Is an MBA a Waste of Money?

Normally I’ve taken the position that an MBA can be well worth the money. Even my arguments that many employers overvalue MBA candidates suggests that the degree may be a very profitable career decision. My article Never Hire an MBA got a lot of attention.  I was surprised at the number of people who missed the point of the article, thought I was saying that no one should get an MBA and tried to defend the degree.  While there were some well thought out arguments, there were quite a few that were—well lets just say, less well reasoned.  Take a look at them for yourself and you’ll see what I mean.  Also keep in mind that I moderated quite a few of the really bad ones.

This kind of surprised me.  Not that I didn’t expect anyone to disagree, I just figured a disagreement with a bunch of MBA grads would occur on a different level than what I was seeing in the comments. One particular MBA grad called me an idiot, I responded by clarifying my position and asking about his experience, his response was to find a picture of me and called me several other names. While it isn’t uncommon for me to have disagreements with people, this style of argument was something foreign.

Still I had to delete quite a few comments–not because they disagreed with me, not because they called me an idiot, but because they contained language that I didn’t want on my website and didn’t have any discernible point of view once the language was removed.  I realize it isn’t fair or accurate to lump every business student into the same group based on the responses of a few individuals, but it did make me start looking into some research regarding the value of business degrees. My results were startling.  For example, during the first two years of college, undergraduates who study business show the least improvement in their writing and reasoning skills of any major. If the same thing holds true for graduate business students, it might explain some of the comments I was seeing.

While we are on the subject of undergraduate degrees, I ran into another surprising statistic. The GMAT (Graduate Management Admission Test) is typically the test you have to take to get into an MBA program. Lets say you are trying to choose an undergraduate degree based on what will best prepare you for taking the GMAT. Wouldn’t you be interested in avoiding the degree that produces the lowest average scores on the GMAT.  For example, if English or History majors got the lowest scores on the GMAT, you might want to study something else. You’d think that studying business would be a safe bet.  It’s not.  In fact, of all the different degrees, business majors get the lowest scores on the GMAT.

Let that sink in for a moment. What if pre-med students did the worse on medical school admission exams? What if pre-law students were the least qualified to get into law school?

So if the GMAT is a good indication of how well you’ll do in an MBA program and going through an MBA program is a good way to do well in business, then studying business as an undergraduate is the worst possible choice you can make.

Those seem like reasonable assumptions don’t they.  Doing well in an MBA program should somewhat correlate with doing well in business right? One would think, but the book Personal MBA pointed me to some research that shows the opposite.

Jeffrey Pfeffer from Stanford and Christina Fong from University of Washington looked at 40 years worth of data to see:

  • If possessing an MBA correlated with career success, increased salary, etc.
  • If doing well in an MBA was useful in predicting how well one would do in business.

Their idea was that if an MBA degree was valuable, then people with an MBA should have more successful careers than people without one.  And, if the skills taught in an MBA program were important to business, then people who had high grades should do better in business than their classmates who had lower grades.

They published their findings in The End of Business Schools? Less Success Than Meets the Eye. Here are two quotes from that study that will give you an idea of what they found.

Business schools are not very effective: Neither possessing an MBA degree nor grades earned in courses correlate with career success, results that question the effectiveness of schools in preparing their students.
There is scant evidence that the MBA credential, particularly from non-elite schools, or the grades earned in business courses–a measure of the mastery of the material–are related to either salary or the attainment of higher level positions in the organizations.

But all this doesn’t really matter if an MBA lets you make a lot more money right? Even if you aren’t better at business, it might still be worth it. Pfeffer and Fong seemed to suggest that and MBA doesn’t necessarily give you a higher salary, but we all know that there are jobs that MBAs get that pay more than at least some other jobs. Lets say you make $85,000 before getting an MBA. After the MBA you make $115,000. Is that a good deal? Assuming you went to a top tier program, you’ll probably have less disposable income after graduating than before once you take your loans into account.  If you are lucky you might break even after 12 years. Of course there is the chance that something extraordinary might happen and you’ll do significantly better.  However, there is also the chance that you’ll have trouble finding a job and do significantly worse. Unfortunately the chances of a huge windfall are probably less than the chances of a poor job market.

I like the idea of higher education enough that I’m not ready to say that an MBA is a bad decision for everyone. However, the evidence seems to suggest that MBA programs and business education in general are not a good investment on average. That doesn’t mean it is a bad investment for you specifically.  Lets say you go out and buy a single lottery ticket and win $10 million.  Was it a good investment?  Statistically, no it wasn’t.  Practically, by all means!

Here are some takeaways that might be worth considering:

  • Choosing business as your “default” major is always a bad idea. If you choose business you need to have a very VERY good reason for it.
  • Quitting a job to go to grad school, significantly increases your risk–particularly with the growing number of high quality online master’s degree programs that wouldn’t require quitting your job.
  • Who you are is more important than your degree.
  • Networking is important, but you don’t have to pay $100,000 to network.



  1. Britt says

    Actually, MCAT-takers who majored in Biology (a common choice for pre-meds) score below average. Students who study Physical Sciences or Math score highest, though even Humanities and Social Sciences majors beat the Biology majors (on average.) Here are the statistics from the organization that creates and administers the MCATs, Association of American Medical Colleges [PDF].

    (I’d be really interested in scores the GRE subject tests, broken down by major, but most likely only a tiny number of non-physics-majors take the Physics GRE, for example.)

    IMHO, your undergraduate years are best spent pursuing your broader interests and passions, and developing some breadth in your knowledge and habits of thought.

  2. says

    Regarding Mark’s “takeaways” from the article…

    1) I started as a pre-med undergraduate and “defaulted” to business when I couldn’t get my mind around chemistry and biology. It just wasn’t the same it had been in high school, HS chemistry and biology had been physical sciences, college chemistry and biology were something different. In retrospect, my mind was not mature enough to grasp the abstractions in these sciences. I had no good reason for going into business except my family owned a business. It was 1980 and I got a job working for Coca-Cola on the basis of my business school degree.

    2) I obtained my MBA in 1992 while working full-time at a major insurance company. It was hard! But my employer paid for schooling as I went and the school didn’t ask for any money until I finished. In true MBA-style, I invested my tuition reimbursement and paid my bill in full just prior to commencement. I pocketed a nice sum of money to boot!

    3) Absolutely, who your are is more important than a degree! I now work as a business school instructor. Previously, I worked 12 years as employment manager for three different companies. In both cases, I see/saw two types of people — those out to get the piece of paper and those who wanted the learning behind the degree. And in both cases, the two were not the same. It is easy to hire a piece of paper, a diploma or a resume… but, it doesn’t necessarily result in success! I would hire a well-focused, self-aware and confident job applicant without a degree over an entitled, self-aggrandizing applicant with a MBA any day!

    4) Networking IS important and you DON’T have to pay to meet the right people. While I have hired hundreds of people I didn’t know before they applied for a job, I have never actually gotten a professional job that way myself. Work has always come through face-to-face, person-to-person connections. Even my current job — I’ve had for 2 years after being laid off from a technology company — came about through networking. A good friend introduced me to the Dean of the business school who referred me to the Assistant Dean who did the hiring. Several months later (and after several failed attempts of applying at companies where I didn’t have a personal contact), the Assistant Dean called and offered me a job.

    So, is a MBA degree worth the money? It has been for me, the degree along with 30 years of professional work experience qualified me for my current job and I help shape the lives of aspiring entrepreneurs and future corporate denizens. It also opened the door for other positions I’ve held throughout my career. Teaching pays less than half of what I earned in the corporate world — but because of that money, I can easily get by on much less income now.

    Is a MBA worth the money for you? It all depends… I’m all about “movement” over “motion.” If you are pursuing a degree with your eye on the prize (diploma) and no real idea of what you’ll do when you are done, you are creating lots of motion, but you will not be moving anywhere. On the other hand, if pursuit of the degree moves you from where you are now (a place you don’t want) to somewhere new (a place you do want), it will be worth it regardless of the ROI!

    • says

      You found a business school that only charged you after you completed the program? Does such a thing still exist? I’ve never heard of anything like that.

      Your path seems to have removed much of the risk normally associated with an MBA. 1. You didn’t graduate deep in debt. 2. You didn’t have to give up your income or career advancement for two years while pursuing your degree.

      So you had everything to gain and virtually nothing to lose. Of course anyone who takes your approach is demonstrating that they have a good business mind to start with. :)

      • says

        Yes, it was a different time. They “billed” after each term and my employer required I submit bills as they arrived. To make it even sweeter, this particular school included the costs of everything in a single “tuition charge” — books, fees, paper, pens, snacks, parking pass and even the cost of a passport (it had an international focus and the final paper was based on an international project.) Monetarily, this was a no-brainer. If anyone can still find this type of deal in the market, take it!

    • Mei Hung says

      Great point. I completely agree with there are “two types of people” behind the degree.

      I would personally classify them as “those who wish to use their brains” and “those who does not wish to use their brains” since I came across them time and time again in my roles. Having qualifications is ALMOST irrelevant.

      The way that MBAs were being sold by universities nowadays implies that it will enchance your career and pay – and attached with it all the testimonials of graduates that had pay rises, along with statistics. I have to say that I nearly bought into it.

      One point that I would like to make is that my perception of the MBA or MBT (that I am currently doing) is that “here is the theory, you have your practical experience, and you make the decision to apply it in your roles”. It is up to ME to apply those theorical concepts.

      There is also a perception that MBA knows the legal way to do “dodgy” work – which is quite worrying.

      There are many universities that allows doing MBAs without any work experiences – which I am highly against.

      • says

        I agree with your point about the importance of experience, with one caveat. I call it the difference between 5 years of progressive experience versus one year of experience repeated 5 times. That is, some people learn to do something and never stretch beyond what they initially learned. Learning is an ongoing process. To master a subject requires failure — lots of failure. People who have never failed, are avoiding trying new things or doing things in new (possibly better) ways.

        I like to challenge my students, if they think they already know a topic, go deeper. If something looks like a mere review, look for something new you can learn from it. The difference between passive and active learners is their willingness to stretch. I believe this willingness itself can be learned and it assures achieving progressive experience over repeating the same experience.

  3. says

    Mark, great article, and the last one on MBAs was good too. I think there is a lot of misdirected anger out there in a bad job market where people have MBAs and the only thing to show for it is 6-figure debt and no job. Pretty interesting statistics about undergrad business students.

  4. NURREDIN says

    Unless you’re going to be a licensed professional (Doctor, lawyer, teacher, engineer, stockbroker) it can be an incredible waste of time and money (ask Bill Gates or Steve Jobs). If all you want to do is work for someone else for your entire life, then by all means get the advanced degree. My education helped me become a stockbroker, but it didn’t do diddly for helping me run my own entertainment company. I will admit that if I hadn’t become a broker I wouldn’t have amassed the funds so quickly to open my business, but if I had started earlier I might have succeeded earlier. I think the most important takeaway is that it’s great for getting a job ,but if you aspire to independence, it doesn’t do much. Take the money and start your own business.

  5. says

    It’s not the MBA degree that matters it’s the person. Anyone can have enough fuel in the tank, so to speak, to get through an MBA program. But once the degree is in hand, the individual has to be able to represent the degree well with passion, inward-commitment, hard-work. These are not traits or abilities that are taught in an MBA program. An MBA only affords an opportunity to enter a good job. It won’t keep you there, and success won’t come because of it. I completed my MBA program 6 years ago, because I wanted the notoriety that came with having letters after my name. I certainly also wanted to make more money. But there is no direct correlation between the amoung of money I am making now and my degree. I have no regrets completing my MBA. But for those pursuing an MBA, they should really put thought as to the reasons why? If those reasons are good enough, then pursue an MBA, even if the back period takes longer than ideal.

  6. jeff says

    An MBA is whatever you want to get out of it. Just like any endeavor in your life, especially education. If you feel it’s worth the money, then you can probably turn that emotion into productive energy and it will be worth the investment. If you are going b/c you think you need a piece of paper… might as well roll it up and smoke it.

    • says

      You really think that’s why people pay $100,000 to go to Harvard? So they can hear, “You’ll get whatever you put into it” or “What matters is the person, not the degree”

      Of course not. They want to slap together a resume and submit it to every Fortune 500 Company. They want M-O-N-E-Y and considered 100k an investment in Human Capital.

  7. Eric says

    Mark, thanks for referring me to this article. I studied the LSAT for 2 years, I thought I wanted to go to law school. It was kind of silly I never really wanted to practice law. Ironically, the people I knew who got their JD, don’t practice law as well they work for the commercial sector. I’m bringing this up because the LSAT, has nothing to do with law. It deals with finding flaws in arguments and mathematical analytical reasoning. The people who scored highly on this test are math majors and the people who scored the lowest on the test actually majored in pre-law.

    I also studied for the GRE and GMAT. I think it’s a poor measurement. While I do agree with the SAT and ACT for undergrad but for the MBA I don’t think it means much. I can’t really support this claim. My first graduate class was in Political Science and for that major I do think that GRE and GMAT would come in handy. As for the MBA I think it should have a prerequisite of pre-calculus.

    Some universities got this thing called the Executive MBA. It’s fewer classes and doesn’t require a GMAT score. The word “Executive” can be counter-intuitive but it weighs less than a traditional MBA. In California they even got this thing called an Executive Jurist Doctorate, its a doctorate but you can’t practice law.

    I think the SATs are awesome, but many of the graduate exams to me are just political. I need to look into this but I think that the universities have the executive MBA because they don’t have to report the entrance score to the public.

  8. D Helen says

    I am in the process of leaving my MBA program. I entered it mid-career through a non-Ivy League school part-time for two reasons.

    1/ To secure a base salary that was equal to or higher than my then current salary. My industry is extremely volatile and layoffs common.

    2/ To learn how to run a business well and to explore business opportunities that I could develop as a second stream of income well into my later years.

    What a waste of time. It took me 8 months for the rose-coloured glasses to crack- the material was no more challenging than second or third year university and the students in my cohort were not at all engaged in the program. Or they were dumb, I don’t know.

    I obtained my Grad Dip in Business Mgmt and left for a few months to reconsider and returned thinking it was worth finishing. Wrong.

    I plan to write a business plan and launch my sideline in January. My career is now (18 months after starting) advanced well beyond the entry level of an MBA and the doors I thought it would open have opened by virtue of my tenure and hard work. What a waste of money and time.

    Get a 2 yr business diploma at a technical college and OPEN YOUR BUSINESS. Just do it.

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