Value of a Top 10 MBA [Long Post]

bb · 2016-02-16T14:03:24-08:00

Value of a Brand Name MBA. Is a Top 10 MBA Worth It? I am starting this thread as an in-depth exploration to figure out whether an MBA from a Top 10 school is better than an MBA from a Top 20 or Top 50, and the ultimate goal is to quantify it as exactly as possible. I am planning to update and add to this post and thus welcome any arguments, suggestions, and challenges! The basic question I want to find an answer to is: If I get into a Top 20 program with a full scholarship, is it a better investment than a Top 10 or Top 5 without a scholarship? Contents Rankings Scholarship – What Is it Actually? BB’s school ranking What Is the Value of the Brand? Do higher ranked school alums make more money? How long can a school brand name be leveraged? Does it have diminishing returns? Can you off-set the value of the brand with something else? Cost of the MBA Special Situations Perspective on Money Personal Financial Situation Intangible Value Conclusion Rankings – What is Top 10, Top 20, etc? We have a whole collection of all rankings here . However, I tend to rely on the US news rankings for the US programs. It is not a perfect measuring stick but it does take quite a few things into account and I generally tend to agree with them. For global rankings, it is a bit harder and I find it hard to rely on FT for much though LBS and INSEAD are generally accepted global Top 10 programs. Any time I refer to a Top 10, you can assume, I am referring to the US Top 10. Scholarship – What Is it Actually? Need based scholarships some schools such as HBS and Stanford provide only need-based scholarships, so if you got admitted and cannot fund your MBA, they will help out to an extent. Merit based scholarships – this is a more interesting kind. These are often limited only to the US citizens/permanent residents within the top 10 group. The concept gets pretty complicated if you take the whole game theory into account. When a school feels that you are a great enough candidate to have in the program but feels that unless you receive a scholarship, you won’t attend. This may be for several reasons – e.g. a great applicant but from a poor country so unless they offer you a scholarship, there is no chance you will enroll (this often ties admission and scholarship decision). Another reason would be to entice you to attend the school due to your background, stats, and overall positive impact that you will have on the program (e.g. you will help raise the average GMAT score, likely get a great job, likely impress other classmates, and have a positive and unique contribution to the discussions). This is a reason schools often ask during interview – what other schools are you applying to. If they know they are the highest rated/ranked school on your list, they don’t have to offer you a scholarship; they are a reach school for you, and if you get admitted you will likely enroll (remember that yield rate is an important ranking element; the fewer admitted people convert into matriculations, the worse the school will rank). However, they have to keep in mind that other schools may offer you a scholarship – they know what candidates have been offered scholarships historically and chances if another school trying to steal you with their money, so if you are a candidate they believe is likely to get a scholarship in another closely ranked school, they may offer something as well. This is why you often see people get scholarships from all schools they applied to and then others not get offered anything at all anywhere. Another aspect of merit scholarships is that they tend to be reserved for specific groups/demographics and it is hard to get one if you are a member of an overrepresented group (you know who you are). Named/Special Scholarships – schools often have other smaller/specific scholarships and fellowships such as the Polski fellowship at Booth that is given to entrepreneurs and applicants from Eastern Europe though it appears it is no longer listed on Booth’s website. These are specific and may change some of the numbers. The trick, often, is that you have to apply for them each year and while you get it during the first year, you may not get it afterwards if a better candidate appears. List of Named scholarships is here ]. Usually, the better ranked the school is, the larger is the list of named scholarships/fellowships. If you receive a scholarship , it is a very positive and reassuring message – that means the school really wants you and is willing to forego some of the money to have you attend. It is really one of the easiest and best ways to earn a lot of money in a short period of time and not be taxed on it BB’s School Rankings I never realized that I was stereotyping but I was. Here is what apparently my mind has arrived to, subconsciously, over the years in terms of Bschool tiers: Tier 1: HBS and Stanford – I feel these are absolutes and everyone either wants to get in here or wished they did. As I wrote in one of the posts, it may be my personal obsession with being the best or wanting to be #1 that is driving me to place such high value on these 2 schools but I openly do; think of as a luxury good/product that is very exclusive, like a low-digit license plate in Dubai or an 8888 phone number in Hong Kong Tier 2: Top 10 – realistically the best a mortal can do Tier 3: Top 20 (I feel top 10 and top 20 are not that different but there is a nice sound to that top 10). This can stretch to top 25 but people tend to count things in 10’s. Tier 4: Top 50 Tier 5: Everything else Here is my trade off matrix: If admitted to both HBS/Stanford Top 10 Top 20 Top 50 Top 10 I would not trade for a scholarship to top 10 normally but would consider if I had strong WE or planning to start my own business Top 20 . No deal Would definitely trade for a full scholarship Top 50 . No deal No deal Would consider trading Top 100 . No deal No deal No deal Would definitely trade for a full scholarship Obviously you have a matrix like this in your head – you probably would not trade HBS for a top 50 school with a full scholarship or maybe you would – try creating your own (and share it here too if not scared) What Is the Value of the Brand? This is one of the most critical questions of this post – what does a brand-name MBA give you that you would not get in an average top 50-ranked program? It is very important to understand and evaluate – many people don’t get it really because it is not a whole lot when you look at it on the surface: Recruiting – first and biggest value. Everything during your bschool experience will be around recruiting and alas rejection, very similar to the whole application process. Getting some help from the school’s career resources, on-campus recruiting events, and alum informational interviews will go a long way to help with options and giving you first dibs at the most competitive positions. Here is why recruiting is key: The better the school’s brand, the better employers come to campus or invite students to apply for internships or jobs. How much is it worth to you to simplify recruiting and internship-search process? Do you want to be rejected in a bunch of places or given a chance/interview with some cool employers? The better the school’s brand, the more exclusive it tends to be, and the more helpful/close-knit the alumni are (more likely to hear back when you reach out). How much is it worth? Again, hard to estimate but with a better-ranked school you are likely to have alumni in better companies/spots You will more likely get an interview when cold-calling or cold-emailing your resume on Linked In to potential employers. This will be very helpful to those looking to change industries, who have no relevant work experience to demonstrate their worth/skills. Note that some companies (e.g. MBB as well as Goldman, Citi, or Morgan Stanley) recruit only at certain schools (e.g. top 10 for example) and then leave just a handful of spots for the other top 20 schools to catch all those who took the money instead of attending the higher ranked schools. It is competitive overall but much more so for the less ranked programs – you need a great GMAT score and solid relevant work experience to qualify) Better classmates. The support network you will build while at school will be based on your classmates. A substantial portion of your learning will be done in small groups and having smart classmates helps a lot – this is actually one of the areas students and alums consistently rank their programs as the low point of experience. Your classmates will determine how fast, much, and well you learn. They will make your experience enriched or miserable. I would argue a good class is better than a good professor. Professors switch every few months but the class goes for 2 years Better professors Better resources/endowment/facilities (not always but often true) and a greater choice of named scholarships Bragging rights & school pride This is really it. It does not look like much on the surface but these add up to “the best 2 years of my life” or “when can I be done with this”. I have had a unique experience of attending a study abroad program and have experienced 2 tiers of programs and a set of students from about 10 different Top 20 business schools. It was a meaningful difference and though the sample was fairly small, it was a difference of standards and expectations. You will have better experience and better chances with the better ranked school. Do higher ranked school alums make more money? This is a chicken and an egg problem. The applicants matriculating into the top programs tend to be a higher caliber folks already making good money. When they graduate, they naturally increase their salary by 30-50%, making even more money. You get the idea. Rankings are closely tied to salary after graduation and employment stats – there is an 85% correlation between salary amount and ranking of a school. Schools do look at your compensation history to determine if you will help or weigh them down in terms of your earning potential after graduation – they are interested to have you employed as fast and as lucratively as possible after graduation as that will boost their ranking, attracting better applicants, which in turn will make ranking even better – it is a never-ending cycle. But there is a big BUT – higher ranked schools have better access to the most competitive and lucrative opportunities, thus having the first dibs at higher-paying jobs, which while does not make them get these positions automatically, makes getting it much harder for someone in the top 30 or top 50 ranked school. Though not always the case, employers and recruiters do know what the average graduating salary is for your class and they will make their offer within that range and it will be hard for you to argue against those facts. Something I have used in my salary negotiations was bring up salaries of my classmates and point out to my employer (hospitality industry is not known for high salaries) that my compensation needs to be at a certain level to be in line with other folks I went to bschool with (of course I used the higher range in my argument but it worked and I got a good raise when my promotion came due). Keep this in mind. How long can a school brand name be leveraged? Does it have diminishing returns? The answer is yes, as you progress with your career and see graduation in a rear-view mirror 5 or 10 years later, when your promotions, jobs, and opportunities are based on your reputation in the industry rather which school you have attended, the MBA brand plays a much smaller role when a new CFO is selected; it will be based on your performance, your reputation, and results. As I did say just above, it does help to have a higher average salary of your class to help with negotiating your compensation and promotion; however, 10 years out, it is likely not going to be a powerful driver. In turn, having a shiny MBA brand, and lack of results/performance 5-10 years later may cast a shadow (you went to Wharton and all you are doing is a Financial analyst – what’s wrong with you?), so getting a shiny MBA also comes with some expectations to live up to. This is the painful reality some folks face when they return to their native countries due to not finding the right job/H1B issues. Everyone knows, coming back was likely not by choice. Can you off-set the value of the brand with something else? Yes – for every attack there is a defense. Your professional network has an opportunity to provide you wiht an ROI. If you are not switching industries or you have strong connections within certain industries (family, colleagues, friends, etc), the brand is not as important because you can leverage your previous connections, your knowledge of the industry, and your stronger experience in securing job interviews or internships. Often this has more value and carries more weight than a school's name. I have seen many times people hired simply because they came recommended and their resume looked exactly like the other 50. It makes sense from the hiring standpoint as well - it is less risk if you hire a recommended candidate. Keep your network engaged and primed while you are in bschool. Second, if you have substantial work experience, achievements, or other credentials that will help as well to stand out/compete with candidates from higher ranked programs. Third, if you are planning to start a business or have connections to secure interviews/consideration for candidacy, the advantage of getting a brand-name MBA will be diminished. Something else I have seen people with really bad school brands do (i.e. no name French programs) is enroll into executive course series from a highly ranked school – e.g. enroll into negotiations program at Wharton or HBS leadership series for a week. It is a bit cheesy as everyone can see they are trying to off-set their previously low brand MBA experience and when they put HBS or Wharton as “Education” on the resume or LinkedIn, I cringe, but it serves a purpose. Keep in mind that it will set you back about $10K – quite a price for just a week of instruction. (Schools know what you are doing too and they milk it, or rather milk you). So, if you are saving $20K with a scholarship to a lower-ranked school, it is not really worth bothering. International Recognition If you are ever planning to work outside of the United States, then some of the choices/priorities will be different. For example, everyone knows Harvard and Stanford. Many know Princeton (no business school though), MIT (for engineering), and Yale. A few know Wharton but after that the name recognition really drops off. Granted, if you are applying for an MNC office, the boss there will likely be from Europe or US, but they may be from Australia or Asia, and the value of a name when you meet with local partners or folks not well aware of the western business school hierarchy, you may as well have attended an online MBA from University of Phoenix. Nobody will know what UNC or Kelley, IE, HEC, or Anderson, or even Ross Michigan is. A few spots on the ranking ladder may not matter a whole lot in the US, but they are day and night in other regions. Cost of the MBA Yes, there is tuition. But what many ignore is the living expenses when they think that School A is $100K vs. School B at $0 for example. It does not work that way. You have the living expenses, additional school expenses, opportunity cost, and financing costs. Here is how your very simple budget will look like: School Comparison School A School B Tuition $100,000 $0 Living expenses $40,000/yr $35,000/yr Additional school expenses $5,000 $5,000 Opportunity cost $50,000/yr (not included in calc) $50,000/yr (not included in calc) Financing costs $70K @5% APR or $19,000 $20K @6% APR or $6,600 Any offsets, such as Fellowship, etc -$10,000/yr -$5,000/yr Total: $194,000 $76,600 As you can see, there is no “free” option above and the difference is not $0 vs. $100,000. It is rather $190K vs $80K – a scary amount. I am frankly not a huge fan of the opportunity cost calculation in there since it is not real money and is equal in both cases, so I often write it down just for the sake of modeling but don’t include in the final calculation. Very Important – School Budget : you will need money from savings, family, or somewhere other than loans while in BSchool. You can borrow only up to the cost of tuition and living expenses. The estimate for living expenses is modest and always under-budgeted. For one, it is a budget made to look attractive, for two, it is only budgeting living expenses while attending school, so it excludes the 3- 4 month summer break. Hopefully you will have an internship that pays well but depending on your industry (e.g. entertainment, movie, nonprofit) – it may not. Second, the budget only includes school-related living expenses and does not include any fun events, class trip to Vegas, or ski weekend that is really helpful to build relationships within the class. You don’t want to miss out on those Third, the loan money is disbursed right around when the school starts and in 2 installments (in case you are new to student loans); if you front-load any expenses in your second year or second semester, you will have to wait for some time. Fourth, we always blow budget due to something unexpected, so it is good to have a reserve. Special Situations Everyone is special and I am going to address some of the most common situations/arguments I have encountered: I am going for industry X and this top 20 school is ranked much higher in X than a top 10 school. It is a good argument and you are right. A good niche specialty school can do a lot more for you than a general higher-ranked school. Duke is a good example of a Healthcare-strong program and Booth is finance. However keep in mind that many applicants (I would say over 2/3, change their industry/focus/plans after the first year); thus you are more likely to change than to stick to your plan, statistically speaking. MBA for Entrepreneurs – traditionally the advice is to not get one and not set yourself back 2 years and a bunch of money only to get into debt before starting a business. As an example, Microsoft, FB, and many other famous (too famous perhaps) entrepreneurs dropped out of school when their idea showed promise, proving that the idea is stronger than typical education (FedEx founder got a “C” on his business plan for FedEx when he was doing his MBA). My advice to you would be to seek lower debt levels and even though many aim to work for a few years before starting their own venture, the end goal is the venture, thus making recruiting and all advantages of higher-ranked programs less important. Older Applicants – you probably have a pretty good idea what you are going to do and don’t need my advice, so do it. Perspective on Money $100,000 is a large amount to spend, esp. if you come from a country other than UAE or Switzerland. However, a degree is different from a car or most other purchases you have made because it is an investment. While it is true that its highest value is derived after graduation when you look to make your first impression, it will remain with you throughout your entire career and can serve as an “insurance” should your career run in trouble. However, compare it some purchases you will be making later (being a number of years out of business schools and with some work experience, I can tell you that with a family there are quite a few other expenses I never imagined while in bschool): Toyota Sienna AWD minivan will cost you $40,000 plus tax; a luxury sedan is about as much or double that for a Tesla. A kid will cost over $200,000 over the 18 years they will spend pestering you in your home, which, your home, in turn, will likely cost you over $1M if you happen to live in a large metropolitan area (you Tippie grads are safe with this one). If take into consideration currently low interest rates and eventual inflation, a 10 or 20-year student loan, money is fairly cheap. Another Money Perspective at this would be looking at the $100K from the retirement perspective – take a look at comparing your retirement horizon (I know it is really far away) but 40 years later, what would the 100K mean to you? If you were able to save the entire 100K and put into retirement savings, probably, would allow you to retire 2 year earlier. That’s huge but then most of us would not put 100K into savings. Instead we would accelerate an otherwise deferred purchase, buy a bigger house, or splurge on a vacation we would be lucky if a third of this amount actually makes it into savings. Have you noticed how a few small charges on a credit card add up to thousands of dollars and then how big paychecks seem to add up to so little? The key to saving is limiting your spending and having the discipline to restrain yourself. If you are a penny pincher, you will likely choose a scholarship program as otherwise you will feel guilty. If you are a spender, it probably does not matter which program you attend as you will spend most anyway and in that case may as well invest into a degree that will hold its value and can be leveraged over the lifetime. Tuition Cost: Would it make a difference if you got a 50% scholarship? Many of your fellow alums did because they attended the program 5-10 years before you did. Tuition has gone up significantly in the last 20 years, and esp. in business schools. There is of course talk of a bubble in college tuition but that has not yet happened in the business schools, as US programs continue to push 2-year degrees instead of a typical 12-month programs in Europe. It is quite likely that in 5-10 years the cost will go up another 50% (that would be a 33% discount to earn your degree now). Personal Financial Situation If you are carrying 100K from undergrad, I would not recommend you taking on another 100K in grad school loans. It will be a burden that may get too heavy and the APR rate will likely be higher. The compound risk is above/beyond my comfort level. Consider a car that has old tires – there is a chance one may fail you but you have a spare. The risk of getting stranded is very low. Now consider a car with all new tires, but your spare is flat. The risk of getting stranded is again very low. Now consider a car with old tires and no spare – that’s suddenly much riskier. If you have a substantial financial obligation, I would strongly suggest to you taking a scholarship – that will reduce financial stress (everyone stresses about money in bschool as it is always more expensive than expected). Intangible Value – I feel Harvard or Stanford (sorry Wharton grads) deserve an extra “credit” and a mental “best of all” value, meaning I personally would have attended H or S MBA instead of attending a UNC or Fuqua for example with a full scholarship. Primarily the justification I would give to my wife and children who would be asking why the hell did I spend their college fund on my MBA is that I got the best there was and money was not a consideration in that case (this is often the case when we choose safety products; you probably don’t want to save $10 or $100 or $1,000 and skip changing breaks on your car). In any case, other people (i.e. employers) also often consider Stanford and Harvard to be in a class of their own and even getting into Stanford or Harvard, let alone graduating actually is sufficient for them to notice you or spark a conversation. How much is that worth? It is hard to quantify. Conclusion: When most say MBA, they mean opportunities and change. However, MBA also means risk and there is a tradeoff between risk and reward. Your decision is likely based on how much risk you are already carrying, and your risk aversion/adventure level or how much you have to lose. I feel a full scholarship is often worth the trading down to a lower-ranked school. The only exception I am making is in case of Stanford and HBS and a few other special situations. However, whatever decision you make, make sure you are committed, and comfortable with it. You will likely not be able to undo it and live a second life. So once the decision is made, get as much money as you can, and prepare for 2 hard but very rewarding years. Good luck! Additional Resources/Alternate Opinions: https://www.youtube.com/watch?v=BaOq47fDwVw

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Value of a Top 10 MBA [Long Post]

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