B-Schools: The Payback

Despite a shaky economy and job market, an M.B.A. still pays for itself.

It has been a tough period for business school graduates, what with the corporate scandals and rocky stock market. Some grads are in the poorhouse, some in the jailhouse and some in their parents' house looking for work. (On the plus side, there's one in the White House, for the first time.) Two sectors where M.B.A.s have traditionally thrived, consulting and investment banking, have fallen on hard times. Wall Street has lost 34,000 jobs, and only 14% of M.B.A. gradsat the average B-school got consulting jobs last year, down from 24% five years ago.

So if you're considering B-school, the always-huge question looms even larger: Is a business school degree worth the considerable investment? If you pick elite Stanford, for instance, you'll be out of pocket an average of $225,000 in tuition and the salary you would have made during the two years in school. A state resident of Iowa who goes to the state university's business school is out $90,000.

Our latest survey, which measures return on investment at 85 schools, concludes that B-schools paid back quite nicely for the class of 1998--a class that worked through the boom and bust since graduation.

The average 1998 grad almost tripled his or her pre-M.B.A. salary five years out of school, to $106,000. While annual income growth for the U.S. has sput-tered at 2.5% since 1998, for the B-school class of 1998 it has averaged 11% since graduation.

The school with the best bang for the buck? Harvard, for the third consecutive time, with a five-year gain of $149,000 over tuition and forgone salary. Its graduates saw their compensation jump 13% annually since graduation to $195,000 last year.

And while an M.B.A. from a state school doesn't offer the same dollar gain, the percentage return on investment is often excellent. The typical five-year M.B.A. gain at the University of Iowa's Tippie School of Business, for instance, was $93,000. But it took just 2.5 years for Tippie grads to recoup their investment compared with an average of 3.1 for all schools. For the quickest payback, head to Europe, where one-year programs (such as at IMDand Insead) are popular.

Our survey measures your return on investment in a business school in dollars and cents. It is not, unlike other B-school rankings, a survey asking recruiters to rank schools or grads to rate their experiences.

For this year's ranking, we sent out 18,000 questionnaires to full-time graduates of 99 M.B.A.programs around the world and heard back from 28% of the alumni. To determine the five-year M.B.A.gain, we asked for pre-M.B.A. salaries as well as compensation in three of the first five years out of school. This year, for the first time, we also factored in the value of exercised stock options during these five years. We compared the compensation after school with both costs of attending (in tuition and forgone salary) and estimates of what the same students would have made, with smaller pay raises, in their old jobs. Earnings gains were discounted back to 1996 using a rate tied to money market yields. We adjusted the salaries for the cost of living and discarded any school where alumni responses were less than 15%. To calculate your own return on investment and for an expanded version of these tables, go to www.forbes.com/bschools.

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Courtesy:- www.forbes-global.com