In this episode of Business Casual, hosts John Byrne and Maria Wich Vila are joined by Heidi Hillis, a Stanford MBA and expert from Fortuna Admissions. They delve into the surprising results from Bloomberg’s new ROI calculator, which places the University of Kentucky’s Gatton College of Business and Economics at the top for annual ROI among MBA programs. Heidi questions the calculator’s emphasis on financial outcomes, advocating for a broader view that includes personal career objectives. Maria highlights the need to consider not just immediate financial returns but also the long-term career enhancements and intangible benefits like networking and personal growth that an MBA offers. 

They discuss how, despite providing valuable insights, the calculator may not capture the full transformative value of an MBA education.

Episode Transcript

[00:00:04.370] – John

Well, hello, everyone. This is John Byrne with Poets and Quants. Welcome to business Casual, our weekly podcast. Today, I’ll be joined by a new co-host who is actually filling in for Caroline. It’s her colleague, Heidi Hillis. She’s a Stanford MBA, one-time worked for McKinsey, among up many other companies in different locations around the world. Heidi is one of the senior coaches at Fortuna Admissions. And of course, we have our reliable, solid, standby, Maria Wich Vila, Who is the founder of the applicant lab in a Harvard MBA? Now, you two aren’t going to get into a fight because one went to Harvard and one went to Stanford, are you?

[00:00:54.180] – Heidi

Probably not.

[00:00:55.210] – Maria

I mean, if we did, I could probably take Heidi down. No, that’s a joke.

[00:00:59.160] – Heidi

Yes, I’m in Stanford, so I’m very nice. I would never fight.

[00:01:03.580] – Maria

That’s a joke because I’m very small in stature. I could probably not take down anyone. So… You know…

[00:01:10.020] – John

This is the difference between Harvard having a force grading curve and Stanford having none. Anyway-

[00:01:17.970] – Maria

By the way, I just want to point out that the only reason I’m reliable is because I’m not off having amazing adventures the way Caroline is. No offense, but in a heartbeat, if I could go on safari in Africa right now, I would make the choice that she made as well.

[00:01:32.910] – John

Yes. And that is in fact where Caroline is at the moment and being filled in ably by Heidi. We’re going to talk about return on investment. Obviously, anyone who begins to consider a full-time MBA program, an executive MBA, even a part-time MBA, starts thinking about, Okay, how much money am I going to have to invest to have this experience, and will it ultimately be worth it? And Bloomberg just came this week with a calculator that purports to measure the ROI of 77 full-time MBA programs that it currently ranks. Now, these are only the US programs, no international programs, but there’s some shocking surprises in the results. You’ll never guess the number one school in annual ROI. It’s actually the University of Kentucky, the Gatton College of Business and Economics. Now, you’d say, Well, how can that even be? Well, according to Bloomberg’s calculations, an MBA from Gatton has a 23.8% return on investment annually. Over a 10-year period, that amounts to more than half a million dollars in additional income. Exactly, it’s 561057. Now, what’s also surprising is that most of the highly ranked schools, the schools that we typically we talk about on this podcast week after week are all below the median ROI.

[00:03:07.910] – John

Okay, Heidi, what do you make of this?

[00:03:12.400] – Heidi

Well, I think it’s a really… I’ve had a lot of fun playing around with it and just plugging in lots of different scenarios and trying to get understanding of how it’s working. I mean, obviously, the first question I ask is, where are they getting the data and what’s it based on? I think it’s important to dig But I think on the surface of it, just to have a tool where you can ask the question and think about, what is it that I want to get out of my MBA program? It does give you some tools to think about that. I think we can get into a little bit more of the details of what is an ROI in terms of what are you looking for. If you’re looking just to maximize the money that you’re going to make post-MBA, then it’s a good tool for that, I think, just to understand. But as we look at someplace like Kentucky, There’s 55 students at Kentucky getting the average salary before MBA was 25,000. The average post is $86, so that’s great for someone in Kentucky who wants to maximize a program. It’s a one-year program, and I think it shows that that actually makes a lot of sense for someone there.

[00:04:19.940] – Heidi

But it doesn’t really capture, I think, what you would get out of… It wouldn’t make me look at it and say, Oh, well, if I got an offer from Kentucky and one from Harvard, I’m going to go to Kentucky, necessarily. I think that you have to really dig in a little bit further.

[00:04:32.490] – John

Yeah, exactly. Maria, your take?

[00:04:35.810] – Maria

Yeah, it’s exactly the same. I mean, to the extent that ROI is a percentage number, if you start off with a lower base for something like your pre-MBA salary, then even if afterwards your post MBA salary does seem to limit off, limit or cap off at a certain level, it doesn’t really matter because you’re starting from that lower base. So as Heidi pointed out, the Kentucky folks just were looking at them just because they happened to be at the very, very end of the highest part of the ROI calculator. The post MBA expected salary is $86,000, which is less than what people entering Stanford and Harvard and some of the other top schools. That’s less than what they are making now pre-MBA. You might say, Well, if you’re just looking at the percentage change, that delta from pre-MBA to post-MBA, okay, that alone might not necessarily be the metric upon which you want to base things because it is a lower starting point and a lower ending point, frankly. That delta, that percentage looks really nice, but I think once you dig into the details, you realize that there might be more to this.

[00:05:45.830] – John

Generally, it’s good news, don’t you think, Maria?

[00:05:49.230] – Maria

I mean, overall, even the low ROI schools, which are a lot of the more fancy or more elite schools did tend to fall into the lower end of the bucket. They all still had very positive ROIs. And again, if we’re just measuring it on the metrics of only that delta, they still had a positive ROI. And a lot of folks, again, if you get into one of those schools, you’re probably already making a low six-figure salary anyway. So, yeah, even the bad news is still good news.

[00:06:21.860] – John

Yes. And here’s another thing to think about. Even though Bloomberg is essentially measuring the best schools by percentage gain, the truth is, if you look at the actual gain, you have a very different result. Yes. The 10-year gain for Stanford, for example, is over a million dollars. Even though It’s actual percentage gain is below the median. And that goes on and on. Mit Sloan would come in second place with a gain of over 900,000 over 10 years. You’d have with over 800, and Harvard with also over 800,000. You get a totally different result if you look at it on the basis of a 10-year gain in your income. Any other interesting aspects to this that you found, Heidi?

[00:07:17.320] – Heidi

Yeah, I thought… It’s also interesting how they calculate… They give you a starting salary post-MBA, and then the calculation is based on an increase I think 1%, 1.3% or something a year, which I think is… I’m not sure I agree with that assumption.

[00:07:38.850] – John

I think also- What MBA would be getting a 1.3% increase a year? I mean, That’s inflation adjusted. They wouldn’t last in the job for six months. They’d be jumping.

[00:07:48.460] – Heidi

Right. It depends, again, on probably the MBA program. Then also it caps off at 10 years, which I think it’s helpful to say, Okay, what am I going to make in 10 years? But I would argue that, and Maria, maybe you have a It’s a different opinion, but I think that this return actually, looking at it now back, I’ve been out for more than 20 years. I think that it really starts to really kick in, probably after the 10 years. I mean, you do the hard work right out of the MBA. People will go back into consulting or they’ll do banking or they’ll do a tech startup or something where they’re actually maybe not making as much as they would want or the years that you really work really hard. Then those 10 years out, that’s when it really starts to kick in where people start getting CEO roles or getting lots of board seats or things like that. I think, again, if you’re looking to really maximize just your earning potential, I do think you have to look a little bit longer than 10 years because I think the longer you go out, the really you see the effect of having that experience.

[00:08:53.160] – Heidi

I guess it can be also argued that there’s a lot of these people, and we can go into some case studies maybe, but if you’re starting at a really high base, you’re going to have a lower return just because there’s only so much that you’re going to cap out. Obviously, there will be people who will do startups who will make a lot of money, but most people will cap out probably in the, I don’t know, millions at the highest. But it’s just something that I think you don’t really capture all of that in the first 10 years.

[00:09:21.990] – John

Yeah, for sure. In fact, there are a number of problems with the calculation. I think the assumption that an MBA is going to get less than a 2% increase in pay every year is ridiculous. But there’s even more ridiculous things about this, and let me go through them. For one thing, There are very few students who actually pay their sticker price on an MBA. In many programs, the discount rate can be as high as 50% to 70%. This is particularly true with second-tier programs that are trying to attract better students than they could naturally get, mainly because they’re focused on maintaining or improving their US news ranking. There are many of these schools, in fact, that they have a tuition number, but almost everyone is getting the full ride. That’s just the reality of it. Also, the calculation, as you point out, Heidi, assumes a 10-year window. But an MBA really often results in a lifetime’s change to one’s personal and professional development, as well as their earnings their job fulfillment. You have 35 years. If you graduate at 30 and you retire at 65, you have 35 years to basically leverage your MBA education into more income.

[00:10:45.720] – John

The other thing that the calculation doesn’t tend to look at is your internship money. Now, the Harvard MBA makes on their summer internship over $9,000 a month. That’s another $18,000 that goes into reducing the price of your degree and reducing your foregone earnings. Now, a good example here is Harvard, because last year, Harvard actually doled out, listen to this number, $51 million in scholarship money to MBA students alone. The average MBA student at Harvard, at least a half who received fellowship money, got $92,000 over the two-year periods. 92,000. None of that is figured in these calculations, which would dramatically change them. That’s some other issues with this thing. That said, Man, it’s fun playing with the calculator and looking at the numbers for each of these schools. Now, Maria, I bet you saw some eye-popping numbers. I certainly did in terms of how much money people are borrowing and in terms of how much money people were making before they entered the MBA program.

[00:12:05.000] – Maria

Right. Well, I think that another side benefit of playing with this calculator is that if these estimates of the entering or starting salaries are correct, we have long advocated here that part of getting in is already being successful at the time that you apply. So by virtue of the fact that the entering, the pre-MBA entering salary, according to this calculator, at least for Harvard and Stanford, was somewhere between 120 to $125-ish, $1,000 per year. That’s a pretty good indicator of the fact that these were already high-flying overachievers. These were not people who were stagnating in a career and not really making an impact, not really moving up in the ladder. I do think that that is pretty… I like the fact that this reveals that or puts a spotlight on it. But yeah, look, the eye-popping number is also in the loan number, but that’s because it’s expensive. You get what you pay for on some cases. I think one of my biggest critiques, I agree with Heidi, is that only looking at it from a 10-year basis and assuming that over the course of those 10 years, your salary only takes little baby steps of increments, that’s probably not accurate.

[00:13:22.180] – Maria

The graduate salary immediately upon graduation, probably pretty similar between a lot of these schools, the people who get jobs at McKinsey are all probably going to make the same amount of money regardless of which business school they went to. If they get the McKinsey offer, they get the offer. That salary is going to be pretty standard from school to school to school. But where things really start to branch the different directions, it is more at the 5, 10, even 20-year mark. One might argue that an elite MBA might either equip you with the skills, or honestly, it equips you with a network that you can call upon in those 20 years and start saying, Look, I’m ready for the next phase of my career. I’m ready to look at joining a board. For example, when I went to reunions a couple of months ago, it was a 20th reunion, there was an entire panel on people my age who are on public company boards, and it was like, here’s how you do it. Here’s a little roadmap for how to become a member of a public company board. So that’s the thing where that’s not going to hit your salary or your compensation level, your 10 years out of school, realistically speaking.

[00:14:32.280] – Maria

But 15, 20 years, that’s when that education and the network and the connections are going to start really kicking in to give you those later in career opportunities that simply isn’t reflected here. That’s why I think year after year, we still see people giving everything they can to try to get into some of these M7 top 15, top 25 programs. It’s precisely for that reason. I think if you only look at it in the short term, of course, it doesn’t make sense. But so do a lot of other big purchases, like buying a house, for example, does not make sense if you’re only looking at it in a very short and compressed time frame. I feel the same way I feel about the rankings, which is it’s an interesting starting point. It’s probably directionally correct on some level, but it’s almost more interesting for the little subbullets of data that it gives you more so than it is taking that overall result that it spits out. It’s almost like looking at the inputs is almost more interesting than just the result of the calculator itself.

[00:15:33.830] – John

Yeah, that’s very true. Now, Heidi, you mentioned in our pre-talk that you have applicants who ask you, Okay, how do I determine the ROI on this investment? What do you tell them?

[00:15:48.430] – Heidi

Well, I think that there’s a couple of things. One is it is something that I think it’s maybe not as many think about it as they should. I think people assume that it’s going to be what they need. I think that that’s why when you work with somebody, when you go through this process, it’s really important to think about what are your goals to get out of this program. If it is just capitalizing on the experience and making as much money as possible, this is a good tool, potentially. However, I think that there are a lot of people who it’s not their main goal. I work with a lot of… I can think of a bunch of people I’m working with right now who are in banking, already making 400 grand or even more. And you think, why are they applying? And they’re not applying because they want to make more money. They want to pivot. They want to do something. They want to stop working 60-hour weeks. They want to get out of that rat race and do something. They want to do something. Obviously, a lot of them want to do something entrepreneurial, which is very unsure what your return is going to be if you have no idea how much you’re going to be making the first few years, probably making zero.

[00:16:54.530] – Heidi

So it doesn’t really capture those kinds of motivations for wanting to get an MBA, which I think for a lot of people is, especially when you’re looking at the top-tier programs and they’re already successful in making money, they’re at the stage where they’re actually thinking a little bit more about, What do I want to get out of my career beyond just a good salary? What impact do I want to have? Maybe a lot of them want to solve big problems, whether that’s climate tech or education or something else. At least that’s what they say. Not all of them will do that. A lot of them will actually, in the end, go and work for the big bucks, especially in the beginning. But I think longer term, it gives you certain options that allow you to have the career that you want and then have the impact that you want. That’s not really captured in a salary so much. I think it’s important to going into it thinking, what is it that I want to get out? Then making sure that it will help you to do that. When we do career visioning or something, it’s like, Okay, these are my goals, then let’s go test that.

[00:18:02.050] – Heidi

Can you actually do what you want to do? Are there paths that you see that people have done that exact thing? Do those salaries match with your expectations? Then you can take a calculator like this and think about it.

[00:18:14.760] – John

To your point there, there are a lot of intangibles that you can’t put a number on. You can’t put a number on the value of transitioning from one career to another. You can’t put a number on the additional fulfillment you may get or the more meaningful job you’ll get as a result. You can’t even put a number on the fact that, and the research shows this, if you have a graduate degree, you’re far less likely to be unemployed than if you don’t have a graduate degree, when there’s a downturn that occurs, it doesn’t put a value on the network that you graduate into. Oftentimes, that network results in jobs and opportunities that would be invisible to you. There are a lot of these intangible things that you just can’t put a number on it. But in many cases, they’re as important, if not more important, than the actual thing you can put a number on. Wouldn’t you agree, Maria?

[00:19:17.750] – Maria

Absolutely. Even in the case where someone is, say, already in private equity, already making a couple of $100,000 a year, and so you say, Well, my post-MBA salary will be maybe a little bit more than what I’m already making, but not that much more. Well, it is a marathon, not a sprint. So yeah, maybe right now you’re at the same level as your peers, but maybe if you get the MBA, you will be exposed to a wide variety of frameworks, a wide variety of industries, a wide variety of thinking about, wow, you know what? If I take what I learned on this case on the pharmaceutical industry and I apply it in the manufacturing industry, what lessons can I learn from that? So that might make you a better investor in the long term. It also might make you a better people manager. At a certain point, if you ascend to the real high levels of some of these professional services firms, it’s more about being a rainmaker and bringing in the clients and/or also being able to manage your team to do the work for you because you can’t be in a hundred different places at once.

[00:20:15.960] – Maria

The MBA will help give you those skills. It’ll give you the network of people to call upon and say, Hey, I’m now working at this consulting firm. Do you guys need help? Hire us, or knowing how to manage people a little bit more if you take those leadership courses. Or even if there is a downturn, heaven forbid, you’ve got the network in place that makes it more likely for you to be able to call people up and say, Hey, you know what? Lost my job. Do you know anyone? Can you think of anything that might be out there? All of those All of those intangibles, even for the current high earners, I still think makes it worth it.

[00:20:50.890] – John

All right. Even though the general news out of the calculator is very positive, we say it’s not nearly as positive as it actually is in reality. That’s your bottom line.

[00:21:03.160] – Heidi

I would add one more intangible to this whole thing, which is in my Stanford class of 400, at last count, there were 25 marriages.

[00:21:13.860] – Maria

I’m one of them. I also married the person I met in business school. But talk about intangible benefits. That was a joke, guys.

[00:21:28.440] – Heidi

It’s a great dating app.

[00:21:30.540] – John

There you go. So MBA really doesn’t stand for married but available after all.

[00:21:37.140] – Maria

It doesn’t for all of us. Maybe it does for some people.

[00:21:42.320] – John

All right. Well, Heidi, thank you for joining us today. And Maria, thank you as always. And for all of you out there, we hope we shed some light on the return on investment on an MBA. If you want to check out our story of Poets and Quants on this topic, look at ranking MBAs by return on investment. We have a fair bit of skepticism in there, but we also parsed the numbers in a way that makes them very visible and obvious. We show the top 25 schools and then how the highly ranked schools compare. The numbers are amazing. They’re really interesting to look at. Thanks for listening.