There are good and bad reasons for attending business school. Let me share a particularly perplexing one that came up during a conversation with my friend Peter, a partner at a private equity firm. For privacy, some details have been altered.
Peter was thrilled that his youngest son had gotten into the University of Pennsylvania after a gap year. “It’s like playing roulette with college admissions these days,” he exclaimed. His son had been rejected everywhere else but got into his top choice—go figure!
During our talk, Peter mentioned that one of his associates was planning to leave for business school to possibly explore venture capital or fintech. Initially, this made sense, but the details revealed a baffling scenario.
An Illogical Reason to Attend Business School
“This associate is terrific at his job and well-liked,” Peter explained. “He’s been with us two years after spending two years at Morgan Stanley.” When I questioned why he would leave such a promising career path, Peter shared that the associate was drawn to the broad range of opportunities that a Harvard Business School degree supposedly offers.
I was curious about the associate’s current earnings. “He’s set to make about $600,000 this year, including bonuses,” Peter disclosed. That’s an extraordinary salary for a 27-year-old, one that many MBA graduates would envy. Yet, he’s considering leaving it behind.
The Opportunity Cost of Business School
Here’s where it doesn’t add up: The associate would be forfeiting an estimated $1.2 million over two years, not to mention the $115,000 in tuition. If he continued his career trajectory at the firm, the financial loss could potentially stretch into the millions, considering the rapid promotions within the private equity sector.
But, if the associate was only making around $150,000, pursuing an MBA might make sense due to the relative opportunity cost. However, giving up a $600,000 salary to return to school is excessively risky.
The Desire for Prestige Could Be a Wealth Drain
I asked Peter if the associate was guaranteed a job at the firm post-MBA. Peter said they’d consider him, but there were no guarantees—they only take one MBA hire per year. The associate could even graduate into a recession, further diminishing his prospects.
I argued that venturing into venture capital might sound exciting, but it essentially involves the same grind—securing deals, networking, and financial modeling, just at an earlier business stage. Peter sighed, “He just really wants to go to Harvard.”
It seems the allure of the brand and the network is tempting him, a common sentiment among the young and ambitious. However, as we age and gain more professional experience, the prestige of our educational background tends to diminish in importance compared to our work achievements and the relationships we cultivate.
More Reasons Against the MBA Decision
Here are additional thoughts from my perspective as a middle-aged finance blogger who understands the long-term implications of such decisions:
– No Significant Gain in Happiness: Earning more than $200,000 doesn’t typically increase happiness significantly, so at $600,000, the associate is already well beyond the threshold.
– Increased Anxiety and Potential Disappointment: If he doesn’t secure a similar or higher role post-MBA, the regret of losing out on $1.3 million could be overwhelming.
– Shifting Priorities Over Time: As one matures, academic prestige becomes less significant compared to actual career achievements.
– Time is Precious: Committing two years to an MBA means less time working and delaying other life goals, such as starting a family or pursuing personal interests.
A Better Approach
If I were advising him, I’d suggest staying another year at his current job, saving aggressively (perhaps 80% of his post-tax income), and then re-evaluating his career path. This approach would offer a financial cushion and a clearer perspective on his professional goals without the immediate financial sacrifice of business school.
Final Thoughts
Despite my reservations about his decision, the associate will likely succeed financially, whether he pursues the MBA or not. However, it’s crucial to consider whether the prestige of an institution like Harvard truly outweighs the immediate benefits and satisfaction of his current role. We often overlook the substantial rewards of the paths we’re already on in pursuit of what we assume might be better.
