MBA Finance: Frequently Asked Questions about the important aspects of MBA salaries and financing your business school course.

What is the current payback period for MBAs graduating from US and European business schools?

Even though course fees have risen in recent years, from top business schools, salaries and bonuses have also risen and the payback period has actually reduced slightly over the last five years.

MBA salaries for graduates from international programmes have increased significantly over the last two years, and this has continued in 2007. Average MBA salaries graduating from a top US business school like Tuck, Chicago, Wharton and Stanford averaged $110,000 last year, compared with an average of $93,500 amongst
MBA recruiters in the USA and Europe, and an average of $71,500 amongst recruiters in Asia. To calculate true earnings one should also take into account a “sign-on” bonus offered by many
MBA recruiters, and the potential to earn a further $15,000 during a summer internship.

Against this, to estimate the ‘true costâ€TM to complete an
MBA, we should take into consideration tuition costs, living, travel and book costs. We assume annual living costs and book costs of $23,000 per annum and apply a weighting depending on whether the location is rural, suburban or metropolitan. In addition the opportunity cost of salary foregone, must be included in the calculation and a typical tuition cost of approximately $40,000 per annum.

Using these assumptions, for someone with a pre-MBA salary of $50,000 and joining an average recruiter in the US or Europe, a two year
MBA taken at a top US business school would have a payback period of approximately three years. Using the same assumptions, for a one-year European MBA the typical payback period is approximately two and a half years. Someone returning to an average Asian salary would not necessarily have much longer payback period †it would depend on the differential between their pre- and post-MBA salary. The higher the pre-MBA salary the longer the payback period.

Personalised payback periods can be calculated on a school-by-school basis on TopMBA.com/Scorecard, using the ROI calculator which draws on the latest reported school average salary figures, the latest course fees and adjusts based on an applicantâ€TMs target industry, geography and pre-MBA salary.

What are the typical costs of an MBA?

The standard period for a full-time international MBA at a US school of business is still two years and the $42,000 annual cost of The Wharton School full-time MBA is typical. Other blue-ribbon American schools, such as Harvard, Chicago, or Stanford, are much in line with these figures.

In Europe, the London Business School (LBS) is one of the rare institutions to offer a twoâ€year programme, costing £42,000. In general, an MBA in Europe is shorter at most top MBA schools. The programme at the International Institute of Management Development (IMD) in Lausanne lasts 11 months. INSEAD's runs for ten and a half months. Leading programmes in other European countries are one year, 15 months or 18 months. At INSEAD, located outside Paris, you will pay €48,800; again, figure another €7,000 for accommodation and expenses. IMD charges €61,200. These two programmes are among Europe's most expensive, but cheaper courses exist. The 100 or so

MBAs available in the UK provide a wide price range. A full-time course at Aberystwyth costs just £9,950, at Warwick £19,500, Strathclyde £19,000, Cranfield £26,500 and Manchester Business School £30,500. Financial aid and MBA scholarships can make the most expensive programmes affordable.

Can you broadly outline the most popular MBA finance options in the US, Europe and Asia?

In our low interest global economy of today, loan financing seems a sensible option for MBA students, denominated in a local currency. Although most MBA applicants will try to seek out scholarships, the reality is that the majority will resort to loan financing, supplemented by personal savings or family savings.

In the USA, approximately 80% of MBA applicants take some form of loan financing to fund their MBA studies, whilst many also use personal savings.

In Europe there are large variations between countries. In the UK loan financing is readily available and as popular as in the US. In Italy or Germany, the majority of MBAs rely on family and friends, or personal savings. Only 40% of Germans take a loan to fund their studies.

In Asia there is also great variation in the availability of loan financing. In India it is very prevalent. In China it remains less popular, but is likely to grow in importance. Although there is some exchange rate risk, high growth/emerging market currencies like the Renminbi are only likely to strengthen against the dollar or Euro in the near term.

Is it correct to say scholarships are more common in North American and European programs? Is it more difficult to get scholarships and financial aid to study in Asian programs?

On our web site
www.topmba.com we offer a scholarship searchable database with scholarships offered by almost 200 business schools. There are many more partial scholarships in Europe than there are in the USA, which can help to reduce the overall cost of study. Many US business schools still have very large alumni endowments which help fund full merit-based scholarships of scholarships offered under special criteria.

TopMBA.com features far fewer scholarships from Asian programmes. We are in touch with most of the top schools and there do seem to be fewer scholarships. However, Education Singapore has a number of attractive schemes to encourage overseas students at University level as well as
MBA level. QS, in partnership with the Times Higher Education Supplement, recently published the ‘Guide to the Worldâ€TMs Top Universitiesâ€TM †a 500 page book which provides a detailed review of scholarships offered through government agencies in countries around the world (the book is available at www.topuniversities.com), in addition to featuring the results of the World University Rankings.

What are some less well-known channels of financing an MBA program? Are there any common misconceptions about how MBA programs can be paid for?

Company sponsorship is the least common route to funding an MBA. Less then 5% of full-time MBA students receive company funding for their studies, whilst approximately 50% of Executive MBA students receive company funding. Most people take an MBA to achieve significant career progression or to completely change career. This often involves changing employer and as a result, employers are loathe to provide funding and if they do, it is on condition that the student returns to work for them for a certain period of time.

A further misconception is that all the funding has to be in place before a student can embark on an MBA. Certainly it is better to have all the funding in place, but there are many opportunities to work and earn money whilst studying for an
MBA. In the US, there are many jobs on campus, like teaching assistantships. My alma mater, Wharton encourages many students to become teaching assistants. In addition, on two year programmes, internships in the Summer break can be an important source of funds. And as mentioned earlier, many employers pay starting bonuses to help pay back school fees.