Pay what you can for your MBA degree

Source: Poets and Quants

You have heard the hefty price tag that comes with an MBA degree from a preeminent institution like Yale or Harvard. $180,000 for 2 years of tuition and boarding, plus the opportunity cost of foregone salaries and the number becomes anywhere near $300,000 and over. I am not even sure of the exact figure in my case, but the point is that an MBA degree is considerably more expensive than any other graduate-level program. As a business school student, I clearly have figured that the math somehow still made sense to me and that was because, for the most part, I bought into the idea that an MBA leads to brighter prospects and should be thought of as a long-term investment. Let me get it straight, more than half-way in with my Yale MBA, I’m still standing by my bet, and yet I don’t think we can deny that the price tag was a big deterrent for those bright, young, but increasingly indebted prospective students. So how do we pay for it within our means? I am suggesting that business schools like Yale can help by experimenting charging part of the tuition in future income.

Let me elaborate. Business schools should still ask for a certain level of tuition, while committing to take 20%, for example, of the student’s future earning in the 10 years post-graduation. Think about any product or a service that we purchase, I think it’s fair to say that ideally everyone benefits when the seller and buyer both have a stake at the quality of the product or the service experience. Along the same line, my alma mater is rooting for me to succeed in the future, and of course that has always been the case, but we can make that alignment even stronger by adding in the financial factor. If my post-MBA career is rewarding financially, I think I would be more than happy to credit that to the growth and learning that I have fortunately received, and paid my part.

In my previous experience in human capital consulting, incentive alignment is a big deal, because human beings respond to motivations. Want salespeople to work hard? Give them commission. Want students to be well-rounded and confident? Emphasize creativity in the curriculum as opposed to grades, and give them encouragement when they demonstrate the right behaviors. Assuming the business of business schools, or education, in general, is about selling a brighter future, it then makes sense that both schools and students should care about the future payoffs of a degree. Again I’m not suggesting that there is no alignment currently, but let’s be honest, financial incentives are powerful motivators, while expensive tuition draws many good students away.

To be sure, implementation of such ideas would be tricky. How do we know the right percentage and the right timeline? Can we trust students to act responsibly and pay once they are out of the door? And alas, how much of success is attributable to the degree, specifically the MBA in my proposition?

These are all good questions, and I will admit I don’t have all the answers but consider this: schools already have programs to try to match students’ ability to pay, they are called financial aid. My institution has a wonderful loan forgiveness program for students that pursue nonprofit sector post-graduation, something that sets it apart as the most social impact-minded business school in America. Does the school worry that such generosity may get abused? I would guess yes, they surely have a rigorous verification process, and moreover, they probably trust that the students will do the right thing. Such programs are meaningful and totally radical, in my opinion, and so is the ‘variable tuition’ idea. We could have it as an experiment at a small scale, just like the loan forgiveness program, and gradually scale it up. At least for my part, I think I’ll be just as determined to make my MBA worth it if Yale gets a part of my salaries in the next ten years. I would feel a lot less hesitation though when somebody asks me why the MBA makes sense financially.