Hidden Charges – Decoding The MBA Fees

Let’s get to basics without getting into any lofty verbiage, what is that pressing motivation to pursue MBA? We would get phrases like ‘Growth in Career’, ‘Ending up in decision-making unit’ which is totally correct but drilling down deeper, it is more about the compensation and certain ‘glamour’ attached with the career post-MBA. MBA is a costly affair, barring a few institutions like FMS and IITs, the cost of average MBA degree from a top tier college in India is approx. 16-17 lacs (including hostel, food), but is it the real cost of MBA? Well I would say no, here’s why:

Cost components of MBA program = Fee + Interest Cost + Opportunity Cost

We have already looked at the fee component, let’s look at other components associated.

  • Interest Cost: A large number of MBA students take loans in order to pay their MBA fee and interest gets accumulated in the course period. This cost applies to people who haven’t taken any loan as well, their money could have yielded them a 7% return on FD or an equivalent, may be better returned from markets in the similar period.

So if someone has paid a total fee of 17 lacs for a 2 year MBA program, their interest cost would be anywhere around 2.3 Lacs, making an assumption that fee would be paid in two equal instalments and ROI is 9%.

So total tangible cost of MBA is Fee + Interest Cost = INR 19.3 Lac

  • Opportunity Cost: What you would have been doing in your life, if not MBA? And would that activity yield you any monetary return? If yes, then it is your opportunity cost of the MBA program.
  • Let’s take an example of Rajvi, she is an entry level software engineer at an IT service firm with 2 years’ work-ex, her CTC is 4 lacs per annum. If she leaves her job and pursues MBA, she would not earn for 2 years. At this stage, many software engineers get 50-60% hike offers from many firms. So what would be the opportunity cost for Rajvi? In a realistic scenario, it is 8 Lacs; In an optimistic scenario with a hike from the switch, it would be 12 Lacs. 
  • Other expenses: I am not adding the other expenses in the MBA cost as they may vary person to person. certain expenses like food and beverages would remain more or less the same. There is an option for foreign exchange, it may cost you anywhere close to 2-4 lacs for 2-3 months’ period in Europe.

Above mentioned headers are facts, but it is important to decode them and then use it your advantage. In most of the cases, barring the top 20-30% of the batch, MBA is a costly affair for a few years initially, due to high-interest cost and moderate in-hand salaries.

So, MBA decision shouldn’t be made just because you are bored out of your technical career or you heard someone getting a 1 crore package straight out of college. Those flashy news headlines or select success stories don’t show you the complete picture. Make a conscious and informed choice!

If you want to read about returns from MBA program, please go through this link – Decoding The Average Package Placements and More.

Sachin Mandot

Sachin Mandot is an IMT-G Alum (Batch of 2018). With an aim to help MBA aspirants, he has been writing on InsideIIM platform since March 2017.

Comments

3 comments

Pranav Hari

Your getting way too ahead of yourself buddy.
In the opportunity cost segment.. you mentioned software guy having a CTC of 4 will get it jumped up to 8? Which company is that?
Kindly don’t mislead people.
A hike of 50-60 percent is not for entry level engineers. Need to slog at least 3 years+ to earn decenlty in the field.

Again long term benefits are way too many.
An MBA gets an increment rate higher than an engineer plus the New horizons in which an MBA can operate are higher.