The Best Business SchoolsKurt Badenhausen, 08.05.09, 06:00 PM EDT
Where your investment in an M.B.A. pays off the most.Our sixth biennial ranking of business schools, based on the return on investment graduates have achieved after five years, shows that alumni of the best programs still command huge salaries with their degrees. Graduates of our five top-ranked M.B.A. programs typically earn more than $200,000 once they're five years out of school. But rising tuitions and higher pre-M.B.A. salaries mean it's taking longer for them to get a solid payback on their investment in going back to school. Our top U.S. school this year is the Stanford Graduate School of Business, which moved up from second in our 2007 ranking. Stanford has a long history of producing successful entrepreneurs, including the company founders Charles Schwab, Philip Knight (Nike ( NKE - news - people )) and Scott McNealy (Sun Microsystems ( JAVA - news - people )). Those three men's companies are worth a combined $56 billion. The Stanford class of 2004--the class now five years out--had a median salary of $82,000 before entering school, which tied with Harvard for the highest of any M.B.A. program. So the typical student made a $235,000 investment, measured by adding two years of forgone salary to the cost of tuition. That's a hefty outlay, but it has paid off for most Stanford grads, as their median salary five years after graduation has jumped to $225,000, tops among all U.S. schools. We figure that the typical cumulative gain for this class of Stanford alumni was $85,000. Our ranking of M.B.A. programs is based on the return on investment achieved by the graduates from the class of 2004. We surveyed 17,000 alumni at 103 schools and heard back from 24% 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). We adjusted for cost of living expenses and discounted their earnings gains using a rate tied to money market yields. We also discounted tuition to account for students who pay in-state rates and for the non-repayable financial aid that schools dole out. This year for the first time we also accounted for required fees that students must pay on top of tuition. Only two-year full-time M.B.A. programs were included in the U.S. ranking. Holders of master of business administration degrees have taken it on the chin in the last two years. B-school alums like Richard Fuld, Vikram Pandit and Richard Wagoner have been dragged in front of Congress for public floggings. The job picture for new M.B.A.s is bleak right now, with only 50% of them having a job offer three months before graduation, down from 62% last year, according to the Graduate Management Admission Council. Bank of America ( BAC - news - people ) was reportedly forced to pull job offers from 50 2009 M.B.A. graduates after it accepted Troubled Asset Relief Program funds. The scrutiny of business schools has been so bad that a group of second-year M.B.A.s from third-ranked Harvard felt compelled to create an M.B.A. Oath this year. The pledge includes lines like, "I will safeguard the interests of shareholders, co-workers, customers and the society in which we operate." More than half the 2009 Harvard class signed on, and the oath has spread to other schools--although it carries little weight, since violating it incurs no penalty whatever. The financial payback of going to business school is less after five years than it used to be, as post-M.B.A. salaries have lagged behind the rise in tuition and pre-M.B.A. salaries. The median five-year gain for graduates of the top 50 U.S. programs was $29,000 this year, compared with $64,000 for the class two years earlier. The 2004 class entered school during another time when jobs were scarce (only 36% of the 2003 class had a job offer three months before graduating, according to GMAC). Their payback has been slower, but going to a top business school has continued to be a solid investment. Graduates of our top 75 schools typically earned their b-school investment back within five years. Financial services jobs led the way, with the median salary five years out of school at $165,000 compared with $125,000 for all other jobs. The top non-U.S. business schools offer even better returns. Many European M.B.A. programs take only one year to complete, minimizing students' time out of the workforce. Europe is home to the seven best business schools when it comes to a return on your investment, led by top-ranked Insead, whose graduates had a five-year gain of $192,000. What will the trend be as the global recession winds down or continues? Stay tuned. Forbes plans to publish its Best Business Schools report annually, rather than every two years, in the future.
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