Yes, everyone knows an MBA is expensive. Most people estimate the cost of an MBA at $200k. While I believe the value of an MBA is immeasurable for reasons I’ll detail in future posts, I think all MBA students should still determine whether they can digest the cost of the education and the degree. So let’s talk about how much an MBA costs you. And let’s do this with the school with which I have the most intimate knowledge: UCLA Anderson.
But before I get to the numbers, let’s talk about methodology first. There are 2 ways of calculating the cost of an MBA, corresponding to 2 purposes of these calculations:
1. Determining the return on investment of getting an MBA – let’s call this C1
2. Determining how much money to set aside to pay for an MBA education – called C2
The difference is, C1 involves opportunity cost and is measured against the alternative of working your old job for 2 years. C2, on the other hand, is simply the cash cost. Let’s actually go with C2 because it is a lot more straightforward.
The line items are listed here: https://www.anderson.ucla.edu/degrees/full-time-mba/financing
Inevitable costs include tuition and Health Insurance. Tuition of $65k is high, yes, but relatively low compared to peers. Wharton, for example, charges $80k a year. Anyway, tuition + health insurance = $70k. Over 2 years, this adds up to $140k.
Room/Board estimate is 25,200 for 9 months. That’s excessive in my opinion. For LA, $1,400/month can get you a room in a shared apartment close to the UCLA campus. Also for LA, $300 can afford you food for a month if you cook. But hey you’re in LA, so may as well explore the food scene here. Let’s bump this to $600/month. Of course in your first year you’re going to get a lot of free food thanks to corporate presentations and other recruiting events. But you also want to go to certain fun events to make friends and blow off some steam. Let’s stick with $600/month. So room/board comes out to $2k/month, or $42k for 21 months. We’re at $182k for 2 years so far.
Computer allowance is $1,137. I’m not sure why you need a new laptop just for school. I certainly did not get a new laptop for Anderson. When my laptop died unexpectedly towards the end of my second year, I got one off eBay with 2 years of manufacturer’s insurance for $500. So let’s call this $0.
Books and supplies are estimated at $836. Sure, let’s round this up to $1k/year, or $2k over 2 years.
Travel. $7k. What the heck? Ah, well, I know what it is. You’ll probably at some point get peer pressured (aka, inspired) into going on an international trek or two. I myself traveled to Colombia and also participated in a Global Immersion course which included a field trip to China. Some of my classmates traveled a lot more. Israel, Brazil, and India all in one year for example. I don’t know how much an MBA travels on average. I’m sure there’s reasoning behind the $7k figure, so let’s keep it. $14k over 2 years. We’re at $198k.
Personal at $5k. Let’s see. I spent about $1k on club memberships each year. Car insurance cost me $100/month. I didn’t spend much on myself because I’m pretty low maintenance and I was so busy I had no time to take care of myself. So let’s say $2k over 2 years. Oh wait, I’d have to get furniture for my new place. Well I didn’t have to because my place came full furnished, but let’s say you’d spend $2k on furniture. Unless I forgot something big, personal expenses of $7k over 2 years is probably a reasonable expectation. The tally is now $205k. Whew.
Finally, loan fees of $1,446. OK, I admit I didn’t take any loan. But let’s be conservative and assume you will. So $1k here. The total is $206k.
But wait!!! You’re going to get an internship, right? If you take a summer internship, let’s say you make $20k over 10 weeks of summer. No income tax because $20k/year in LA is borderline poverty. This brings the total to $186k.
So, if you go to Anderson and get no financial support from the school, be prepared to budget $186k to go from the first day of school to the last day of school when you walk across the stage on a beautiful sunny day in the middle of June to collect a piece of paper that says your degree will be coming in 3 months.
Cash budget C2 = $186k.
Yeah, let that sink in for a bit before we get to the C1 calculation.
To get to C1 from C2, we add the net gain you’d get from working for 21 months. Let’s say you’re making $80k/year in LA before business school. According to the website https://smartasset.com, this is the equivalent of $60k/year in take-home pay, or $5k/month. Let’s apply the above assumption of $2k per month for room and board, and say your health insurance is only $200/month. Since you’re not as busy as you’ll be in business school and you’re making money, you want to spend a bit more on yourself. So let’s say $300/month of personal spending, $100 for car insurance, $200/month for traveling, or $600/month in total. So total spending is $800/month. Your net gain from your current job would be $5k-$2k-$0.8k = $2.2k. Over 21 months, the opportunity cost is $46k. And C1 = C2 + opportunity cost = $186k + $46k = $232k.
All-in, opportunity-cost-included price of an MBA: C1 = $232k.
I guess I see why people hesitate to attend business school now.
Richard Anderson 