HBS & Chicago Booth Hold The Line On MBA Tuition

For possibly the first time ever, Harvard Business School and the Booth School of Business at the University of Chicago have decided to hold the line on MBA tuition increases this year. The decision to forgo yet another rise in the sticker price of their flagship degree programs is an acknowledgment that the price of an MBA has risen too high and is discouraging prospective students from considering business school.

Applications to full-time MBA programs have been falling for several years, though the decline only caught up with the most prestigious schools last year when every so-called M7 school, the most prestigious programs, suffered a drop (see Who’s Hardest Hit In The MBA Application Slump). At Chicago Booth, for example, MBA applications fell by 8.2% to 4,289 for the 591 classroom seats. At Harvard Business School, applications declined by 4.5% to 9,886 for the school’s 930 seats.

While application numbers have yet to be released for this latest admissions season, many schools are privately worried about further declines, many in double-digits, as more schools decide to shutter their MBA programs. Only today, the University of Illinois announced that it will be shutting down both its full-time and part-time MBA programs which were losing money (see Illinois To End Full- & Part-Time MBA Programs).

HALT IN TUITION INCREASES SEEN AS ‘A SIGNAL THAT THE BUSINESS MODEL NEEDS TO CHANGE’

Putting a halt to ever-rising tuition costs immediately won praise from Yale School of Management Dean Edward Snyder, who has long thought that price tag for an MBA is too high. “I think that is a brilliant move,” he says of the decision by Booth where he had been dean years ago. “It’s not because of weakness. It’s because of strength, and it’s the first school that is stepping back and saying we are not going to keep going down this path. It’s a big thing. It’s just so timely to see somebody doing that. It doesn’t indicate how the business model is going to get redone, but it is a signal that it needs to change.”

Concern that the MBA degree is overpriced has been percolating for years, with some school officials arguing that business schools have been pricing themselves out of the market with annual average increases of 4.5% significantly outpacing gains in MBA starting salaries. Three years ago, the Simon School of Business at Rochester University slashed its MBA tuition by 13.6% to a total of $92,000 and has since put through modest increases of $2,000 in the past three years.

“We have all gotten into this habit of upping our prices 3% to 5% a year and then separately being worried about attracting the best students,” said Simon Dean Andrew Ainslie when he cut the price. At the same time, Arizona State University’s W. P. Carey School of Business began offering full scholarships to all its full-time MBA students but has since cut back to a program that guarantees every admitted student a partial or full scholarship grant.

DECISIONS FOLLOW HIGHLY SUCCESSFUL FUNDRAISING EFFORTS AT HBS & BOOTH

While keeping their tuition rates flat, both Harvard and Booth are also substantially increasing MBA scholarship funding at the same time so that as a whole this year’s incoming students will effectively pay less for the degree than their year-earlier classmates. At Harvard, the average annual fellowship grant has hit a record $40,000 average, up from about $37,000 two years ago. Nearly half of Harvard MBAs receive fellowship support with the majority of fellowships in the $30,000 to $70,000 range per year. That level of fellowship results in an effecrtive 29.2% discount on the sticker price of a Harvard MBA.

The annual MBA tuition will remain $73,440 at Harvard and $72,000 at Chicago Booth, excluding fees and living expenses. Once you double those sums for the two-year cost of tuition and tack on fees and the cost of living, the cost of getting an MBA from either school is estimated to be about $218,000. And that total does not include the opportunity costs of losing one’s income to go back to school full-time for nearly two full years.

Holding the cost of an MBA steady comes in the wake of a decades-long steady march of escalating price increases, typically above the cost of inflation, at almost all business schools. Last year, the cost of getting the degree rose by between 11% at MIT’s Sloan School of Management to a modest 1.6% at UCLA’s Anderson School of Management (see How Much Does An MBA Now Cost? Nine Schools Are In The $200K Club).

‘IT’S A WAY TO SLOW ESCALATING TUITION AND FEES AND MAKE THE SCHOOL MORE AFFORDABLE’

“It’s a way to slow escalating tuition and fees and make the school more affordable to others,” says Brian Kenny, chief marketing officer at Harvard Business School (see below chart for the cost of HBS tuition over the years). The decision follows last year’s completion of the school’s most successful capital campaign ever in which HBS raised a record $1.2 billion.

“A lot of thought was given to the continuing escalation of tuition and fees and how to slow that down for people,” adds Kenny. “The school also increased the financial aid budget this year coming out of the capital campaign. Our alumni were super generous on fellowships. It allowed us to improve annual donations into the innovation fund where fellowships are funded.”

At Chicago Booth, the decision to keep tuition stable also reflects a change in the way the school charges students for an MBA. Previously, the school set tuition on a per course basis. Now it has turned to a flat fee. Stacey Kole, deputy dean for MBA programs, says the per course system created “a misalignment between how loans are dispersed and what the flow of expenses look like for our students. We were finding that students were making decisions based on costs versus the best choices for their academic progress.”

Not only is Booth holding the line on tuition increases for its second-year MBA students and its incoming class of MBAs, the school has changed its pricing format so that students can take up to 22 courses for what they used to pay to take 20—and is also increasing scholarship support to students.

‘WHY NOT SHARE THE CURRENT BOUNTY WITH OUR STUDENTS?’

“This is more of a reflection of Booth’s commitment to attract the best talent to our school and to the fact that we can do this now because of the generosity of our donors,” says Kole. “We feel that scholarships are increasingly important to attract the best talent. That is not new but (Dean) Madhav (Rajan) has been successful beyond our expectations in terms of raising money. We also are doing well financially so we felt that right now we are ahead of where we expected to be in terms of fundraising. Why not share the current bounty with our students?”

Kole says scholarships to MBAs have risen tenfold at Booth since her arrival at the school 15 years ago. “We are committed to keeping that going because we want the very best students to come to Chicago Booth,” she adds. In fact, Booth is now offering scholarship grants to its evening and weekend MBA students as well as a four-year price guarantee. “So whatever price you come in at is good for four years,” she says. That is much more valuable to our part-time students than our full-time students because some students slow down during the course of their studies. They want to launch businesses and we want to encourage that.”

Applications to Booth’s MBA program showed something of a comeback, rising slightly after the previous year’s steep drop. “Our apps are up this year, and we saw a big jump in women who are historically price sensitive,” says Kole, while declining to cite the extent of the increase. “We are very happy with the quality of candidates. We just want to let them know this is an excellent investment of their time and intellect.

“The sticker price is big, but the price story and the scholarship story go together. And the return on investment for a top MBA is still incredibly high. That is the bottom line.”

DON’T MISS: HOW MUCH DOES A TOP MBA COST? NINE SCHOOLS ARE IN THE $200K CLUB or FOR THIS YEAR’S MBA ADMITS, IT’S A BUYERS MARKET