Cheaper Is Not Always So – Costs of an Education

When I went to business school, our economics professor used the various costs of MBA programs as a great example of fully loaded costs. A full-time MBA degree was about half the cost of an executive MBA. Considering how much harder an executive MBA is – try balancing school, family and the type of workload the kind of driven executives who usually take an executive MBA balance – and the higher cost of an EMBA was surprising; one would expect it to be lower. Our professor showed us that what mattered was the fully loaded cost, including the opportunity cost.

Someone who goes to Duke Fuqua or Stanford GSB full-time is giving up almost two years of income. After taxes – especially in NY or CA – that is quite a bit less, but still a lot of money. Someone who goes to an EMBA is someone who cannot afford to take the time off, either for financial or personal reasons, although usually for professional ones. Once you add up the opportunity cost of lost income plus the cost of a full-time MBA, it roughly equals the nearly double cost of an EMBA.

This point was brought home again last week in a different context – undergraduate education – by Richard Vedder, University of Ohio economist and scholar at the American Enterprise Institute. Mr. Vedder penned an article (courtesy of Bloomberg), showing that many graduates of “cheaper” public institutions end up leaving college having paid much more in tuition and fees (as well as opportunity cost), and carrying greater debt loads, than those who go to very expensive “elite” institutions (including my personal alma mater Columbia for undergraduate and Duke for MBA).

According to Mr. Vedder, the standard four-year graduation rate at the higher schools is 87%, and the six-year rate is 95%. In other words, the overwhelming majority of those who go to Columbia, Duke, Harvard, Stanford, etc. end up graduating – and paying tuition and fees for, and missing work for – four years. At the sampling of state schools, the four-year graduation rate isĀ 25% (!), with the six-year rate at 55%. Even at a school that costs half of an Ivy, if you take twice as long, your direct costs will end up being the same – actually more, since with the greater-than-inflation rate of tuition increases, your sixth year will cost a lot more than your fourth – and your lost opportunity costs for working will be much greater. If you spend several years and don’t even graduate, you will have spent the money and taken on the debt, not to mention lost the years of work, and your earning potential will have increased not a bit.

As Mr. Vedder points out, sometimes the “cheaper” option can be much more expensive. When working with clients, I always persistently dig until I find all of the costs of an option before recommending it, especially the hidden ones and lightly-made assumptions.

Of course, if you can be disciplined and graduate in the standard four years at a cheaper school, then it will cost you less than the same four years at a more expensive school; much of it comes down to the discipline of the individual student. But the school culture, support and target goals have an outsized impact.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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