Indian students (and their parents) are often concerned about something called ROI – return on investment for MBA courses. The argument goes like this: MBA courses are prohibitively expensive – with fees ranging from Rs 12 lakhs in the baby IIMs to 23 lakhs at the top IIMs. Are those worth it? In addition, are IPM courses, which for a BBA or BA degree burn another 12 lakhs of hole in your pocket, worth it at all?

People often compare the overall fee of these programs with the starting salary to get a sense of the ROI. They calculate that IIM Indore’s IPM program has an overall fee of Rs 35 lakhs or so, and after graduating you get a salary of around 25 lakhs (on average), so the ROI is 25/35 = 0.7, which is quite poor. Compared to that, if you study in a free government college, and then do your MBA from a top IIM, the overall cost may be only 20 lakhs or so, which enhances your ROI to 25/20 = 1.25.

The problem is, this way of calculating return on investment is plain wrong. Because the starting salary is not the only salary you receive due to your education. Due to an MBA from an IIM, you start off high, and continue on the same path throughout your work life (provided you don’t slack off). Hence, the starting salary of 25L is not the only return you receive; rather it is 25L for the next 35 years (assuming growth in your salary will exactly offset the inflation – a very reasonable assumption).

With this, your return is really 25L x 35 years = 875 lakh, on an investment of Rs 35 lakh (for an IPM program), which is an astounding return. No stock market in the world will give you this return. True, by studying in a government college for the first three years (instead of the IPM) you might be able to reduce the investment, and hence increase the ROI further. But the point is, such penny-pinching has costs associated with it. The academic culture, the quality of peers, the career orientation that you get in a government college will be significantly inferior compared to the IPM program at an IIM. When you spend three years of your life in a worse environment, it sets you back and reduces your future earning potential.

Education in a top place is an investment which gives phenomenal returns – that’s not an area to cut corners.