Will Tippie Be The MBA’s Tipping Point?

A NEW GREAT RECESSION MINDSET MAY BE MAKING A GENERATION MORE CAUTIOUS & HESITANT

More than Trump, more than competition from global players, online degree options and specialized master’s programs, the biggest impact may well be a new Great Recession mindset that is making a generation of potential applicants more cautious and tentative. Having done their undergraduate studies during the most painful economic downturn since the Great Depression, they struggled to find employment after racking up often crippling loads of student debt. They witnessed parents and other family members lose their jobs.

Julee Conrad, senior assistant director of MBA admissions at the Fisher College of Business

Sociologists already have documented the impact of those staggering debt burdens: Delays in the purchase of big-ticket items such as cars and homes, a return to living in their parents’ homes, the postponement of marriage. No wonder this demographic of young people is in no hurry to quit a job, go deeper into debt, invest two non-earning years in an MBA program, and pray that another recession doesn’t occur in time for their graduation from business school.

In this sense, they are not unlike an earlier generation who lived through the Great Depression. Once scared by that experience, many chose a more conservative path through life. They remained frugal, counting pennies and taking few risks with either their money or their professional lives. “People I talk to now seem very hesitant to give up their jobs,” says Julee Conrad, senior assistant director of MBA admissions at Ohio State’s Fisher College of Business. “Talking someone into quitting their job to apply to a two-year MBA program is harder than it was.” Adds her colleague, assistant director Sarah Campbell, “These students remember the struggle they had to find that first job after they got their undergraduate degrees.”

A PREFERENCE FOR GRADUATE PROGRAMS THAT ALLOW STUDENTS TO HOLD ON TO THEIR JOBS

For many of them, the more conservative approach would be to keep their current jobs while earning an MBA part-time. When Iowa Tippie surveyed 693 undergraduate alumni who want to earn an MBA earlier this year, only 7% expressed a preference for the full-time MBA format. Some 82% were interested in online, part-time, and hybrid options.

It doesn’t help that there is a new and challeging question increasingly asked by international applicants, one that had never been asked before: “Am I going to be welcome there?” At the vast majority of business schools, including many of the most elite players, applications from overseas fell last year, resulting in declines in international enrollment. At both Ohio State and Vanderbilt, international students in the newest MBA classs dropped 11 full percentage points, to 25% from 25% at Fisher and to 18% from 29% at Owen (see table below)

Yet, Conrad believes that it could get worse because it was still early for the full impact to hit. “Most students were already planning to apply before the election results,” she says. “Now they are more fully informed about the outcomes.” With an anti-immigration candidate in the White House, a far more profound decline in international applications is possible. Given the already large number of candidates competing for few seats in the Top 25 programs, it seems likely that more of the decline will occur among second- and third-tier schools.

  • You’re right. Until U.S. News discontinues using the standardized test scores as a significant metric in its rankings, schools will attempt to get the highest averages to report. I agree that this is far less important for H &S. Wharton has focused on high GMATs because it is in a fight with Chicago Booth and several of the other M7 schools along with Yale SOM for the third spot in the consciousness of many elite applicants. Wharton has lagged in scholarship assistance and lost a good many superb candidates to peer schools in recent years.

  • juscurious…again

    thank you for your insight. very helpful and makes sense.

    as someone who will be going through the application process soon, i’ve heard from reputable people that elite schools outside H/S/W use the GMAT to compete against each another to snag talent to keep their stats high (i.e. Kellogg knows it can’t compete w/ HBS in terms of its “cache” but it may stand a fighting chance luring an applicant away from Booth if Kellogg were able to offer the candidate more money). This analogy obviously only applies to candidates who get multiple offers and are selecting among elite programs.

    so, i guess my question is, if H/S/W even were to decrease its mean/median GMAT scores, wouldn’t other elite programs still be looking to keep their numbers high, knowing they can’t compete with H/S/W on brand name/prestige alone? everyone knows what the top 3 schools are, it just seems like schools in the 4-10 range are constantly jockeying against each other to pick up the candidates who don’t get into schools (#1-3).

    apologies if this comes off as insensitive, i’m just curious on your take, john.

  • Lauren Bacall

    It’s about money. Retake the GMAT, it’s most money for the testing company. For the schools, it gives them “bragging rights” as a marketing tool (and ultimately more money) to vie for a dwindling student base.

  • Lauren Bacall

    The next disruption in higher education will be the merging / consolidation / or closing of schools.

    In my own home state, we have 3 very large state universities that serve a population of about 3.5 million. On top of that, we have over 100 private and community colleges, all fighting for the same declining consumer base. It’s not a sustainable model.

    Unfortunately, those who run higher education don’t want to face reality. They’re stuck in a time warp of the 19th century, both in the administration of institutions, programs, and teaching principles.

  • Yes, of course. I know of at least one elite admissions director who wants to lessen the dependence on the GMAT by allowing applicants to submit one of the following: HBX grades from its CORe program, a CFA exam score, a GRE or a GMAT and possibly some other type of test that would be less onerous than the GMAT. I suspect we’re going to see some action on this in the near future.

  • juscurious

    Of the people you’ve spoken to (admissions director/MBA director of a business school), has anyone addressed this topic? No need to delve into specifics, just curious about their thoughts on this “arms race”

  • Sad to see it go, but I suppose the market gives & it takes away.

  • It sounds like you’re already pretty convinced, but for what it’s worth, I haven’t met a current international MBA student who wasn’t concerned as well. The official WH policy is pushing for huge cuts to legal immigration–you don’t need a Hillary ’20 sticker to believe that, you just need an internet connection to see the policy for yourself.

  • C. Taylor

    It’s a double-edged sword.

    Absolutely there is a punishing effect on those who are otherwise outstanding candidates. But biasing for high GMAT scores also offers a singular opportunity for non-pedigree applicants to compete with the ivy league to elite career feeder complex.

  • C. Taylor

    Thanks for this look, John.

    There are a couple of things here.

    1. In the currently highly regulated business environment, returns have increasingly gone to a handful of firms in a disproportionate way. This drives income disparities between workers at those firms and workers at other firms (MBAs, in some cases).

    2. In aggregate, the US economy is growing.

    Growth in firm needs – effects of technology on demand for MBAs = Net change in demand for MBAs

    If the market domination by the firms with outsized returns continues and we continue to see economic growth* (at least for those firms), then the number of high paying jobs–e.g. top shelf MBA jobs–will increase.

    Continued strong performance by a few firms and weak performance by the majority of firms suggests we may see an increase in the supply of well-paying MBA jobs at the same time growth in non-well-paying MBA jobs remains lackluster. This assumes technological advancements in meeting firm needs do not outpace growth in those needs.

    The nine MBA programs leading the US market do not appear to be increasing their intakes in line with the growth in the supply of well-paying MBA jobs. If that is indeed the case, you will see a few or several elite and near-elite programs continue to narrow the outcome gap with the leading nine MBA programs.

    Between first, the current growth challenges faced by firms outside the small group of leaders, and second, the proliferation of graduate business programs; MBA programs that do not, or cannot, tap into opportunity cascading down from the market served by top programs will face ongoing pressure to either better compete or exit the market.

    I suggest this is currently the case and that these pressures may continue absent appropriate government reforms in the US.

    * The current environment suggests there are significant risks to broadly increasing productivity growth in the event the US proves incapable of reforming taxes, reducing red tape, and enabling broader innovation. The last five years of Obama’s term averaged 0.6% growth in productivity.

  • Chris Rousse

    Oh, ok , now I see you’re southwest asian. I’ll admit you are hard workers, smart, but for some reason you have to come to the U.S. in order to prosper ethically. Your own country was so rotten with corruption that in order to prosper there you would have to engage in corruption to get ahead. I don’t have to cite it, it’s well known your countries are controlled by filthy bureaucrats who snuff out innovation and growth through primitive greed. So you come to the u.s. A. Proof’s in the pudding! You’re here! Thank Heaven for the USA, or you’d have nowhere to prosper! Haha. In the end you are like high tech farm laborers, accepting the scraps tossed to you.

  • Dab

    We stole your high paying jobs, not your welfare, but sorry anyway. Also asians are the most negatively impacted by affirmative action so your implicit whining is adorable.

  • Chris Rousse

    Provide evidence. And tell your family of legal immigrants to refrain from applying for too many welfare benefits. Could you do that? Do you think you can live without subsidies, maybe sometime soon? And that includes affirmative action.

  • Chris Rousse

    That speaks volumes about the type of people who gravitate to academia. Face it, most people who teach and administer at these MBA programs are purely academics. Few have actually succeeded in business, other than part time gigs in consulting. You’ve let yourself get sucked into their bubble! Also, Trump’s “anti-immigrant rhetoric ” is more accurately called “anti-ILLEGAL immigrant” rhetoric. When are you self -described “sophisticates” going to get it right?

  • Dab

    My family of legal immigrants are smart enough to know Trump’s cruel racism and xenophobia, and those of his base, are not limited to “illegals”

  • Geff

    “It would take little courage”, unfortunately most admission people at those schools are cowards to take such step. They are mediocre employees with desperate career and the GMAT is the easiest way for them to filter applicants. Do they realize that filtering people based on scores is a job that can be done by an excel! One could ask what the hell are they doing? How to know if they have any skills knowing well rounded candidates? It is really shame to see such ridiculous race.

  • I haven’t met a dean, an admissions director or an MBA director of a business school who disagrees with the notion that Trump’s anti-immigrnat rhetoric has been a major factor in the decline of international applications. No one, including the Graduate Management Admission Council.

  • Chris rousse

    John Byrne’s claim that Trump’s opposition to illegal immigration affected foreign applications to MBA programs is hilarious. Byrne, legal immigrants are disgusted by cheaters who sneak into this country. Legal immigrants are smart enough to understand what Trump is truly against: lawless chaos. Trump had no effect whatsoever on any supposed drop in foreign applications. Did you forget his wife is an immigrant? Next you’ll be saying he’s antisemitic, even though his daughter converted to Judaism. You provide no credible evidence for your snotty assertions about Trump, who graduated from Wharton by the way, so you can’t say he’s dumb, huh?. But I bet you made some brownie points with your leftist masters in NYC, you poor little slave to ideology.

  • I completely agree. The GMAT arm’s race is out of control. We need the leading schools to take a public stand here against this ridiculous inflation in both average and medians. It would take little courage for a Harvard or Stanford to make that move because their app volume is uninfluenced by the U.S. News ranking. Because Stanford’s GMAT is highest of any school, it would be smart and prudent to bring down the average by 10 to 20 points in a single year to prove to people that a standardized test score isn’t dominating the selection process.

  • Tuk Tran

    can someone please reconcile for my small brain the decline in applications and the dramatic increase in GMAT numbers? schools like columbia are calling people with 720 gmats and asking them to retake the gmat to push it up to around 740. That is lunacy. What is going on?

  • FXTrader33

    I think there’re two big things to consider:

    (1) Companies have started moving from away from hiring based on pedigree to hiring based on your skills. People can learn some technical skills and get a $100,000.00+ a year job in tech without even a degree. If this trend continues with other companies I could see a lot fewer people going to college/graduate school.
    (2) Perceptions towards going to average schools have changed a lot over the years. 20 years ago people viewed going to a average school as the ticket to the middle/upper middle class. Now those people more looked at as being losers going nowhere.

  • Herald

    to support this notion, we all have seen the surge in applications number submitted to the ASU Carey’s Full Time MBA program when they announced the full ride! I believe it is the most important factor and the current costs of the full time programs is hurting the schools and pushing students away.

  • Herald, Thanks for adding your perspective. Price is clearly an issue and you are right to bring it up. Applicants often see those sticker prices and just throw up their hands and walk. But every school is throwing millions of scholarship dollars into their MBA programs which are largely subsidized. It’s still hard for an applicant to make the rational calculation on price and value when those scholarships are hidden from public view and you can’t apply with certainty that you will get one.

  • Herald

    In my humble opinion, the very expensive price for the full time two year MBA is the main reason. Business world today moves much faster than 20 or 30 years ago, and therefore, two year is quite long time. Plus the insane cost, direct and opportunity cost, all play significant role. What makes specialized masters appeal is that most of them is one year, or practically, 9 or 10 months, an mba with specialization in the intended area is much better than the MS. I wish Tippie has considered shortening their program to be one year instead of abandoning it completely. Other factors include the correlation between the MBA and its rank, it became clearer more and more that unless the student did the MBA in the top 30 or so worldwide, it is really worthless and waste of time and money. But, whether it is top 1 or top 10, the two year full time program is gradually becoming irrelevant in the new fast business world, specially that we see now one year MBA programs such as INSEAD, Kellogg 1Y, Cornell One Year, among others, open pretty much the same doors that Harvard, Stanford, or Wharton two year MBA open, It is pretty strange that those top schools of M7 didn’t start offering one year option!