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Calculate the Return on a Master's Degree

Kelsey Sheehy

In a hypercompetitive workforce, it's important to stand out, and many employees see graduate school as a way to do so. But a master's degree isn't always a smart financial move.

Students considering an advanced degree in any discipline should know two things: what the degree will cost--including tuition, student loan interest, and lost wages and retirement contributions--and what salary they can expect when they graduate, says Alexa von Tobel, founder and CEO of LearnVest, a personal finance site.

"Graduate school is such a rich experience. I think it is fabulous," von Tobel says. "I absolutely recommend it, if you can make [the] numbers make sense."

[See the 2014 Best Graduate Schools rankings.]

Most master's programs post the average starting salary for recent grads on their websites, and some schools offer grants, scholarships, and fellowships to help minimize the cost of the degree. Students can use a grad school calculator, like the one offered by LearnVest, to crunch the numbers and calculate the return on their investment.

The MBA payoff

"If you're currently making $100,000, and going to a two-year MBA program for $100,000 is going to land you making $100,000, that doesn't make sense," says von Tobel, who dropped out of Harvard Business School to start LearnVest. "If it's going to land you making $150,000, well that absolutely makes sense."

[See photos of the Best Business Schools.]

The top business schools advertise the starting salaries for recent graduates, but it's important to remember these are only averages.

"If you want to do some weird, quirky job that commands something much lower, then the average becomes irrelevant," von Tobel says. "If you want to go into investment banking instead, it commands higher, so you also have to consider that."

Pursuing a less-traveled path, such as economics or finance, can also pay dividends and help graduates stand out from the sea of MBAs, says Dick Startz, a professor of economics at the University of California--Santa Barbara.

"You're really getting some professional and technical training," he notes. "Very, very few undergraduates come out with the kind of technical skills that you need ... to actually figure out how to set prices, or to actually do forecasts."

Mastering education

For grade school and high school teachers, however, a master's in education isn't always a smart move, says Startz, who penned the book Profit of Education.

"If you control for [experience], you make about another $5,000 a year if you get a master's degree," says Startz.

That's an extra $125,000, on average, over 25 years, but nearly 50 percent of new educators quit teaching within five years, according to the National Commission on Teaching and America's Future, a nonprofit organization.

"If you're just starting and you don't really have the experience yet to know if you want to stay a teacher, then maybe [a master's] doesn't make so much sense," he says.

While most states boost teacher pay based on experience and education, the salary bump isn't uniform across all states. Oregon public school teachers only earn about 3 percent more with a master's, but that figure jumps to 43 percent in Illinois, Startz noted in a 2011 blog post, analyzing 2007-2008 salary data from the "Digest of Education Statistics," the most recent figures available.

[Get tips and tools to help pay for grad school.]

But that bump provided by a master's could disappear altogether, as states and districts opt to raise starting salaries or establish incentive pay, rather than pay for a degree, Startz says.

"[If] you're going to get a master's, right now it's worth $5,000 a year," he says. "Ten years down the road, will it still be worth $5,000?"

The value of graduate engineering

On the opposite end of the salary spectrum, engineers who specialized in petroleum, aerospace, chemical, nuclear, electrical, or computer engineering as undergrads can eventually make six-figure salaries without ever pursuing a master's degree.

With that level of earning potential, a master's in engineering may not make sense, but for engineers in more general disciplines--such as mechanical, civil, or industrial--the value of a master's depends on your career track, says Dan Wittliff, president of the National Society of Professional Engineers.

"If you're working for an HVAC company ... or working for a general civil firm doing grading or drainage ... a bachelor's degree will work fine for that," he adds.

Engineers considering a master's degree should explore options outside of their discipline, too, says Wittliff, who earned his bachelor's in mechanical engineering from Southern Methodist University, then got an MBA from the University of Oklahoma.

"The MBA sets the tone for you to get into management in larger corporations. You could do it the purely technical route, but at some point they see you as a technical specialist," he says. "If you want to get to the top you have to have some management and business acumen--otherwise it doesn't make any sense."

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