Is the MBA worth it? Use Critical Reasoning to Decide!

Ryan Jacobs —  August 6, 2012 — 15 Comments

A colleague here at Manhattan GMAT forwarded me this infographic about the value (or lack thereof) of an MBA. Though the author doesn’t explicitly say so, the statistics she chose to display indicate that she believes an MBA is by and large overvalued.

The great irony here, of course, is that the training you get as an MBA is exactly the training that sharpens your ability to think critically about arguments like this one. In fact, that’s what the GMAT actually tests with its Critical Reasoning section. Just to demonstrate, I’d like to break down this infographic from top to bottom, using the same strategy I teach my students: pointing out the (flawed) assumptions necessary to conclude that an MBA is overvalued.

Premise: The cost of an MBA program including expenses is $120,000.

Assumption #1: Students actually pay all of that $120,000.

Attack: I’d estimate that around half of my MBA classmates had some scholarship or corporate support that significantly defrayed their cost. This, by the way, is probably the most underrated reason to ace your GMAT “ a high GMAT score can open the door to many merit-based scholarships.

Assumption #2: The expenses are things you wouldn’t pay if you didn’t get your MBA.

Attack: This is, of course, ludicrous: you pay rent whether or not you get an MBA, so this cost shouldn’t factor into your decision.

Premise: 1 in 5 MBAs default on their loans.

Assumption: 20% is a high default rate.

Attack: I did some fact-checking on this, and it seems like this statistic comes from a recent Fortune Magazine report. According to their definition of default, it turns out that nearly half of undergraduates default on their loans. In fact, of all of the types of degrees out there, the MBA actually has one of the lowest default rates!

Premise: It is difficult for MBAs to get a job when their program is done.

Assumption: It is easy for non-MBAs to get a job.

Attack: Companies aren’t hiring MBAs because they’re not hiring anybody. Furthermore, a 14% unemployment rate is pretty good considering the group of people we’re talking about started off with a 100% unemployment rate. And that figure about 12% of MBAs going back to the job they left? That’s just about the exact percentage of my classmates whose MBA was being paid for by their company. They had to go back “ that’s part of the agreement.

Premise: Being an MBA doesn’t help you become CEO.

Assumption: MBAs want to be CEOs.

Attack: Some MBAs want a more interesting job in their field. Some MBAs want to manage people. Some MBAs want to work with people overseas. Some MBAs want to actually learn something.

Premise: Instead of paying for an MBA, you should use your money to start a business.

Assumption: Your business will be successful.

Attack: While I’m happy for Warren, Larry, Bill, Jeff, and Richard, there are thousands of entrepreneurs every year who fail. The knowledge gained from an MBA may have helped them. Furthermore, those five guys likely already had the investment connections to get their business off the ground. If you aren’t lucky enough to be in that situation, then perhaps the MBA is the perfect breeding ground.

I’m not saying that the author is necessarily wrong, by the way “ the MBA may very well result in a poor financial outcome for some people who choose to pursue it. However, the MBA decision is infinitely more nuanced than it often appears, and the relevant statistics are probably not the ones presented here. Test your own critical reasoning skills “ what other considerations would weaken the author’s argument? There are plenty I haven’t covered!

Ryan Jacobs

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Ryan Jacobs is the son of an English teacher and a math teacher, which probably means he was fated from birth to teach the GMAT. He scored a 760 on the GMAT and a perfect 1600 on the SAT, both on his first attempt. He has a bachelor's degree in Music Composition as well as an MBA, both from the University of California, San Diego.

15 responses to Is the MBA worth it? Use Critical Reasoning to Decide!

  1. The author doesn’t provide a well thought out argument. Yes everybody pays rent but not everybody pays 120 grand in tuition, other expenses, and another 80 grand in interest. MBA’s do want to be CEOs. If nobody is hiring, as stated, then all of the above is moot. :(

  2. This is an absolutely delightful way to show how critical reasoning works!

    I found another flaw in the argument, and I will explain it just the way Ryan did:

    “MBA Students gain little over a life time”

    Premise: “Only about 1 out of every 4000 alumni of top 10 MBA programs are among the highest paid executives”

    Assumption: “Top MBA students from Top MBA Programs with Top salaries are the only one who gain over a life time.”

    Attack: There is a remarkable difference in the scope of the argument and that of the supporting premise. The author states that “all MBA Students” gain little over a “life time” and supports that claim with an extremely narrow point of view, by giving information about less than 1% of MBA students, and those not being the “highest-paid” executives.

  3. The arguments presented above are flawed.

    Paying 120K, or even a part of it, while forgoing the income at hand, especially in this difficult economic situation is something that needs more logic than what is presented here.

  4. I especially like the stat on consulting jobs. It is so easy to take apart.

    “Only 13% of MBA’s get the job in consulting they want”.
    That is assuming that every single person that goes into an MBA wants a job in consulting – the argument is completely flawed.

    It would look completely different if 15% of the class applied for jobs in consulting and 13% got them – that’s 87% of the class getting the job in consulting they want…of course we don’t know what percentage actually wanted jobs in consulting.

  5. I find this article has as many holes as the infographic being picked apart.

    On the premise 1 rebuttal, as another poster stated, the expenses are something you need to take into account if you stop working or significantly reduce work hours to get your MBA. It’s something I’ve gone back and forth on myself; 2 years from now if I don’t go into an MBA program I’ll be able to save up around 60k at my current employment. If I go into an MBA program now (and my timing matters at my age for any top school, at least playing the numbers) there is a high probability that savings will turn into around 100k of debt, barring me working, and finding a job that pays well and is flexible around a top school, which I find unlikely.

    On the premise 2 rebuttal, the author seems to be comparing an MBA to an undergraduate degree default rate, which is silly.

    On the premise 3 rebuttal, a 14% unemployment rate is high, no matter what spin you wish to put on it. Further, MBA people, especially if you include part time and executive programs, don’t have “a 100% unemployment rate.” Where did the author get that figure from? I would also question “same employer” VS “job they left”, as many times the job role is different after going through a sponsored program.

    The premise 4 rebuttal is lazy, so I’m going to be lazy too, and not list out anything.

    I have no issues with the premise 5 rebuttal, but I don’t find it to be that much of a rebuttal, other than to say that not only the most known names are successful which is at least somewhat insinuated in the first sentence.

  6. Thanks everyone for the great, thoughtful comments! Keep in mind the MBA is definitely not the right decision for everyone – the point here is more that it’s not the wrong decision for everyone. And my argument is most certainly incomplete, so I’d love to hear more – what assumptions does the infographic make? For that matter, what assumptions do I make?

  7. Actually you forgot apart where if you have a salary of 145k/year as a Software Developer. Then that’s a lost paid plus x-year behind in advancement in the career ladder.

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  12. Good article, thanks. Can you tell us about the second paragraph in more detail?

  13. You can argue all you want about logic and reasoning. It won’t change the facts of my experience. I am a reasonably intelligent student that achieved 3.2 and 3.3 GPAs from the second tier graduate schools where I received dual master degrees: MBA and MIM (Master of International Management) and am extremely driven professionally.

    Assumption #1: Students actually pay all of that $120,000.
    All together I paid about $106,000 for my student loan debt, all of it. To be specific, my parents paid just about all of it because I was drowning in it.

    Assumption #2: The “expenses” are things you wouldn’t pay if you didn’t get your MBA.
    True, but I had to go into debt to pay these expenses since I wasn’t working when I incurred them and this debt accumulated A LOT of interest. In addition to expenses, I gave up lost wages.

    Premise: 1 in 5 MBAs default on their loans.
    I didn’t default on my loans, my parents just got stuck with it all. Otherwise I would have defaulted on my loans.

    Premise: It is difficult for MBAs to get a job when their program is done.
    Assumption: It is easy for non-MBAs to get a job.
    True, but non-MBAs didn’t pay over $100,000 plus interest plus lost wages to get a job and they are not stuck with the consequences of not being able to pay this debt.

    Furthermore, while it’s true that MBAs get their education for reasons other than just to get a high paid salary such as non profit positions or simply to acquire knowledge, after paying all that money for education, interest, and lost wages this isn’t helpful if you can’t get a non-profit job, loose your apartment, everything you own and at 46 years old have to move back in with your parents who had to pay for all that tuition, interest, and expenses.

    When you graduate with an MBA, you get more prestigious, higher paid positions. Everyone can see the benefits of getting an MBA. What people don’t think about is the higher responsibility and expectations that come with that higher salary. Also, you don’t get to go back to getting lower positions, you are now overqualified for those jobs. When you loose a high paying job, it takes longer to find your next job.

    Pay attention because here’s the really insidious thing that no business school will tell you when you apply to their school. When you graduate into a recession, you don’t just go through this once. You go through it over, and over, and over, and over again.

    All of the knowledge and sophistication I have gained from business school and the subsequent higher paid positions I have held since graduating will never compensate me for all that I have lost.

    If you’re going to consider going to business school, I’m going to share with you two things that I wish someone would have told me before I went to school. No University will tell you this and you won’t find the full truth of it in any publication that discusses rankings.

    1. The timing of when you graduate is absolutely paramount. If you do not graduate during reasonably good times, your chances of succeeding decrease dramatically. I am not saying that all people who graduate into recessions do poorly, I’m just saying that it significantly influences all future earnings of a very substantial portion of the graduating class. Also this timing of the business cycle is unpredictable and to some degree is based on pure luck.

    2. Rankings of Universities matters. Not because higher rated Universities are better Universities. Frankly, there are so many reasons that this just simply isn’t the case but that’s another article. Rankings matter because it’s the primary thing employers pay attention to when making hiring decisions regarding MBA candidates. It also matters because your alumni network largely influences your future career opportunities. If you want to know the real truth, the sad fact of the matter is, the value of an MBA does not lie with the knowledge and education that you get from the school. The value of an MBA is the alumni network you will be connected to for the rest of your career.

    3. Here’s one last tip that’s sure to make so many of you moan over everything I just wrote. I’m just trying to give you the cold, hard, truth (don’t judge until you’ve been out in the work force for a good long time as a post MBA graduate). Certain fields are still DISGUSTINGLY laden with discrimination, especially sexual discrimination. Look at the Executive sweets and Board of Directors’ all across America and many other countries too for that matter. There’s a reason why you won’t see a lot of some kinds of diversity. It’s because diversity is pathetic on the way up through the top of most organizations in the United States. I am speaking specifically about companies and organizations in the United States because that’s where my experience lies. I do know that the same can also be said of most of the rest of the world although it is appalling how the US falls behind in this category in many ways from other countries.

    People have to think very, very carefully about the costs and benefits of an MBA. So many people think it’s the ticket to advance their career and they don’t want to believe that this isn’t true. I am sorry to have to tell you this but this simply isn’t necessarily the case.

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