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

For the best and brightest, the scholarship money is flowing like never before

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?

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