Education ROI: How to Measure It

Female working learner going back to school on campus

As a member of the finance coaching team, I talk to a lot of people about their educational goals and the financial strategies they can use to bring those goals to fruition. While two people may have the same goal, for example to earn their MBA, the similarity often ends there. One person may want to earn their MBA at the lowest possible price, and another may be willing to pay a premium for a "name brand" MBA. I often wonder why someone would choose a $200,000 MBA over a $40,000 one. Is a $200,000 MBA worth 5 times as much as a $40,000 one? In other words, is the Return on Investment (ROI) of one degree higher than another? 


If you are considering an MBA program, here are some questions to ask yourself before enrolling:

  • How many more years do I plan to work?
    • If you're 61 and planning to retire at 65, it might not make financial sense to get a $200,000 MBA. But if you are in your mid-20s, maybe it would.

Am I sure that I will get a higher paying job if I get an MBA? And if so, does it have to be a "name brand" MBA, or will an MBA from any AACSB accredited school suffice? 

  • Have you checked with your supervisor or HR department for answers to these questions? Based on those answers, you may be able to determine the exact ROI a particular MBA might provide for you.

If I must borrow to complete my MBA, what will my loan payments be? And will my increase in salary cover them? 

  • If you're already buried in student loan debt from your previous degree(s), adding more student loan payments on top of what you're already paying may not make sense.  But if you are debt-free, it might.

How to Determine ROI

Let's look at a simplified example of what I'm talking about.

Rija wants to get an MBA and is considering two different programs. Both programs are two years long. After her employer's tuition reimbursement benefit, one program will cost her $180,000 and the other $40,000. She's spoken to her supervisor and her HR department, and she's confident that any AACSB MBA will increase her annual salary from $120,000 to $150,000. She's 29 years old and plans to retire at 65. She is still paying on her student loans from her undergraduate degree. The current balance is $42,000, her monthly payments are $666, and she has 6 1/2 years of payments before it's paid off.

Rija's $30,000/year raise will net her around $1,575/month after deductions for her 401k and taxes. If Rija chooses the $180,000 program and borrows the full amount at an average interest rate of 6%, her monthly payments on the standard 10-year repayment plan will be about $2000/month. Her salary increase won't cover the minimum monthly payment of her student loans on the 10-year repayment plan. If she selects the $40,000 program and borrows all $40,000 at 6% for 10 years, her monthly payments will be about $445/month. Her salary increase should be able to cover that payment.

Now let's do a simplified calculation of her ROI for the $180,000 and the $40,000 program. For our example, we're only considering the increase in her annual salary and out-of-pocket costs of her program. We're not including other raises or the interest she would pay on her student loans.

If Rija chooses the $180,000 program and receives a $30,000 salary increase the first year after completing her program, her ROI would be -83.33% for that year. She would have paid $180,000 and received $30,000 in return. To recoup her $180,000 investment, she will have to work a total of 6 years ($30,000 salary increase x 6 years = $180,000). At that point, her ROI would be 0%. She paid $180,000 and got $180,000 in return. But assuming she completes her MBA when she's 31, she'll have 34 more years of employment before she retires at 65. That $30,000 increase over 34 years equals $1,020,000 in salary that she would not have earned without her MBA. Her annualized return on investment for those 34 years would be 5.23%.

If Rija chooses the $40,000 program, her ROI will look like this: After 1 year, her ROI would be -25%. She paid $40,000 and got $30,000 in return. But before the end of her second year, she would break even, where she had received just as much in extra salary as her program cost. At the end of her 34-year career, her ROI on her original $40,000 investment would be 9.99%.

I encourage anyone who is thinking of going back to school to ask themselves these questions and calculate their program's ROI before enrolling.

Disclaimer: These calculations are simplified and are only meant to illustrate a point. They leave out other considerations like program length and the perceived value of college name recognition.

Bright Horizons
About the Author
Bright Horizons
Bright Horizons
In 1986, our founders saw that child care was an enormous obstacle for working parents. On-site centers became one way we responded to help employees – and organizations -- work better. Today we offer child care, elder care, and help for education and careers -- tools used by more than 1,000 of the world’s top employers and that power many of the world's best brands
Female working learner going back to school on campus

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