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Graduate School is Worth It… Most of the Time

Purpose of this article: to help you figure out if going back to school for your master’s degree is worth it.

Bullet Point Summary

  • Graduate school is worth it for most people that pursue business, law, or medicine because these professions have a high degree of pay back.
  • In order for graduate school to be worth it for you, you have to know what you plan to pursue after your graduate degree.
  • You must look at your current income and compare that to your potential future income post graduate degree.

Overview

Let me start by saying I have a bias towards graduate school being that I received my master’s degree in business administration. That being said, nowadays it certainly feels as though the bachelor’s degree is no longer enough to get a decent paying job. In 1950, some 34% of adults had completed high school; today, more than 30% have completed a bachelor’s.

To be clear though, the stats absolutely still show that having a college degree of any kind is better monetarily than not having a degree:

But there is definitely a glut of young people entering the work force with bachelor’s degrees. So, with bachelor’s degrees so commonplace is the master’s degree worth your time? The long answer is it depends on your field of expertise. Below I will show you a couple examples of some clients of mine who have had to wrestle with this decision.

Scenario 1: Sienna Nelson, Pharmacy Technician

Sienna Nelson, 23, is currently a Pharmacy Technician at CVS Health in Houston Texas. Her current yearly salary is $40,000. She has been accepted to the UT Austin College of Pharmacy where she is considering pursuing her Pharm.D. degree. Yearly tuition for this program is $21,126, with an additional $15,638 estimated a year for living expenses, and the degree will take her four years to obtain plus two years of paid residency. After doing some research (see here), she has decided to take out $136,760 in loans from the federal government (interest rate of roughly 6% to 7%), which after four years will cost an estimated $172,886 (includes accrued interest during the time she is in school).

As a pharmacist, the profession Sienna plans to pursue after her degree, she stands to make on average $130,000, with a low point of $105,000 and a high point of $150,000. Her plan is to pay off her graduate school loans in 17 years. Is graduate school worth it for Sienna Nelson?

The long and the short answer for her is a resounding YES!

Assuming that Sienna’s income before graduate school grows at a steady 3% each year (roughly the rate of inflation), in 25 years, she will have a gross yearly income of $81,312 (started at $40,000). Her 25-year period gross earnings will total $1,458,371 (before taxes and living expenses).

By leaving her current job to pursue her Pharm.D. degree, assuming the same steady 3% growth each year, and a starting salary of $105,000 in year 7 after her residency is completed, Sienna stands to make $2,510,337 after debt repayments (before taxes and living expenses) over the same 25-year period. This includes four years where she makes $0 while in school as well as an average of $49,681 each year over the two-year period when she is in residency.

Put simply, by taking on $172,886 in debt, Sienna has grown her total 25-year earnings by $1,051,966 or +72%. And even though the total amount she will repay in debt is $226,295 because of the interest, she is still in a much better situation than before. The return on her investment in herself is a whopping +365% and her decision to go back to school is a no-brainer!

Scenario 2: Natalia Bessemer, Audit Manager

Natalia Bessemer, 26, is currently an Audit Manager at Ernst & Young in Arlington, Virginia. Her current yearly salary is $75,000. She has been accepted to the University of Virginia, Darden School of Business where she is considering pursuing her MBA. Yearly tuition for this program is $68,350, with an additional $26,674 estimated a year for living expenses, and the degree will take her two years to obtain. After doing some research (see here), she has decided to take out the full $190,048 in loans from the federal government (interest rate of roughly 6% to 7%), which after two years will cost an estimated $216,713 (includes accrued interest during the time she is in school).

As a brand manager, the profession Natalia plans to pursue after her degree, she stands to make on average $115,000, with a low point of $100,000 and a high point of $125,000. Her plan is to pay off her graduate school loans in 19 years. Is graduate school worth it for Natalia Bessemer?

The long and the short answer for her is a PROBABLY.

Assuming that Natalia’s income before graduate school grows at a steady 3% each year (roughly the rate of inflation), in 25 years, she will have a gross yearly income of $152,460 (started at $75,000). Her 25-year period gross earnings will total $2,734,445 (before taxes and living expenses).

By leaving her current job to pursue her MBA, assuming the same steady 3% growth each year, and a starting salary of $110,000, Natalia stands to make $3,238,399 after debt repayments (before taxes and living expenses) over the same 25-year period. This includes two years where she makes $0 while in school.

Put another way, by taking on $190,048 in debt, Natalia has grown her total 25-year earnings by $503,954 or +18%. And even though the total amount she will repay in debt is $331,420 because of the interest, she is in a better situation than before. But unlike Sienna, Natalia’s return on investment is only +52%. So, going back to school isn’t the same “no-brainer” that is for Sienna.

Side by Side Comparison of Sienna and Natalia

Closing

Going back to Graduate School is time consuming and a significant financial commitment. As we have shown in the two examples prior, both Sienna’s and Natalia’s decisions to go back to school pay off financially over a 25-year period on paper. But going back to school is bigger than just the financial return. You have to weigh all the pros and cons that often times do not show up in an excel model. Everyone’s situation is slightly different and life happens, but regardless, please know that we at Blue Elephant Financial Services are here to help you decide if graduate school is right for you.