15% Of Harvard MBA Students Took A Leave Of Absence At COVID’s Peak

Harvard Business School’s iconic Baker Library. Photo by John A. Byrne

Harvard Business School disclosed that 15% of its MBA students chose to take a leave of absence during the height of the COVID pandemic rather than take classes online. Along with the 20% of admitted students who also decided to defer their admission, the falloff in students caused the loss of tens of millions of dollars in tuition revenue for fiscal 2021. MBA tuition and fees declined a total of $23 million, or approximately 17% for the fiscal year, to $113 million.

“The change was driven primarily by the flexible deferral and leave policy enacted in response to the pandemic,” according to Richard P. Melnick, chief financial officer of HBS in the school’s recently released 2021 annual report. “Total enrollment in the MBA program decreased to 1,530 students from 1,847 students in the prior year. The occupancy rate of HBS dorms—90 to 95% in a typical year—was only 50% in FY21. For the second consecutive year, COVID-19 also caused the cancellation of the semester-long FIELD Global Immersion course, resulting in a refund to students.”

Despite the decline in MBA tuition and plunging revenue in its traditional executive education business, Harvard was able to avoid an expected deficit in fiscal 2021 (see Harvard Business School Expects Revenue To Plunge $115 Million, Causing A $22 Million Loss). “The school delivered financial results that came in significantly ahead of expectations,” said Melnick. “In a year when HBS had budgeted an operating deficit, the school instead generated an operating surplus of $26 million in fiscal 2021. Total revenue decreased by approximately 7% from the prior year to $805 million, primarily reflecting lower revenue from MBA tuition and Executive Education, partly offset by top-line gains from HBP (Harvard Business Publishing) and HBS Online.”

Harvard Business School’s Endowment Hit A Record $5.3 Billion

Harvard Business School 2021 Annual Report

The school’s financial performance also was bolstered by an extraordinary increase in the value of the Harvard Business School endowment. The annual return on the endowment was a whopping 33.6%, substantially above the year-earlier 7.3% return. That helped to boost the HBS endowment to a new record: $5.3 billion as of June 30, 2021, compared with $4.1 billion a year earlier. “This growth reflected the return on the university endowment, less the school’s annual distribution and decapitalizations, offset by endowment gifts received by HBS during the year,” explained Melnick. “The school’s annual endowment distribution for FY21 increased approximately 6 percent to $184 million, or about 23% of total revenues.”

When all the debits and credits were counted, HBS ended fiscal 2021 with an unrestricted reserves balance of $211 million, compared with $174 million a year earlier, while the School’s total net assets increased to $6.4 billion, from $5.2 billion at the end of fiscal 2020, largely reflecting the impact of growth in the market value of the endowment.

Harvard managed to hold the line and, in some cases, cut spending deeply, to achieve that performance. Operating revenues decreased 7% to $805 million, while operating expenses declined 6% to $779 million. Capital investments in campus facilities and new construction decreased to $22 million from $43 million in fiscal 2020. With fewer MBA students, Harvard also cut back on fellowship support for the first time in many years. In fiscal 2021, fellowship support for MBA candidates fell by $3 million to $37 million from the record $40 million a year earlier. Including financial aid for doctoral students and executive education participants, the drop totaled $4 million, or 7%, to $53 million.

Average Scholarship Support For An MBA Student At Harvard Is Now More Than $81,000

“The decrease in fellowship expense was strictly a function of the decline in student enrollment, not the size of the fellowships,” wrote Melnick.  “Average fellowship support per student totaled nearly $43,000 in fiscal 2021 and was up slightly from the prior year. Over the past five fiscal years, the school’s average two-year MBA fellowship award has grown from nearly $69,000 for the class of 2017 to more than $81,000 for the class of 2022. Approximately half of the school’s MBA students currently receive fellowships, which cover an average of more than 50% of a student’s total tuition. About 27% of total tuition—more than $30 million—was awarded as fellowships in fiscal 2021.”

Melnick reiterated the school’s long-standing goal of making an MBA from Harvard affordable to a broad cross-section of applicants, “The prospect of entering or returning to the workforce with high levels of education debt can deter strong MBA candidates from applying to HBS and restrict their career choices upon graduation. This is particularly true for younger students, women, those from outside the United States, and students whose early career paths have not enabled them to reduce their undergraduate loans. Consequently, the school strives to assist students in minimizing their debt at graduation by ensuring that fellowship support keeps pace with tuition and fees.”

Melnick said that MBA student tuition and fee revenue fell 17% to $113 million from $136 million in fiscal 2020, as a number of students chose to take advantage of the school’s deferral and leave policies during the pandemic. “To put the data in context, enrollment in fiscal 2021 was 1,609 students, 17% lower than the prior year’s enrollment of 1,847 students,” he added. “The latter number is in line with the school’s average enrollment between fiscal 2016 and fiscal 2020 . First-year MBA tuition in fiscal 2021 was $73,440, flat with fiscal 2020 . Combined tuition and fees for fiscal 2021 were at the lower end of the seven peer schools tracked by HBS and amounted to 14% of the school’s total revenues.”

Harvard Business School’s MBA Program By The Numbers From 2021 To 2017

Source: Harvard Business School 2021 Annual Report

One surprise in the report was the revelation that Harvard Business School’s online courses and programs are coming closer than ever to surpassing its revenue from traditional on-campus executive education programs (see Harvard’s Online Course Revenue Nearly Matches Its Traditional Exec Ed Business). In fiscal 2021, HBS Online narrowed the difference to a mere $5 million in revenue. At HBS Online, revenues reached a record $76 million in fiscal 2021, a 31% increase over the $58 million achieved a year earlier. Meantime, revenue from Harvard’s on-campus executive education offerings plunged by 45% to $81 million. Only two years earlier, Harvard Business School’s executive education revenue was $222 million, more than five times the revenue of its online unit which racked up only $43 million in fiscal 2019.

It also helped that Harvard’s publishing operation recorded a 5% increase in annual revene to $274 million, from $262 million a year earlier. Melnick said that four of HBP’s five market-facing groups–Harvard Business Review, Higher Education, Advertising, and Press–delivered year-over-year revenue growth in fiscal 2021. Harvard said it sold a record 15.4 million case studies to other business schools and organizations, up from 15.2 million a year earlier.

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