Is an MBA worth it? It’s a complicated question and one we attempt to answer in our ninth biennial ranking of business schools. The ranking is based solely on the return on investment achieved by the graduates from the class of 2010. But returns for individuals vary wildly and the results for graduates from business schools outside the top tier are often weak.
We surveyed 17,400 alumni at 95 schools regarding their pre- and post-M.B.A. compensation, career choice and location. We heard back from 24% of those graduates. Schools where we did not hear back from at least 15% of their alumni were not included in the rankings. We also did not include schools where alumni had a negative ROI after five years.
We compared the alumni earnings in their first five years out of business school to their opportunity cost (two years of forgone compensation, tuition and required fees). We measure total compensation, including salary, bonuses and exercised stock options. We assume that compensation would have risen half as fast as their post-M.B.A. salary increases had these alumni not attended business school. The “5-year M.B.A. gain” represents the net cumulative amount the typical alumni would have earned after five years by getting their M.B.A. versus staying in their pre-M.B.A. career. The schools are all ranked based on their 5-year M.B.A. gain. Stanford ranks first for the second straight time with a 5-year gain of $89,100.
We adjusted the median 5-year M.B.A. gains for cost of living expenses and discounted their earnings gains using a rate of 4% which is the discount rate used by large companies in their pension funds. Low rates help prop up the 5-year gains. We also discounted tuition to account for students who pay in-state rates and for scholarships and the non-repayable financial aid that schools dole out. We did not deduct taxes from the earnings gains or account for the debt repayments from student loans.
We separate U.S. and non-U.S. schools in the rankings. Only business schools with two-year full-time M.B.A. programs were included in the U.S. ranking. The international schools are divided into one- and two-year programs. One-year programs have an advantage from an ROI standpoint because students only have one year of forgone compensation. We calculate each school’s 5-year M.B.A. gain using data reported by the alumni in their local currency and then convert the gains using an average exchange rate over the past five years.
America's Best Business Schools 2015
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