Is Graduate School a Good Investment?

Is graduate school worth the cost? It's a tough question to answer, and there are many factors to consider. Deciding whether to go back to school is a financial question, but it's also a personal one: What do you really want to do in life, and is it worth the financial sacrifice?

Tuition costs vary widely between programs, but can run from $20,000 to over $40,000 each year, especially for business, law, and medical schools. The high cost of school means returning for more education will likely require taking on a substantial amount of debt. According to finaid.org, the median debt at graduation is $25,000 for a master's degree, $52,000 for a doctoral degree, and $79,836 for a professional degree based on a 2007-08 study. Actual debt levels will most likely be higher for current and future graduates because tuition tends to increase each year.

However, looking at tuition cost in isolation under-represents the true cost of attending. It's not just a matter of paying tuition at face value--other costs of attending, including books and room and board, can tack on thousands of extra dollars. Going back to school also involves an opportunity cost: You're giving up years of income while you're in school.

Given these costs, it's important to thoroughly consider whether the degree would get you to where you want to be. What are the job prospects coming out of the program? Will you need another degree when you're finished?

There have been numerous attempts to quantify whether different types of graduate programs are "good investments." In a now infamous 2002 article, Jeffrey Pfeffer, professor at the Stanford University Graduate School of Business, and Christina Fong, now an assistant professor at the University of Washington School of Business, wrote that MBAs have relatively little impact on salaries and career outcomes. Not surprisingly, business schools were up in arms and disputed their conclusions.

In a more recent 2007 study, Brooks Holtom of the McDonough School of Business at Georgetown University and Ed Iderrieden of Marquette University's College of Business Administration found significant returns on investment for nearly all MBA graduates, even those not in top-ranked programs.

Business Week also jumped into the fray, ranking business schools by return on investment.

Many studies have focused on whether law school is a good investment as well, particularly as tuition continues to rise and high-paying job prospects look questionable (there is also the issue of widely diverging salaries between those working for large private firms and those doing public interest work). Vanderbilt law professor Herwig Schlunk's 2009 paper "Mamas, Don't Let Your Babies Grow Up to Be�Lawyers" questions whether law school makes sense for most people, stressing the opportunity cost of lost employment during school combined with high student loans.

In a less bleak but notably self-interested study, Northwestern University law school dean David Van Zandt said Northwestern's research showed that the break-even salary for a law school graduate was $65,000 (the median starting salary is above this threshold for graduates of the top 70 law schools).

These studies are interesting, but can't answer the question of whether going back to school makes sense for you personally--there are too many variables. Your return on your education investment depends on how much debt you take on, the salary you sacrifice to go to school, what job you come out with, and the trajectory of your upward-mobility after your first position.

While there is no Magic Eight Ball to tell you whether going back to school is the best path to take, you can increase the return from your education.

1. Don't jump in. Think about your career goals before returning to school and figure out if more education is the only way to get where you want to be. It's a bad idea to take on debt without a clear goal of what you're trying to achieve.
    
2. Analyze graduate school debt versus job prospects. There are two decisions to make: whether to return to school at all and whether to attend a more or less expensive school. When comparing different schools, decide if you are willing to take on more debt for better job prospects, or if you are more comfortable taking on less debt and possibly sacrificing some employment opportunities. There isn't always a trade-off, but top-caliber schools with impressive alumni networks tend to be more expensive. This calculator from Kiplinger can help you evaluate how debt plus a higher paying job compares to your existing salary.
    
3. Study past data to see what the prospects are for graduates of programs you are considering. You can usually find out job placement statistics from the school's career services office. Knowing specifics about what type of job to expect after graduation can make it easier to evaluate whether attending is worth it.
    
4. Investigate scholarships and grants when weighing school choices and research opportunities to apply. This is an obvious point, but it's easier to get a higher payback on your education if you put less money into it.
    
5. Minimize costs where possible. Don't feel like you have to use all the loans offered to you. Many schools offer loans up to the "cost of attendance," which includes estimates of living costs that can be higher than you actually incur if you live modestly. Consider getting a roommate and living somewhere inexpensive for a few years.
    
6. Consider working while in school to help defray costs. You have two options: you can go to school full time and find a part-time job, or you can work full time and go to school part-time.
    
7. Check with your employer if you're in a career that aligns with your educational goals. Some employers with help you pay for part-time programs if you continue working full time, while others will pay for full-time programs if you agree to certain conditions, such as working for the company for a number of years after you graduate.