, a high price tag won’t always translate to high value: if the cost increases but earning potential remains the same, the value has technically decreased.

For this reason The Economist has found the highest returns for cheaper and shorter MBA programs.

Another concern with this sort of thinking is that changing price doesn’t always mean changing value. “If you raised the price of a Fiat to the price of a Ferrari it would not mean that the Fiat immediately becomes the same quality,” said Andrea Masini, head of HEC Paris.

Factors such as your concentration/major within an MBA program can make a difference as well. According to a report from Payscale, an MBA in strategy is the most lucrative path, with MBA’s in entrepreneurship, finance and economics also at the top of the list.

Conversely, an MBA in human resources management was at the bottom of the list, with a difference of more than $60,000 in salary between top-paying concentrations.

With so many factors impacting the overall value of an MBA program, it is important to remember that an increase in cost doesn’t necessarily mean an increase in value. Not only does the cost of the degree and post-MBA salary change the overall value, but also consider that full-time programs often mean foregoing income for the time you are in school.

Another important thing to remember is not to devalue the importance of program ratings such as post-degree job satisfaction. No matter how much it costs, whether or not you are happy with your accomplishments and work is just as important as how much you make.

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About the Author

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Alanna Shaffer

Staff Writer, covering MetroMBA's news beat for Atlanta, Houston, and Dallas.

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