The Most Absurd Reason to Attend Business School

The decision to attend business school can be one of the most pivotal moments in a person's career. While there are numerous compelling reasons to pursue an MBA, there are also questionable motivations that can lead to significant financial missteps. This article explores one particularly illogical reason for attending business school and the potential consequences that can arise from such a decision.

Recently, I spoke with a friend, Peter, who is a partner at a private equity firm. He was full of excitement as he shared that his youngest son had been accepted into the University of Pennsylvania, especially after the boy took a gap year post-high school. “Getting into college these days is like playing roulette! You really never know where you’re going to get in!” he exclaimed. Peter’s son evidently struck lucky, as he had been rejected from all other applications except his top choice.

During our conversation, Peter mentioned that one of his associates was leaving to attend Harvard Business School. Initially, this sounded reasonable to me. After all, pursuing opportunities in venture capital or fintech can be appealing career moves. However, as Peter elaborated, the rationale behind his associate's decision raised some eyebrows.

“This associate is fantastic! Everyone loves him and he produces great work,” Peter stated. “He attended a state school, worked for two years at Morgan Stanley, and joined us two years ago.” My immediate response was confusion: “Why is he leaving? Couldn’t he continue to advance at your firm?”

Peter explained, “Sure, we’d offer him great opportunities. But he’s eager to explore new avenues. Graduates from Harvard Business School have many options.” I then inquired about how much this associate would make this year at just 27 years old.

“Around $600,000, including his carry.”

At this point, I was astonished. An associate earning $600,000 in private equity—an enviable position for countless MBA graduates—is considering leaving? This seemed illogical at best.

Private equity jobs often lead to salaries exceeding $1 million annually for seasoned professionals, making his departure even more perplexing.

The opportunity cost of going to business school

While there are valid reasons to attend business school, such as:

• Changing careers
• Escaping a dead-end job
• Boosting low earnings potential
• Having the financial security to take a break and explore new paths

However, giving up a $600,000 job at age 27 to seek another position in a similar sector is a grave mistake. The opportunity cost for this associate amounts to at least $1,200,000 in foregone salary, plus around $115,000 in tuition fees. If he were to progress to senior associate, vice president, and ultimately managing director, the lost income could total in the tens of millions.

For context, Partner Peter likely earns at least $5 million annually. In contrast, if this associate had been earning $150,000 or less, a full-time return to business school might be more justifiable, with an opportunity cost closer to $415,000. Yet, attending business school should focus on maximizing returns; sacrificing over $1.2 million in earnings is excessive.

The desire for prestige may be a wealth killer

I was curious to know if the associate would have a guaranteed position back at the firm after graduation. Peter replied, “We’d certainly consider him, but there’s no guarantee. We typically hire only one new recruit from business school each year.”

In essence, the associate would face less than a 25% chance of securing his prior position. Those odds are disheartening, especially considering that he could graduate into a recession and find himself without any job offer.

Peter acknowledged my skepticism and added, “He really wants to attend Harvard.” This highlights a common issue: the insatiable desire for prestige that often drives young professionals. When you’re just starting out, the reputation of your alma mater can seem paramount. However, as most seasoned professionals know, after several years of work, the name of your school loses significance. What truly matters are your skills, accomplishments, and the relationships you build.

More reasons why I'm against his decision to go to business school

As someone who has worked in investment banking for 13 years and attended business school part-time, I may have a different perspective on financial decisions than the average individual. Here are several reasons why I believe this associate's choice to attend business school is misguided:

1) No added happiness

Studies have shown that after reaching an income level of approximately $200,000 to $250,000 as an individual, or $300,000 to $350,000 as a couple, additional income does not significantly increase happiness. At $600,000, this associate is already far beyond his happiness threshold. Many individuals with six-figure incomes often find themselves miserable at work.

2) May increase anxiety and disappointment

If the associate fails to land a high-paying job with a more prestigious title after business school, he may feel disheartened. With an opportunity cost of $1,315,000, this is a significant burden for any recent MBA graduate. Business school prioritizes high returns on investment, and the pressure to succeed is considerable.

Graduating from Harvard does not guarantee that he’ll land a better position than peers from other business schools. This competitive environment may breed envy among classmates, making the experience more stressful.

3) He will mature and have different priorities

Successful individuals often care less about their college's reputation as they progress in their careers. Instead, as you achieve more success, the emphasis on where you studied diminishes. By the age of 40, the desire to showcase your alma mater's sticker will likely fade significantly.

4) Time is very valuable

Attending business school can extend the time it takes to retire, as graduates often work longer to justify their education. Young professionals may underestimate the value of time, thinking they can work indefinitely. Life is unpredictable, and early death could delay pursuing personal dreams or starting a family.

For instance, if this associate wants to start a family, the two-year delay in education may push his life goals back significantly. After graduation, the focus on recovering lost earnings could lead to further delays in personal milestones.

Considering a better business school decision

If I were in a position to advise the associate, I would recommend he stay at his private equity firm for another year and defer business school. During this time, he could save 80% of his after-tax income, potentially accumulating over $250,000 while living off around $80,000.

In his third year as an associate, he could evaluate whether he is on track for a principal position. If not, then pursuing business school could be warranted. This approach would allow him to save more and make a more informed decision without second-guessing.

Many young professionals, especially those earning high salaries, often believe that they can continue to earn significant income indefinitely. However, circumstances can change unexpectedly. I know numerous six-figure earners who attended business school, only to find that their hopes of striking it rich in fintech startups were dashed. Even successful IPOs do not guarantee future wealth.

Everything will probably turn out just fine going to business school

Despite my concerns regarding the associate's decision to attend business school, he will likely do very well financially regardless. Ultimately, it's his life and he can make choices that feel right to him.

It’s possible that he might be feeling burnt out in private equity or may not enjoy the culture at his current firm. In such cases, attending business school could provide valuable networking opportunities and a chance to reassess his career path. With four-plus years of experience in banking and private equity, he is financially equipped to explore his options.

However, it's essential to consider whether he truly understands his standing at the firm. While Partner Peter may hold him in high regard, the associate may not fully appreciate the value he brings to the team. If he realized how much goodwill he has, he might reconsider leaving.

What do you think? Should the associate abandon his lucrative position to attend Harvard Business School, or should he continue in private equity, likely earning over $1 million by age 30? Is a career in private equity genuinely less desirable than one in venture capital or fintech, where salaries may not be as promising?

For more nuanced personal finance content, join over 50,000 subscribers by signing up for the free Financial Samurai newsletter. To receive posts directly to your inbox, sign up here.

Si quieres conocer otros artículos parecidos a The Most Absurd Reason to Attend Business School puedes visitar la categoría Online Business & Side Hustles.