Any savvy MBA student knows whether a business degree is worth getting depends on its return on investment. Will the degree pay off? The answer is a combination of the average salary increase expected after graduation, scholarship funding and the time invested.
Experts recommend considering the following four factors to determine how much to borrow for an MBA -- and whether it's worth the expense.
[Explore the top business schools in photos.]
1. Analyze the net present value: In one of the first business courses students take at the undergraduate or graduate level, they'll learn a term called net present value, says James Conover, a finance professor at the University of North Texas College of Business. Net present value is the total monetary value of a present day investment, he says.
Students thinking of spending $60,000 on a business school degree should add up the additional yearly salary amounts above what they'd expect to make without an MBA, then subtract the $60,000 and take into account expected inflation and interest accrued on their loans during the time it took to get the degree.
If the net present value of your salary increases is less than the amount you intend to borrow, then you may want to reconsider the amount you're borrowing, he says.
Student Zachary Ragsdale's net present value analysis used numbers from the published starting salaries forRice University graduates, found on the university's website. Ragsdale, who is pursuing a master's in mechanical engineering and an MBA, then subtracted scholarships before determining the amount he'd need to borrow in student loans. He decided the degree was well worth it.
[Learn more about calculating the return on a master's degree.]
2. Estimate the average postgraduation salary: Most schools have average starting salaries for recent graduates available on their websites, but students can also ask the department directly or consult with career services for these figures. University of Oregon Vice President of Enrollment Management Roger Thompson says students should remember earnings are highly individualized.
There are a wide range of careers and salaries that can be achieved from a business degree. Students should consider their own ambitions and qualifications in estimating expected starting salaries. Discuss your personal goals and attributes with the department to get a more accurate estimate, he says.
3. Calculate loan payments: The Department of Education's website for repayment plans has a variety of online calculators available to figure out loan payments. Students can plug in the amount they want to borrow and then see what it would cost to borrow for 10 years or an extended period, up to 30 years.
All graduate loans charge interest during school. Any federal student loan for graduate students of more than $7,500 will accumulate more than $1,000 in added interest over a two-year period. Consider all interest, no matter how many years the student decides to take to repay the loan, in the net present value calculation, Conover says.
[Learn about Graduate PLUS loans.]
4. Consider all sources of scholarships: Rice University student Ragsdale received some scholarship funding, including a private scholarship for engineering students attending business school.
Traditional MBA students and students in MBA programs geared toward executives often get funding from their employers, says Oregon's Thompson.
Even if employers offer to fully fund a student's MBA education, there's still the time that goes into a master's degree.
In order to justify taking time away from the rest of their life, students should discuss possible career paths after graduation with their employer. Will they qualify for promotions, sign a contract to work for the company for a certain number of years or enter a management training program?
Trying to fund your education? Get tips and more in the U.S. News Paying for Graduate School center.
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- net present value