Two-year MBA program applications are down. A lot. The University of Iowa is shuttering its two-year program this spring after graduating its final cohort of admitted students. The University of Wisconsin nearly did the same until they felt the significant backlash. The top schools aren’t immune with Harvard and Stanford each reporting declines of roughly 5%. At the same time, however, applications are up in Europe and Canada.
So what’s going on? Is the US two-year MBA degree in the beginning of a death spiral?
While only time will tell for certain, we believe the answer is yes. And no.
Yes, the lower-tier, full-time US MBA programs are likely in a perilous position and we believe their intermediate futures will depend on offering part-time MBA degrees as well as one-year specialist master’s degrees in areas like finance, marketing and entrepreneurship. The tuition and time make it hard to justify the full-time degree, especially when it doesn’t open as many doors for career changers as the top-tier MBA programs.
No, we do not believe the top-tier full-time US MBA programs are in a similarly perilous position. First of all, applications drop when the economy is strong and we expect them to rebound when the economy cycles toward another downturn. We have also seen a change in applicant career interests away from traditional fields that strongly favor an MBA, like consulting and investment banking, and toward fields that don’t view the MBA as favorably, such as start ups and high tech. We don’t believe consulting and I-banking jobs are going to disappear and we think it’s reasonable to expect applicants to eventually find favor in those career options again.
We believe another main driver for the drop in full-time US MBA applications is the steep tuition. In the not-too-distant past, it was relatively unusual to receive a scholarship. Today, the scholarships are essentially expected as a discount off the perceived sticker price. Unlike the economic cycle, business schools do have control over this factor and we expect to see smaller tuition increases in the next few years in an attempt to bring supply more closely back into alignment with demand.
The two-year, top-tier US MBA degree is time tested and its ROI has been validated for career changers. Recruiters in the traditional fields that strongly favor the MBA have not changed their views of the degree’s value. These recruiters also tend to strongly favor the top-tier b-schools and, for this reason alone, we don’t see those MBA programs in danger of falling into a death spiral any time soon.
