Can You Afford B-School with No Income?:

by on March 1st, 2016

I often run across military folks who are generally interested in a business school, but think it’s not for them because they don’t want to go two years with no income. They therefore begin to look at going straight into a corporate job or trying to do an executive MBA. Is this the right decision? Well, it definitely depends on your goals, but if it’s to improve your financial situation, it is a terrible decision.

If you can get into a top business school, it will absolutely be to your advantage to go to their full time program, even without income. Here is why.

Scenario 1: You go straight into traditional corporate America.

  • You acquire no education debt.
  • Assuming you leave as a Captain, your starting salary may be in the $70,000–$90,000 for a typical corporate job—if you’re lucky.
  • Career progression for these types of jobs will be fairly slow, as you have no business credentials, and will tend to be in a big operations company which doesn’t promote quickly.
  • After 10 years, you may be making $130,000/year. Over 20 years, you would have made a total of $2M-$2.5M, if you’re on a typical successful track.

Scenario 2: You go to a top business school.

  • Between the GI Bill, and likely school merit based scholarships, you will have around $100,000 to $120,000 provided to you for free over two years.
  • Your out of pocket costs may be in the range of $50,000–$100,000, depending on your family situation. Let’s call it $75,000 for now as a rough estimate.
  • Upon graduation, and when including signing and annual bonuses, you should have a job that pays $150,000–$200,000 pr year.
  • Depending on your career track and what field you want to enter, you can expect to make $300,000 to over $1M/year within 10 years. There is a lot of variability here. Obviously if you go into investment banking, you can make a lot more than $1M/year after 10 years, and if you decide to work at a non-profit, you will make a lot less than $300,000/year. You can also venture to be an entrepreneur and make no money at all.
  • Even using very conservative salary expectation, you can expect to make $5M in 20 years.

Conclusion: The difference is that you will lose nearly $3M over the next 20 years, but gain $75,000 over the next two. Those who would choose scenario 1 over scenario 2 are naturally self-selecting themselves out of business school because they may not be the right kind of person to attend business school in the first place.

Choosing to go to a top business school, if you can get into one, should be the easiest financial decision you ever make in your life. In fact, if you wanted to live lean, you could probably pay all your student debt back within a few years, and then still be making 2-3x more than you would have without a top MBA.

What about

Scenario 3: Part time or executive MBA?

  • Executive MBAs are more geared toward advancing one within their existing industry, not switching careers.
  • Your employment potential will take a hit in an executive MBA because a lot of companies may not recruit there for entry level post-MBA positions. Consult with the specific school to find out exactly who recruits there, and look for average starting salaries.
  • This could be a hybrid approach, but at best you are losing less money in earnings potential, but still losing.
  • Executive MBAs are a career accelerator (think of the O-3 course equivalent for your branch of service), and is of great value for those staying in their industry. A full time MBA is generally preferred for one making a radical career change.

A few other considerations:

  • When making more money, you will be in a higher tax bracket paying your “fair share”, so the net income is not quite as great as the gross would make it out to be.
  • The biggest caveat is whether you can get into a top business school, as that is an assumption being made for future earnings. The lower the school ranking, the less average future earnings should be expected. If you can get into a top 20 school, I would say it is almost always worth it to go to one (from a strictly financial view). With the higher the school the more it becomes a no-brainer.
  • Another large caveat is that the earnings potential after a top business school assumes you will be working very long hours for a very long time in competitive career fields normally available to top business school students. If you are seeking more of a 9-5 job, then there is much less utility in going to a to business school, and it may not make financial sense either.

Keep in mind that these are just averages and generalities. One can go right from the military perhaps to a sales and trading desk on wall street and make a fortune. Similarly, one can go to a top business school but stagnate throughout their entire career. When looking at the trends however, the decision should be one of the easiest you ever make.

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