In this episode of Business Casual, our hosts provide insights into the multifaceted landscape of MBA expenses. They delve into the topic of the soaring costs associated with pursuing an MBA degree. The discussion centers on the expenses of prestigious business schools in the US and Europe, particularly emphasizing the steep financial commitments demanded by top US institutions, where tuition, fees, and living costs often surpass $200,000. Notably, Stanford stands out due to its location in the expensive Bay Area.

Our hosts explore several factors contributing to the elevated costs, such as the diverse curriculum offered by business schools, substantial faculty salaries, and investments in modern infrastructure. The podcast underscores the availability of scholarships, with a focus on Harvard and Stanford, where almost half of the students receive financial assistance. The hosts also share their advice on how to negotiate scholarship offers and highlight the importance of considering return on investment (ROI) and other vital factors beyond costs when selecting an MBA program.

Episode Transcript

[00:00:07.210] – John

Hello, everyone. It’s John Byrne with Poets and Quants. You are listening to our weekly podcast. We call it business casual. And I have my two co hosts with me, as always. Maria Wich Vila and Caroline Diarte Edwards. We’re going to talk about how much it costs to get an MBA. You know, it’s, it’s a lot of money, right? Well, every year we take a look at how much it in fact costs at all the top business schools in the US. We also take a look at the European schools, but let’s just focus on the US. Schools for now because some of the numbers are rather shocking. If you want to talk about sticker shock, people will get sticker shock by looking at this article. If you want to know how many top 25 US. Business schools are now in the $200,000 club, it’s 19, actually, of 27. Schools have tuition, fees and estimated living expenses that exceed or equal $200,000. The biggest one, not surprisingly, given the high cost of living in the Bay Area, is Stanford. For the first time ever, a full cost of a two year MBA at Stanford now exceeds a quarter of a million dollars.

[00:01:24.970] – John

I am even shocked. But it’s not cheap to live in the Bay Area. Caroline can attest to that since she lives not far from Stanford. And I just moved from the Bay Area a couple of years ago, and it is super expensive. What’s also interesting here know we track tuition over a number of years in addition to the estimated total two year cost of these degrees. And it’s interesting to see which schools have most aggressively increased their tuition and which haven’t. And when you look at the tables, you find Wharton, for example, was charging $74,500 a year into MBA tuition in 2020. That’s three years ago. Now it’s 87 370, $13,000 more per year. That’s a pretty big hefty increase. Harvard, on the other hand, and this is kind of interesting, is Harvard held the line on their tuition cost for three years in a row with no increases whatsoever, and now they finally put up a raise. But it went from 73 440 to 74 910, just a meager 2%. So Harvard is definitely playing the mid range game. They don’t want to be perceived to be the most expensive business school in the country or the world.

[00:02:51.400] – John

And they like that midpoint because if you look at the schools that have tuition that exceeds $80,000 a year, it’s Wharton at Chicago Booth. Stanford is just under 80. Northwestern, Kellogg is at 81. MIT Sloan, 84. Columbia, 84, five. Yale, 82, seven. Then NYU Stern, because, of course, if it’s New York location, which is a very expensive place as well, 82 326. All these numbers, I’m just going to tell you, are, in my mind, conservative because they don’t factor in the likelihood of another increase in your second year in an MBA program. And typically tuition goes up anywhere between three and 5% on an annual basis. So, Maria, why do you think it costs so much money to get an MBA these days?

[00:03:45.830] – Maria

Well, I think, for starters, MBA programs have a lot of costs. One of the biggest ones that would jump, to my mind, would be other types of programs tend to focus on perhaps offering a couple of different flavors within one given subject area. So let’s say a school of architecture might have an architecture degree and then an urban planning degree and I don’t know, a couple of different flavors within one central academic discipline. I think with business schools, most business schools will have, let’s say, between five to ten majors. Some of them are quite different right. To offer a very robust faculty and course offering in marketing and finance and operations and business analytics. I think it really starts to add up very quickly because the MBA is both a general management degree, so you need to be strong in all of the core business academic areas. But then you also offer majors and minors or concentrations or certificates or whatever you call it, to meet the demands of what the students want for the workplace and what the employers are looking for too, I assume. So I would guess that that’s part of it is that there is such a broad range of subjects being taught at a business school that that’s probably a big reason why, in order to have that many faculty members on board.

[00:05:04.020] – Maria

And also given that a lot of these faculty members could probably be making money consulting to businesses, I know many faculty members, for example, make a nice living, a nice sort of side gig living by consulting to corporations or by being speakers at conferences and what have you. So I think that you also have to look at what is the alternative that someone has. So if somebody has an alternative to make a lot more money, if you want them to be a teacher full time, you don’t have to match the private sector. But I would suspect that you probably need to offer a bit more than you would have to offer someone who teaches in a discipline where there aren’t as many alternatives to make a significant income. So those would be my guesses, yeah.

[00:05:51.220] – John

And then there has been a race to build the fanciest, most modern, most complete, most technologically savvy buildings. And that has cost a good amount of money. But faculty, faculty and business schools are very well paid, probably better paid than any other faculty other than the med school. Five years ago, we took a look at, in fact, how much faculty make, and in the few cases at a public university, these numbers are public. So we looked at UCLA, for example. This is five years ago, and we found that four finance professors alone were paid over two and a half million dollars. You had one that was making about 690,000 a year, another making 630,000, another making 620. And this is for people who teach generally three classes a year. So the cost of faculty is tenure faculty, I should say, because the adjuncts are paid peanuts and so are the clinical professors. But if you are a research heavy professor at a business school, you’re making big bucks and you’re not teaching a whole. You know, you’ve often said that the European schools, largely because their one year programs are bargains compared to the US schools.

[00:07:14.020] – John

And after looking at these numbers, I would think that you’re going to feel that that’s certainly true more than yes, absolutely.

[00:07:23.390] – Caroline

It’s difficult to compare the return on investment for two years versus one year, right? But there is evidently a great deal more cost if you’re undertaking a two year program versus one year. Schools like Ses tend to do extremely well on those surveys that do look at return on investment because you’re paying tuition fees for one year rather than two. You’re incurring all of those living costs that you have looked at in your article for one year rather than two. And then, of course, you’re foregoing a salary for one year rather than two. So in the grand scheme of things, it makes a tremendous difference. And that’s often a reason that’s a big motivator for a lot of people to choose those one year programs. I mean, it’s not obviously the only reason why they would choose to go to one of the top international schools because it is also a different experience, right? It’s very different to go to an international MBA program versus going to a top US program. It’s a different educational experience, it’s a different community, it’s a different alumni network. So that should not be the only reason why you should I would never encourage somebody to choose the MBA program based on price alone.

[00:08:44.510] – Caroline

But nevertheless, for people applying to the international programs, many of them are coming from emerging markets where they have not necessarily had the savings power of someone coming from the US or Western Europe. And therefore the sticker shock that you mentioned is even greater for them if they’re looking at those top US programs. So they may well feel that those programs are completely out of reach and they are very attracted by the more efficient model of the one year programs where they can get that top notch education, but not have to spend quite as much money and be able to get back to the workforce much more quickly.

[00:09:26.230] – John

Right now, the offset to all this, and we should explain this, is that there is a lot of scholarship money losing around. Know, at Harvard half the students get scholarship aid and it’s quite generous. Stanford, same thing. And many schools offer even full scholarships. Most are partial. So that offsets the cost. And you have to remember that in your summer internship, you probably will be well paid and that helps to bring down your debt levels if in fact, you have to borrow money. And then finally, when you graduate, the salaries, the compensation packages overall, including sign on bonuses, performance bonuses, relocation expenses paid, and in some cases, employers will even give as a perk a partial reimbursement of tuition that you paid. Really helps to offset this number. But nonetheless, you look at these figures and you almost want to faint. Maria, do you recall what you paid for your Harvard MBA?

[00:10:31.090] – Maria

I don’t remember the money, but I did not get any know it was based on income. And at the time, like a fool, I was working in Hong Kong at the time, and a big chunk of my salary was housing allowance because the cost of living in Hong Kong is enormously high. But that was counted as regular salary. And so by their measure, I didn’t qualify for any financial aid. But like you said, only half of people get it. And when they do get it, the average is not it is not normally a full, full scholarship. It is normally for maybe half, I would think, of the tuition.

[00:11:03.250] – John

Even people who 30,000, I think is the average, right?

[00:11:07.750] – Maria

So, like, half of the people are getting roughly half of the tuition scholarship money is available for sure, but it’s not the same as with other fields of study. And I think the reason for that is because I think providing an MBA education is more expensive. But I also think, as you pointed out a second ago, what the salaries that people are going to be making after school are also going to be much higher than, say, someone who goes to the School of Social Work or who goes to get a master’s in English literature. And so what I sometimes tell people, because I think you tell people right up front, like, hey, only about half of people get scholarships. And that’s at Harvard and say, at Stanford. I think at other schools like NYU, I think it’s maybe a quarter of people get scholarships. So what I tell people when they sort of come at the end of the process and they’re like, oh, I was kind of expecting a full ride. My take on it to them is, look, the schools are basically placing a bet on you by accepting you into their class, right?

[00:12:04.070] – Maria

Most schools have way more applicants than they have seats. And so by choosing you over other people in the applicant pool, they’re essentially placing a bet on you that you are going to achieve certain levels of positive notoriety and success in your career. And if they’re placing a bet on you and you’re not willing to place a bet on yourself by taking out that loan, how is it that you can write an essay saying that I’m going to be this leader that’s going to change the world? And then when I ask you like, okay, great world changing leader here. Take out 200 grand in loans now, you get cold feet. If you really believed in your job opportunities the way you said you did, you should be willing to take that kind of a gamble on yourself. It is a gamble, but it’s an educated gamble. It’s not a completely random roulette table gamble. And so I tell people this is why you said in your application that you were going to go out and become the CEO of whatever by the age of 45. Well, great, this is nothing then. No, but seriously, that’s kind of the more flippant answer.

[00:13:08.000] – Maria

But seriously, the schools are placing a bet on you and now you’re not willing to bet on yourself? I don’t know. Little suspicious.

[00:13:15.390] – John

Yeah. Caroline, what’s your take on all that? I’m sure you have clients who moan and groan about the cost of an.

[00:13:26.770] – Caroline

I do. And what Maria say made me laugh because we used to chuckle sometimes when you’d read someone’s admission application, and of that their life was just one long story of amazing success. And then you read their scholarship application a little bit later and their life is a disaster. Rather, they can’t afford to pay for the MBA. There are all these reasons why they can’t play for the MBA and they need the school support. So it was often a very different.

[00:13:52.940] – Maria

Story that they would tell in the scholarship application.

[00:13:57.130] – Caroline

So it was sometimes quite amusing to compare the two versions of events. Often when people get to the point of working with us, they have kind of absorbed the fact that they’ve often figured out that they are going to have to take a loan, that they’re going to want to apply as a scholarships. And we’ll often help people with a scholarship process as well and advise them on that. But I don’t often talk to people who I would say are hesitating about whether to apply or not. I guess that’s probably because by the time people get to me, normally they’ve already signed up to work with us and therefore they’re committed to applying to the MBA. Probably some of my colleagues have more of those conversations with people who are still hesitating about whether to apply or not. And I think it’s a shame, I’m sure that there are some great candidates who do not apply because of those numbers and because they fear the risk that they’re taking in making it is quite no. And I remember taking out a massive great loan. I can remember going to the bank and signing my life away.

[00:15:15.800] – Caroline

And it is very nerve wracking to take on that amount of debt at such a young age. It’s not like getting a house mortgage or something where you’ve got some security, you’ve got something to show for it, right? You’re investing your education, it’s intangible. So it is quite nerve wracking to take on that amount of debt. And I could imagine that some people would find that quite off putting and may not necessarily have figured everything out that Maria talked about. Know ultimately the opportunity is there. And you described this in your article as well, the return that is much greater over the lifetime of the salary that you can earn as an MBA graduate compared to someone who has not necessarily been to graduate school. So it does definitely pay off. But having said that, of course it’s going to pay off. If you have a plan for how you’re going to use it and you go out and you use your MBA and you’re going to leverage that education and that whole experience and that alumni network, if you’re not actually going to make the most of it, then it’s probably not a good investment.

[00:16:24.650] – John

Very true. And a moment ago I said that the average aid or average scholarship, harvard, it’s called the fellowship, it’s the same thing was 36. It’s actually $42,000, which is pretty darn generous. That’s for one year, incidentally. And the tuition is, what, over 70 something? But again, slightly less than half of the students get that money. And at Harvard and Stanford, it’s based on need. At most other schools, it’s based on merit because schools are using their scholarship awards to basically get the best and brightest students to come to them and not to go to Harvard and Stanford. So it is a bit of a and in fact, is there a negotiation? I wonder if the two of you have counseled some of your clients through negotiating different offers from schools based on the scholarships that they’ve been awarded to offset these high costs.

[00:17:29.670] – Caroline

Caroline yes, people do negotiate and you can certainly try. Obviously, you need to be careful how you go about doing that, and it can be helpful if you are comparing offers. So if you’ve got two offers from comparable schools and one school has given you a scholarship offer and the other one hasn’t, then you can share that offer with the other school and say, I would much rather come to your school, but it’s very difficult to turn down this fantastic offer from your peer school. So is there any chance that you would be able to match this offer or help me help close the gap in my financing? Schools do understand that it’s very difficult for candidates to turn down financial aid, and if they have some leeway, sometimes they won’t, right? But sometimes they may have some room for maneuver because they may have candidates who have withdrawn, who had scholarship funds allocated to them. And so there’s often movement in the pool of scholarship funds and you may be lucky and they may be able to reallocate some scholarship funds to you because of that sort of ongoing movement in the admin pool.

[00:18:57.430] – Caroline

But it tends to work better. As I said, if you’ve got offers from comparable schools, if you’re going to Harvard and saying, I’ve got an offer from this school that they’ve never heard of, and they’ve given me a scholarship, then I don’t think that that’s going to necessarily be very convincing.

[00:19:20.610] – John

Yeah. So in fiscal 2022, the actual number in terms of the average fellowship at Harvard is 43. Seven nine four. Pretty generous. It went to about 817 MBA students. So that’s pretty darn good. How about you, Maria? Have you helped someone through a negotiation with schools? Because I know some schools get very angry when you try to negotiate with them on scholarship money.

[00:19:53.790] – Maria

Absolutely. I think, just to echo everything Caroline said, I think, first of all, if you ask respectfully and you explain if you have a valid reason, especially, let’s say, all of a sudden you have a personal financial obligation, maybe a family member lost a job, and so you need to suddenly start financially supporting them. That is relevant information to share. But to Caroline’s point, like trying to play a school, one school against another school, I think it does help but realize that it has to be a school that is viewed as a peer school or as a competitor school. If you go to a school that’s ranked five and you say, I’ve got a full offer, full tuition fellowship offer from someone ranked 15th or 25th, they’re going to say, Great, have fun, have fun. That’s awesome. Good for you. Congratulations. That’s quite an accomplishment. I hope you have a wonderful two years there.

[00:20:43.120] – John

And that’s often the case. Right. I mean, what happens is the lower ranked schools are far more likely to give you more money than the higher ranked schools, because they do understand that they have brand, there’s value associated with that brand. And if you want to walk away from it to get an MBA that costs less, you’re probably losing some brand value.

[00:21:06.390] – Caroline

Yeah.

[00:21:06.980] – Maria

You just have to decide what’s important to you.

[00:21:10.390] – John

Yes, totally. So, Caroline, how much did you pay for your NZ MBA?

[00:21:16.970] – Caroline

I’m not exactly sure, but I think it was around 48, 49,000. Well, that’s a bargain. So just below €50,000. Talking Euros, I was just playing around with an inflation calculator. I don’t know if the inflation calculator is exact or if it’s perfect, but anyway, it came out as today, that would be about €73,000, and the actual tuition today is about €97,000. So it’s quite a big difference. So similar lines to those US schools that we’ve been discussing. Quite a big jump above inflation.

[00:21:58.590] – John

Right. We should say, without dating you, what year you earned your MBA.

[00:22:04.950] – Caroline

2000 and 320 years ago.

[00:22:07.260] – John

Not that long ago, really. If you think about it, it’s in the least this century, not the 19 hundreds or whatever.

[00:22:22.430] – Caroline

So the school has also increased scholarships, and they’ve increased also increased the average value of scholarships. They increase the number of students or the percentage of students who get scholarships. So more people are getting support, but nevertheless, it’s about one third of the class who get scholarships, so two thirds who aren’t. So it’s a lot of money.

[00:22:46.140] – John

Still, Caroline, you got a bargain. That’s all I got to say.

[00:22:51.590] – Caroline

I’m happy with that.

[00:22:53.430] – John

So there you have know, MBA. It’s more expensive than it’s ever been. On the other hand, so are the rewards. When you look at the compensation people are getting, they are at record or near record levels and have been for a number of years. There’s been a nice big bump up in the last three to five years in MBA compensation for new jobs. And there’s probably more scholarship money out there than there’s ever been in the history of business education. Because it’s kind of surprising when you look at these numbers, because at many schools, and I will just tell you this, the MBA has become a lost leader. And it’s hard for people who look at these tuition rates and say, how is that even remotely possible? Well, it’s partly because of the discounting that’s going on. If you can afford to pay full, the schools are very happy to pay to collect your money. But if you can’t and you’re a highly desirable candidate, they’re going to try to do a deal with you. And what schools are doing is basically buying the best talent that they can through scholarship and discounting. And essentially they’re trying to get a higher ranking, which casts a shadow over all the other schools programs.

[00:24:12.780] – John

So when they do their specialty master’s programs, or if they’re in the undergraduate business arena, that’s where they’re bringing in the money, where the scholarships tend to be few and far between. That is also true of executive MBA programs where there’s very little scholarship money compared to full time residential programs. So don’t faint when you look at the article and you see these big numbers, you need to put them into some framework of context and I think that would help a lot. Maria and Caroline, thank you once again for your insights and thoughts. And for all of you out there, good luck paying those bills. This is John Byrne with Poets and Quants. It’s.