Are Astronomical MBA Tuition Fees Coming Back Down to Earth?

After years of inflation-busting tuition fee increases, elite business schools are finding ways to curb the substantial cost of a full-time MBA

This year, two leading business schools made a surprise move: they froze tuition fees for their MBA degrees. The radical step from Harvard Business School and Chicago Booth School of Business came after a decade of fee increases above the rate of inflation at most elite institutions.

The high fees can improve teaching quality, but they were a key factor behind a drop in demand for MBAs in the US. Applications have fallen at most schools for five straight years, according to the Graduate Management Admission Council, an exam owner.

More recently, the coronavirus pandemic has raised demand at the top schools but they have also come under pressure from current students to cut or reimburse fees to compensate for the disruption to their learning, with teaching forced online. So far, most institutions have refused, citing their high fixed costs.

However, the astronomical tuition fees — more than $200,000 at the top schools — are going to have to come back down to earth, argues Andrew Ainslie, the outgoing dean of the University of Rochester’s Simon Business School. “The market has moved us in a direction where we have to change tact,” he says.

He expects more US schools to reduce the price of their MBAs as undergraduate debt is already a burden for many candidates. “I’m surprised many schools were still raising fees by the standard three percent a year when they were hurting on applications,” says Ainslie. At MIT Sloan School of Management, for example, the total cost has risen by 18 percent in the past three years.

UCLA, Michigan Ross, Berkeley Haas and Dartmouth Tuck all put through double-digit fee increases over this period.

In a bid to shore up its own applications, Rochester Simon dropped its annual tuition fee from $53,000 to $46,000 in 2015. The move hit revenue, but the following year, applications rose from 745 to 918.

While other schools saw steeper drops in applications, in some cases by 20 percent or more, Simon’s fell slightly to about 902 in 2019. Ainslie attributes this relative resilience amid broader market woes, in part, to fee increases below the rate of inflation in both 2019 and 2020.

“In real terms, it was a price cut. We are balancing price and quality of product,” he says, noting that operating costs have risen as his school has invested in teaching facilities and faculty.  

He contrasts his institution’s fortunes with richer schools, such as Harvard and Chicago Booth, which both have billion-dollar endowments to support operations. So they rely less on income from tuition fees.  

Vast war chests enable the schools to subsidize tuition fees through financial aid, such as scholarships drawn from the generous donations of alumni. In a recent fundraising campaign, 28,000 donors raised a record $1.2bn for Chicago Booth, for example.

An MBA scholarship arms race

Schools are engaged in a scholarship arms race to entice the best and brightest students, as well as those who are in need of financial aid: students often receive a healthy discount on the sticker price.

At Harvard, $35m is awarded in scholarships to students annually, based on financial need. The average award is $80,000 for the two-year MBA.

Mark Cautela, communications director, says a package of financial measures is designed to improve access to students from a wide range of backgrounds, including the less wealthy. “We recognize the rising cost of an MBA is on the minds of many prospective students,” he says.

Ainslie, at Rochester Simon, says even the wealthiest schools may be keeping their fees high in order to continue attracting students with the lure of a discount through a scholarship.

When Arizona’s Carey School of Business scrapped tuition fees in an audacious $20m experiment in 2015, it received a record number of applications, initially – including those from less traditional backgrounds, such as the public sector.

Yet free tuition was not enough to maintain application volume, due to fierce competition from other schools offering record scholarship dollars that could also be used for living and travel expenses, which can be dear.

So, the scheme was scrapped, and Carey started offering more scholarships instead. But applications still fell by 42 percent between 2018 and 2019, which reflected the tough market for full-time MBAs at that time.

Chicago Booth, though, has had more success with its price freeze. Donna Swinford, associate dean for student recruitment and admissions, says the idea was to help prospective students make decisions based on academic progress rather than money.  

The move has helped her school to buck a global downturn in demand. It attracted 144 more applications in 2019 than the year before, a 3.4 percent increase.

However, it is not clear whether halting fee increases is a good strategy. Harvard reported a six percent slide in applications last year. But the school argued the drop was exacerbated by it removing its third round of applications in 2019. If data from the third round are removed from 2018’s figures, the drop was less steep.  

However, with so much demand for MBAs in the age of coronavirus, the competition for scholarships may rise. The provision has increased too though, according to admissions consultant Stacy Blackman. In each of the past three years, the number of scholarships awarded to her clients overall has increased by 10 percent annually.

Although the rising cost of MBAs has outpaced salary increases at many schools, Blackman argues that the return on investment remains compelling: this includes not just the starting salary but the networks and prestige that come with an elite MBA, which may be invaluable.

The average pay increase among Rochester Simon MBA alumni was 17 percent in 2019, with the average salary being $142,000 (including a joining bonus) three months after graduation.

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