SHOULD YOU BORROW MONEY TO FUND AN MBA DEGREE?
(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-
HAD PAID FOR ITSELF