Caveat Emptor, Caveat Debtor

David Wilson is President and Chief Executive Officer of Graduate Management Admission Council, the 58-year-old organization responsible for creating and managing the Graduate Management Admission Test (GMAT). In 2010, prospective business school students sat for the three and a half hour exam 263,979 times, demonstrating a healthy appetite for management education, despite the rising costs associated with attending a traditional MBA program. 

 

Wilson is one of management education’s staunchest allies; but he’s also an accountant by training. In a conversation with Poets&Quants’ Mica Bevington, he cautions MBA hopefuls that the degree is a sobering investment that needs to be analyzed as rigorously as a business investment or surveyed as closely as a home you’re about to purchase. Buyers beware, he warns.

When is it too expensive to pursue an MBA?

The MBA is, if not the only degree, then one of the very few degrees, undertaken after an economic analysis. If you get a PhD in art history, it’s because you have a passion for art history, not because you want a dramatic financial return. I’d argue that the vast majority of MBAs want the degree so they get the economic return.

 

That makes the assumption that all MBA hopefuls crunch the numbers to determine the payback. What if they don’t?

The entire notion of “irrational exuberance” suggests that emotion trumps reason in some circumstances. And so it may be for many who are pursuing graduate management studies. But I still suggest that for many of those who are leaving the work place to return to school, an economic analysis is a fundamental part of the decision. It is not the only element, but it is present.

“Irrational exuberance” also implies that the market is overvalued. Are MBAs overvalued? Are MBA programs overvalued?

I am not sure I buy your implication. My comment was simply that in some instances, emotion trumped a rigorous analysis. The outcome may well be a positive one. It is just that the process was not founded in fundamentals but emotion.

But I think that an MBA is one of the best values in the market today for both seller and buyer. Doors open to MBAs. Employers acquire intellect, experience, content, discipline and maturity.

 

Since 2001, tuition has jumped about 80% at Poets&Quants’ top-ten U.S. business schools. Is tuition too high?

At some point, the market is going to force that one. It’s a free market. People don’t have to pay it.

There are two factors that come into play. The first is the MSRP Protocol. Manufacturer’s Suggested Retail Price, the stated tuition, may not in fact be what a student will pay as scholarships may reduce the cash costs. Do your due diligence. The second factor is that a school is an economic man. So long as students will pay the tuition and fees and the increases thereon, schools will charge it.

Doesn’t it also hold true that so long as the U.S. Federal Government is willing to lend cash to graduate students, the schools are able to increase tuition over and over again?

Cheap money factors into an economic analysis. And cheap money with limited or no equity contribution required can make an apparently unattractive decision, very attractive. A robust student loan program will open doors for many who cannot afford to return to school. And I am sure that this was the noble intent of our legislators in designing the programs that are available today.

But when the buyer (student) has unlimited and very inexpensive borrowing capability, a supplier (school) may end up being less concerned about pricing than other elements in marketing his program. Moreover, a graduate management degree, for many, may well be a “Veblen” product¬–the greater the price the greater the perceived value.

 

Students can vote with their feet. Why haven’t they challenged B-

school sticker prices?

“Ah, but a man’s reach should exceed his grasp, Or what’s heaven for?” –Robert Browning, Andrea del Sarto

They are still reaching and still believing that a graduate management degree will open doors to opportunities that would not have been there but for the process and outcome of that course of action (going back to school). And it is that belief in themselves and their ability to overcome obstacles and challenges that make them so attractive to schools and to employers.