Can The Benefit of B-School Keep Up With The Cost?

Business school dilemma: cost vs. earning potential

Business Week ran a recent story on business schools suffering a decline in applications.

“In the last few weeks, a handful of top business schools have reported single-digit, and in some cases double-digit, declines in applications for their full-time MBA classes, including most recently Columbia Business School and New York University’s Stern School of Business. It turns out they’re not alone. Full-time MBA applications have sunk at at least a dozen of the top 30 B-schools, according to class profile data of 17 business schools obtained this week by Bloomberg Businessweek.

According, to Business Week’s survey, the impact of the b-school application decline was felt disproportionately and groups that are traditionally underrepresented. “This year, competition was especially stiff for women, underrepresented minorities, and students from nontraditional work background.” What’s interesting about the article is that when discussing the drought in applications and the resulting drop in selectivity of top business schools, the author fails to explore a couple of key points that you should consider before you pencil yourself in as Booth’s valedictorian for 2015.

First, there is no real mention of the root cause that applications are down: cost. The article cites a financial aid officer from the University of Indiana with the following explanation for the shift top schools are seeing:

“The decline in applications to increased competition from rival business schools and a plethora of available choices, including part-time and online programs. Second-tier schools are working more aggressively to recruit top MBA candidates and entice them with hefty financial aid packages.

This may be true but the elephant in the room is the rising cost of education. People simply are not seeing a rise in earnings potential that can come anywhere near the pace that education costs are increasing. When I started at Kellogg in 2007, I was told that to expect an average tuition increase of 7% each year. Salaries for graduates have been relatively flat at best, so declining return on investment (ROI) leading to reduced demand shouldn’t come as unexpected.

Second, the notion that “getting an offer to a top business school has become slightly easier” all but implies that the standard for students being admitted has been lowered. While getting into a top school  may be mathematically “easier,” this statement is a bit misleading. What’s really happening is that  if the school has to randomly decide between equally qualified candidates, your name now will be put into a pool of six for a random draw instead of seven. A more accurate statement to make would be “all else equal, getting an offer to a top business school has become slightly easier.” You’re still going to have to work just as hard during the application process as students have in the past, and expectations of candidates from top business schools are as high as they’ve eveer been.

Do you think there are other factors business school applications are down? Let me know in the comments.