7 Things to Consider Before Paying for an MBA

A Master's in Business Administration can add millions of dollars to your lifetime income. According to Financial Times, alumni from the highest-rated MBA programs earned an average $142,000 just three years after completing their degrees — more than double the salary of their pre-MBA careers.

While the potential of earning a better income is surely enticing, there are several factors to consider before committing to a graduate business degree. MBA programs aren't cheap, after all. Let's break down key criteria to decide if an MBA is a worthwhile pursuit.

1. GMAT test

Just like you need an SAT score to be admitted to undergraduate college, you need a Graduate Management Admission Test (GMAT) score to pursue an MBA. According to the Graduate Management Admission Council, nearly nine out of 10 new enrollments at the top 50 U.S. full-time MBA programs were made using a GMAT score.

Depending on your target business schools, you may have to achieve a minimum score on this test. Getting to that minimum score is going to cost you prep time and money. At the very least, you'll need to cover the $250 test fee, but you may also have to pay for test prep services or additional materials that can bring up your total GMAT costs to thousands of dollars. Taking a free diagnostic exam from MBA.com can help you determine how close you are to the required minimum score (if any) and what you need to do to achieve that score.

2. Type of MBA

To better meet the needs of its students, most business schools offer part-time, full-time, and executive versions of a business graduate program. While the full-time program allows you to fully immerse yourself in the MBA experience, a part-time program enables you to keep your current job and minimize student loans. An executive MBA (or EMBA) requires applicants to have several years of work experience, which will vary depending on the school. EMBA students typically have to attend classes on weekends.

However, some schools offer additional types of MBA programs. For example, the Shidler College of Business in Hawaii offers a Global MBA with a China focus in which you complete an eight-month study abroad period at a partner school in China.

3. Work experience

Business schools vary widely in the amount of work experience they require from applicants. Still, 89 percent of full-time MBA students have an average 4.3 years of work experience, according to U.S. News & World Report. For part-time and executive degree students, average work experience is even longer at 6.4 and 13.3 years, respectively.

This doesn't mean that pursuing an MBA fresh off completing your undergraduate degree isn't possible. It just means that you may be limiting your options by applying to a business school too early. Keep in mind that taking the GMAT fresh out of undergrad is often a good idea, while your study habits are still intact, because your score will be valid for the next five years. Adding some years of relevant professional experience to your resume will strengthen your MBA application.

4. Target industry and salary

Let's face it: You are considering an MBA so you can increase your earning potential. Just keep in mind that your target salary goes hand in hand with your target industry. While an MBA can give your salary a boost, the actual pay bump varies per industry.

Using data from over 6,600 MBA alumni working in the U.S., MBA.com reports the average annual salary of a graduate in the technology industry and a graduate in the government/nonprofit industry at $135,000 and $95,000, respectively. The job level of the position also affects the salary of MBA alumni: In the finance/accounting sector, a graduate would earn an average $55,000 per year in an entry-level position and an average $165,000 in a senior-level position. Knowing your earning potential can provide you a better picture of the potential return on investment of an MBA.

5. Job placement rate

It's one thing to know your earning potential; it's another thing to actually land the job paying that target salary. Make sure to ask about the average period of unemployment after graduation for graduates of your target MBA programs, the job placement services available during and after the completion of your degree, and the list of companies actively recruiting interns and full-time hires from those schools. While no school can guarantee you 100 percent job placement after you complete your MBA, some schools do a better job than others at setting you up for success. Choose one that best suits the unique characteristics of your desired career path.

6. Alternatives

Some industries have different types of programs or certifications that are comparable — and sometimes more valuable — than an MBA. In the finance sector, a Chartered Financial Analyst (CFA) credential is a recognized investment management designation valued by many employers. Other examples of self-study certifications coveted by employers are the Financial Risk Manager (FRM), General Securities Representative Exam (GSRE), Certified Financial Planner (CFP), and Associate of the Society of Actuaries (ASA).

A professional designation is an alternative pathway to unlock career growth potential that may be similar to an MBA. (See also: 7 Certifications That Add Big $$ to Your Salary)

7. Existing student loans

It takes money to make money, but there's always a limit. A 2016 Poets&Quants study showed that MBA graduates had six-figure student debt from at least 13 prominent business schools, up from only two schools in 2011. Even some public universities offering MBA programs have a high sticker price: Six of the 25 schools with the highest average loans were public.

Assuming a $100,000 student loan balance on a standard 10-year repayment plan with a 6.8 percent interest rate, you would pay an estimated $1,151 every month. If you already have a student loan balance, you should consider waiting until you reduce that financial burden before taking on additional student debt. (See also: These 17 Companies Will Help You Repay Your Student Loan)

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