The New B-School Arms Race for the Best & Brightest

You may know that MBA applications at most schools have been down for two years running and that the cost of attending a two-year MBA program is nearly out of reach for many applicants. But what you don’t know will surely surprise you: competition for the best and brightest students has never been more intense among the leading business schools.

Last year, Harvard Business School, arguably the institution least in need of passing out cash to applicants or students, doled out a whopping $28 million on scholarships to its MBA candidates. And at the University of Southern California’s Marshall School, the average scholarship award for an MBA is now a record $35,490 a year, up from $33,650  a year earlier.

“It is an arms race,” says Alison Davis-Blake, dean of the University of Michigan’s Ross School of Business. “The race has gotten so hot, so fast that schools are using operating money to pay for a lot of these scholarships. They are not from endowments. No one had ever, ever done that in MBA land. Almost everybody is doing it now.”

Among the top 20 MBA programs in the U.S., at least four schools–Yale, Harvard, Northwestern, and UCLA–have increased their average scholarship pay outs to students by more than 100% since the 2004-2005 academic year Yale upped its average scholarship by 150% to $25,000 last year from only $10,000 in 2005, while Harvard increased its average scholarships to MBA candidates by 146% to $28,410 from $11,543 five years ago (See table).

“We have all collectively started a very dangerous game,” says Trip Davis, a senior associate dean at the University of Virginia’s Darden School and the president of the Darden School Foundation. “A new standard has been set and there are some, like us, who have set a priority to fund that in perpetuity. This is now a strategic element of the business.”

Some schools are literally buying applicants with high GMAT scores, partly because their deans are under pressure to perform well in MBA rankings that measure the quality of incoming students. Some schools are simply trying to stay competitive in a business where growth has slowed, particularly in the U.S., as more business schools have emerged in Europe and Asia. And still other schools are using scholarship funds to gain advantage over rivals.

At the University of Chicago’s Booth School of Business, scholarship money played an critical role in the school’s rise to greater prominence in recent years. Under former Dean Edward “Ted” Snyder, scholarship assistance more than tripled, and the school used those funds more strategically than ever before. Stacey Kole, deputy dean for Booth’s full-time MBA program, says that in the past, scholarship awards were often given to applicants who would have come to Chicago, anyway. To improve the quality of incoming classes, Booth shifted its policy, giving money to highly desirable students who might otherwise have gone elsewhere. Booth does not disclose how much scholarship money it gives out annually nor the size of its average grant.

The impact of aggressively using scholarship money to get better students can be both immediate and impressive. Vanderbilt University’s Owen School of Business boosted its average scholarship awards by 44% this year to $25,402 from $17,662 last year. The payoff: Median GMAT scores for this year’s entering class rose by 30 points to a record 700 from 670 last year, an unusually large improvement for a business school in a single year. Owen’s acceptance rate also fell seven percentage points to a new low of 29%. All told, the school scholarship funds now total nearly $3.9 million, up from $3.4 million a year earlier.

Harvard is one of the very few business schools that is open about its financial support of students. The school says that half of its MBA candidates, roughly 901 students, receive the average need-based fellowship award. That would bring Harvard’s annual need-based scholarship pay outs to some $25.6 million a year. A Harvard spokesman adds, however, that additional fellowship programs, including the McArthur Canadian Fellowships and loan assistance, brings the total to $28 million annually. Why would the school with the most desirable MBA program in the world deploy that much cash to help students come?

  • Juan Manuel

    i am familiar with many international MBAs going to MIT and i know of none of them who got financial aid (free money) from MIT…I wonder if this number is for US citizens/perm residents. In contrast, HBS, Stanford give need based to all, and Chicago is aggressive with offering scholarships to internationals as is Darden and Michigan

  • Skeptical this time

    John, would you consider changing the picture on the main page for this article (the one of the young man surrounded by cash bills)? My apologies if he’s your son, or a friend, but “obnoxious” is probably the most charitable description I can find for it. The money-grubbing MBAs get accused of is bad enough; I can tell you that one of the most liberating aspects of a large scholarship (which I received from a top school) was the realization that “I won’t need to sell out to banking or consulting in order to make this degree financially justifiable, and can instead pursue a career instead of a quick buck.” The picture you posted is more suited to a crowd of nerds with a penchant for crashing sports cars.

  • Sri

    How exactly is ‘average scholarship’ defined? Does this mean that out of the students who receive scholarships, the amount given is the average award?

    Or does it is defined as total scholarship money/total students, meaning that it represents the amount that each student gets, on average?

  • The vast majority of HBS scholarships–$25.6 million–is need based as the article points out.

  • abcdefg

    So does HBS offer merit-based scholarships? I was under the impression it was only need-based.

  • Spearhead,

    You’re right. The numbers you’re looking at are the financial aid numbers, which include loans.

    Scholarship numbers are on the 3rd page of the article.

  • Spearhead

    With all due respect, these numbers make no sense. There is no way that 70%+ of top 20 schools are doling out scholarships averaging $50K per year…that simply does not pass the sanity check…

  • Afzal

    I wonder how many of these are international students like me. It is hard for foreigners to finance their MBA without getting into a mountain of debt

  • Jay,

    Yes, the $67,288 number is correct for the average financial aid package provided to Sloan students by MIT. Financial aid is the term for loans, scholarships, and graduate assistantships.

    The actual average scholarship at MIT, as noted in the tables accompanying the story, is $25,230.


  • jay

    Last year, Sloan’s average annual package for MBA students was $67,288.”

    Is that accurate? 67k a year in aid for 82k in total cost?

  • abcdefg

    How much of the $28mm of scholarships for HBS are as need-based versus merit-based? My understanding is that HBS’ scholarships are strictly need-based (i.e. if you are in good financial position going in, you are unlikely to receive a scholarship). Is that not the case?

  • Josh

    Booth is an example on how money from donations should be spent, I believe this is one of the main reasons why Booth is in such a great momentum, which may last for decades.