SHOULD YOU BOR­ROW MONEY TO FUND AN MBA DE­GREE?

Finweek English Edition - - COVER STORY -

(See graphic on page 15.) There is no de­fin­i­tive an­swer to this ques­tion, since each per­son’s cir­cum­stances are unique. How­ever, we can ar­rive at a sen­si­ble con­clu­sion by mak­ing as­sump­tions for the key pa­ram­e­ters. Th­ese as­sump­tions are dis­cussed be­low.

Con­sider an i ndiv i dua l , Le­bo­gang, who cur­rently en­joys an an­nual cost-to­com­pany re­mu­ner­a­tion of R850 000. This is the me­dian salary of those start­ing an MBA (based on the sam­ple of 420 data points, and al­low­ing for pre­vi­ously es­ti­mated salary in­fla­tion of 9.1% in or­der to en­sure that all fig­ures are based on the value in to­day’s money). We as­sume Le­bo­gang had an an­nual in­crease just be­fore start­ing the MBA de­gree.

The av­er­age cost of an MBA de­gree is R150 000, which we as­sume is paid up front. In prac­tice, this fig­ure de­pends on the busi­ness school cho­sen, and can range from about R60 000 on the low end, to as much as R250 000 on the up­per end. In or­der to fund the MBA de­gree, Le­bo­gang qual­i­fies for a loan from the bank at an an­nual in­ter­est rate of Prime + 2% (this works out to 10.5%, which we as­sume is fixed go­ing for­ward). On av­er­age, it takes Le­bo­gang two-and-a-half years to com­plete the MBA de­gree (based on the sam­ple data). Over this pe­riod, Le­bo­gang’s an­nual salary in­creases at a rate of 9.1% (as es­ti­mated in the pre­vi­ous sec­tion).

At the end of the MBA, Le­bo­gang’s salary starts to in­crease by an ex­tra 2.1%, as per Fin­week’s re­search (so that the an­nual in­crease go­ing for­ward is 9.1% + 2.1% = 11.2% per an­num). We as­sume that Le­bo­gang has a salary in­crease once a year, and that cur­rent tax rates and brack­ets are ap­pli­ca­ble go­ing for­ward.

If Le­bo­gang didn’t do an MBA, then we as­sume the salary would con­tinue to grow at 9.1% per an­num. So the dif­fer­ence be­tween the monthly af­ter-tax salary grow-

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