An educated investment

An MBA could secure your financial future

Imagine an investment that would increase your annual income by more than 100% for the rest of your life.

And what if that investment was largely protected from the slings and arrows of the stock market, didn't depend on the property market and wasn't waiting on the next round of venture capital funding.

Chances are most of us would jump at the opportunity.

The investment is in education, specifically in a Masters of Business Administration (MBA).

Just how profitable it can be was made clear this week.

A survey, carried out by the Financial Times (FT), revealed that MBA graduates from top schools could expect to see their salaries increase by more than 100%.

Average graduates from the top three MBAs have seen their salaries increase more than 100% within five years

The FT study found that graduates from the two top schools - America's University of Pennsylvania Wharton and Columbia Business School - had, on average, more than doubled their income to just over $200,000 within five years.

Graduates from the London Business School, which is ranked number three in the world and number one in the UK and Europe, saw their salaries increase an average136% to just over £143,000 in the five years following their degrees.

What is an MBA?

An MBA is a generalist course that aims to prepare graduates for management roles.

It educates people in a range of skills required in management roles - such as project management, finance, accounting and human resources.

Increasingly businesses, especially banks, consultants and multinational firms, are favouring people with MBA qualifications for promotion to middle or senior ranking roles.

To qualify for an MBA you will typically need to have completed a university degree and have worked for a couple of years.

But even this is not enough to guarantee you entry to a top school, where competition is fierce.

Full-time courses take one or two years, depending on the programme, while part-time MBAs can be completed over a longer time period.

Choose carefully

There are hundreds of schools throughout the world offering MBAs.

We spend a lot of time trying to convince people not to do MBAs

Peter Calladine, the Association of MBAs

In the UK alone there are an estimated 118 institutions, from universities to business schools, offering about 250 MBAs.

Not all MBAs are the same, and one is definitely not as good as another.

Peter Calladine, Education Services Manager at charity organisation the Association of MBAs (AMBA), says that programmes without a good reputation are a waste of time and money.

"People that get into top MBA courses are virtually guaranteed good job opportunities and a good return in terms of salary increases. But we spend a lot of time trying to convince people not to do MBAs that we, and the wider business community, don't respect," says Mr Calladine.

Finding a good MBA is not difficult - most bookstores will stock guides to MBAs around the world. AMBA publishes its own guide, details of which can be found on its website.

A home or an education? A good MBA offers top rewards, but the courses are not cheap and therefore not risk free.

Full-time MBAs cost between £10,500 and £30,000 a year in tuition fees alone.

Add to that the cost of study material, and the cost of living without an income, and you can expect to spend as much as £80,000 completing a good two-year full-time MBA.

And the expense doesn't stop there.

Mr Calladine says: "There is not only the cost of the course and living to be taken into account but you also have to take into account the opportunity cost of lost wages.

"Many MBA students leave good jobs and salaries to study. With tuition, costs, living expenses and lost wages you should expect to pay the equivalent of over £100,000 for a two-year course."

To put that in perspective, Halifax, the UK's biggest mortgage lender, says the average UK home costs £93,986.

It is possible to reduce these costs

. Companies that value MBA graduates regularly sponsor employees to undertake part-time MBA courses.

According to AMBA about 80% of people doing part-time MBAs have some sort of financial assistance from a company. Some 50% of those have the full cost of their course tuition paid for.

But this is a Faustian pact - companies expect graduates to stay with them for a number of years after their courses are completed.

The penalty for backing out of this agreement can be expensive. For this reason many people prefer to fund their MBAs themselves.

Paying for it

Those people funding their own MBA should find it relatively easy to borrow money, as long as the course is well recognised.

The best place to start looking for a bit of extra cash is the government-sponsored Career Development Loan scheme.

The loans, which are offered in conjunction with Clydesdale Bank, Barclays, The Royal Bank of Scotland and The Co-operative Bank, are cheaper than personal loans because they are government subsidised.

Students can borrow up to 80% of the cost of a course, but the loans are capped at £8,000 so won't underwrite even the cheapest MBA.

To find out more you can write to Career Development Loans, Freepost, Newcastle Upon Tyne NE85 1BR.

In conjunction with AMBA, both the Bank of Scotland and NatWest offer MBA loans.

The rates on these loans are typically cheaper than standard personal loans and the amount of money that can be borrowed is significant - covering the total cost of tuition and up to two-thirds of the salary you were earning before you began your course.

Hard and fast

Completing an MBA may be a fast track to improving your salary but it is no easy option.

Graduates of the best courses are able to demand big salary increases because their skills are rare and obtained only through very hard work.

The courses are not for the greedy, but for the determined and ambitious: personality traits that are found in most successful business people - whether they have MBAs or not.