The top 10 business schools in the US
The payback on the hefty investment to get an MBA has dropped, but graduates at elite schools still see salaries soar.
This post comes from Kurt Badenhausen at partner site Forbes.com.
The M.B.A. graduating class of 2008 entered the job market in the teeth of the Great Recession. It was slim pickings for jobs for those outside the elite programs. Even grads of top schools got whacked.
"My post-MBA career started with a nightmare, as I joined Lehman Brothers and the bank imploded within three weeks," says Petr Ostapenko who earned a degree from the University of Chicago's Booth School of Business. He ended up on the street and Lehman reclaimed his signing bonus. Ostapenko eventually landed a job at Russian oil giant Lukoil, and says, "I got pushed back a few years in my career development, but I still don't regret my MBA for a second."
The flame-out of leading banks like Lehman and Bear Sterns, as well as reduced hiring at remaining banking stalwarts like Goldman Sachs and Morgan Stanley, has taken some of the shine off the MBA in recent years.
Fewer investment bankers have contributed to lower overall salaries for recent grads at top schools and a slower payback on their M.B.A. Despite the turmoil, most grads at elite schools, like Ostapenko, are still satisfied with their decision to a make a massive investment that can reach nearly $300,000, on average, in tuition and foregone salary at a school like Booth.
We rank full-time MBA programs every two years based on return on investment. This year we found the degree still pays off at our top 25 U.S. programs -- just not as fast. The average payback period for the Class of 2008 was 3.7 years vs. 2.7 years a decade ago. Salaries five years out of school were down from two years ago for all but two schools in the top 10, with only Stanford’s Graduate School of Business and Michigan’s Ross School of Business bucking the trend.
Stanford is the best business school in the U.S., by our count, when it comes to return on investment. It moves up from No. 2 in our previous study (it ranked No. 1 in 2009). Stanford grads tied for the highest paychecks entering school at $80,000, but they scorched the competition with the biggest salaries five years out of school. Their median total compensation of $221,000 was up from $205,000 two years ago for five years out grads.
Stanford is the most selective school in the country, accepting only 7 percent of applicants for the Class of 2014. Graduates are among the most sought after by employers and they often have the pick of the litter on jobs. The school acts a feeder program to coveted employment spots like consultancies Bain, Boston Consulting Group and McKinsey, as well as tech giants Apple and Google. These were the top five destinations for grads last year and they all land among the top six most desirable employment locations for MBAs in an annual survey compiled by Universum.
Our eighth biennial ranking of business schools is based on the return on investment achieved by the graduates from the class of 2008. We surveyed 17,000 alumni from 100 schools and heard back from 27 percent of those grads. We compared their earnings in their first five years out of business school to their opportunity cost (two years of forgone compensation, tuition and required fees) to arrive at a "five-year M.B.A. Gain." Stanford’s median five-year gain was $99,700 (click here for detailed methodology).
Booth ranks No. 2, up from third last year, with a five-year MBA gain of $92,600. The 549 members of the Class of 2008 were earning $76,000 on average before they arrived at school and $200,000 five years out. Lehman was the second biggest employer for the class with 23 hires, but many were able to transition to Barclays and Nomura, which bought Lehman divisions after its bankruptcy filing.
Other top employers included McKinsey, Bain, Merrill Lynch and BCG. Booth grads got a boost on their MBA gains because of the lower cost of living in the Midwest -- where around 30 percent of Chicago grads end up each year -- versus elite schools in the East where grads gravitate to pricey Boston and New York (we adjust the salaries for the cost of living when calculating the five-year gains).
Harvard Business School falls to No. 3 after ranking first in 2011. Harvard, Stanford and fourth-ranked University of Pennsylvania Wharton School of Business all had median salaries of $80,000 for the entering classes. But Harvard's five-years out total comp fell 11 percent from $230,000 two years to $205,000 in this year's study. The result was a five-year MBA gain of $79,600 versus $118,000 in 2011.
In addition to slower payback periods, we've seen reduced five-year gains over the past decade. The average five-year gain for grads at the top 25 schools was $118,000 a decade ago, but only $68,000 this year. Five-year out salaries averaged $159,000 this year, but that represents an annual gain of only 1.8 percent since 2003, which was slower than the rate of inflation.
An increasing number of students are finding it hard to make the degree pay off, particularly when they are saddled with debt levels that can top $100,000 at graduation (the typical alum from the Class of 2008 had $65,000 in debt). One New York University Stern School grad put it candidly: "Business school is a waste of time and money. If you want to blow $100k, go to Vegas."
American schools produced more than 126,000 MBAs in 2011, up 74 percent from a decade earlier, according to the Department of Education. There aren't enough good jobs to satisfy everyone. Investment banks used to hire hundreds of grads each year during the 1990s and figure out what to do with them later. Those days are over and they are not coming back any time soon.
One company that has filled some of the hiring gap left by banks is Amazon.com, which didn't even exist as a company 20 years ago. It was among the top five hiring firms for 22 of the schools we surveyed (they were cited by only two schools five years ago). The $67 billion-in-sales Internet retailer hired has tripled in size since 2009 and the growth has brought increased hiring of b-school grads.
Amazon typically hires hundreds of MBAs each year. Twenty grads alone from MIT's Sloan School of Management landed jobs last year, as did 14 from Michigan’s Ross School of Business. Many of the new hires came through the company’s internship program. "We've been thrilled with the quality of MBA students and graduates we've hired, and we're excited to continue growing this important channel of leadership talent," says a company spokesman.
Consulting firms are still hiring grads from top schools at rapid rates and hefty salaries. Bain, BCG, Deloitte and McKinsey hire hundreds of grads apiece each year. McKinsey hired 108 from Insead alone in 2012. We heard back from nearly 1,000 Class of 2008 grads that went into consulting and their median first-year total compensation was $142,000. It was $169,000 for Insead consulting grads.
The biggest gainer of schools in the top 10 was Duke University’s Fuqua School of Business, which moved up four spots to No. 8. Fuqua grads from the Class of 2008 earned $63,000 before arriving at school and $152,000 most recently. Five-year out salaries at Fuqua are down from two years ago, as they are at most schools, but Duke bumped its average financial aid package nearly 40 percent, which helped boost its ROI relative to other U.S. schools.
Dropping out of the top 10 for the first time since 2001 is Virginia's Darden School of Business. They rank No. 15 this year, down from ninth in 2011, as five-year out salaries fell 11 percent to $158,000. ROI was also hit by a 15 percent increase in tuitions and reduced financial aid, compared to the Class of 2006.
See the full list of America's best business schools at Forbes.com.
More from Forbes.com:
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
A reader loves her job, but isn't making ends meet. Sound familiar? Read on.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'