Why a fancy graduate degree, like an MBA, may not be worth the expense.

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At first glance, the answer of “Of course it is” is not necessarily correct anymore. Too many times, I run across people saying, “I want to get my MBA [or insert graduate degree of choice] because I want to get ahead,” but fail to consider the expense or the end result.

Let me first say that I sincerely believe the right education can be a wonderful tool to gain the knowledge to determine where you want to go in life. To rephrase it better, how best do you want to spend your life here on Earth?

The Vision Gap

That said I have seen many who rush into acquiring a graduate degree to venture into a profession to only end up in a different place a few years later. And I ask them, “Did the result you anticipated from getting the degree actually happen?” While they usually respond how they did learn something, they generally avoided the point of the question.

The problem is that we don’t necessarily address the end result before beginning the process. I call this “vision gap.” Ask yourself how many times you went forth expecting one thing but realized a completely different outcome. This is actually quite common. The sad part is this can easily be corrected when talking to people who already hold the same position that you want to achieve. Forget colleagues, forget irrelevant statistics, and talk to several people that are currently in the position before pursuing a degree. Inquire about both the upsides and downsides to help build your complete vision.

The Cost Aspect

In the mean time, a graduate degree from a private university could run $100,000 plus. Now if you are earning $50,000 and may be bumped to $80,000 after MBA School, don’t expect that $30,000 in salary increase to pay off student loans any time soon. Let’s say your expenses don’t change and you put all of the additional salary back into paying your loan off, you will still need to work an extra 5 years before you see any positive return on your investment (after taxes).

You may also want consider the fact that the majority of life expenses come after many complete a graduate degree such as family or a house. As such, your plan to save the difference of a higher salary may not be as easy as it first seems.

How do I know this? The savings rate of someone making $200,000 is not that much more than someone making $50,000. The reason is we tend to build a “financial lifestyle” around the income we achieve. So while we may look to get a graduate degree to get more money, the end result of building wealth may not yield what we originally set out to achieve.

Any degree can create wealth

Too many people confuse getting a graduate degree as the only way to achieving wealth. This again goes back to your life goals and what direction you want your life to take. If wealth or independence is your ultimate desire, then getting that degree may not do as much good as you think, as we pointed out. But if you can put $200 a month in an investment yielding 12% over 30 years, you will have saved over $1 million, which is about how much it would cost on a monthly basis to pay off your $100,000 graduate loan. Be clear about your life goals and how you want to achieve them.

When Does It Makes Sense

I must admit there are times when a graduate degree is warranted. When such situations arise, by all means go for it. But first, you should address couple of questions:

Will this degree get me to that goal I want or am I just assuming that?
Did I do any “on-site” research to make sure this is the case or was it just blank opinions from colleagues?
Am I just doing this for a resume? If so, this may be a sign that you may not really know what you want to do in life, and just biding time until you figure it out.
Can the company I work for subsidize the tuition? If so, what are my obligations to them?
If not, would it really make much of a long term difference if I choose a less expensive graduate program?

A Different Perspective

These days, it almost seems to make more economic sense to attend a less costly school these days and invest the rest wisely. Going to a #34 ranked school versus a #62 ranked school will probably not make much of a difference in the long run. I would suggest more is dependent on your efforts, as well as timing and a bit of luck. While the knowledge you gain at a fancy graduate school is sure to be helpful, you will more likely achieve greater wealth by redistributing pricey future education costs into an investment account instead.

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