This is the second half of a post about how to determine the return on investment for graduate degrees. The first part introduced how career goals influence grad school options, how grad school investment is measured, and discussed the time to complete a graduate degree. Here is the last part of the post.
Direct costs of attending grad school
Each program has published tuition, cost of living, and books estimates. These should be available from the program directors or admissions offices and are likely close to equivalent metrics so a direct comparison can be made. Remember that many schools (PSM, MBA, MD, JD) do not typically offer much financial aid while the PhD is often underwritten with financial aid in the form of tuition remission and perhaps a stipend. Applicants need to review the financial aid offered from every school they apply to in order to determine the actual direct costs for this comparison. While the PhD may be “free” if full aid is provided, it is by no means free when looking at the increased time to completion and initial job prospects after completing it.
Opportunity costs of grad school options
This measures what you would be doing with your time if you weren’t in school. Most people would be working and earning an income. What income would you forgo to enroll in a grad degree program? Another way to look at this is what would the opportunity cost be of going to a particular professional program versus another, such as a PhD. Financial considerations are the best metric to use here, because it accounts for both the effects of income changes (gained or lost) and the direct costs of going to school, if that is the decision under consideration.
Grad school return on investment (ROI)
ROI = returns (future income stream) / costs (direct and opportunity). This is where it gets tricky. Students frequently understand the cost basis for comparing programs, but often overlook the implications of comparing the future income stream. Creating an apples to apples comparison requires analyzing an acceptable time. If comparing two degree options of identical duration, the calculation is easy and direct. Comparing a long durAtion program like a PhD or med school to a short duration professional school like a PSM or MBA is harder because it requires getting to a minimum equivalent duration. In practice it means adding the lost income during the years after completing a PSM or MBA to the direct costs of attending the longer duration PhD program. During those immediate earning years after completing a degree, the differences are striking. The average salary for a postdoctoral researcher with a PhD in the sciences is about $39,000, according to the National Postdoctoral Association. Although average starting salaries vary by sector, school, function, and many other factors, it is compelling that the average starting salary of KGI PSM graduates after the two year program is over $70,000. MBA programs too offer substantially higher salaries than postdoctoral appointments that last 2-4 years each.
It is imperative that prospective students take the long term view and consider career expectations, lifestyle plans, and financial hopes when deciding on their choice of grad school degrees and schools.