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  • The Business School Tuition Bubble

    As long as the education provides a decent ROI to students, larger enrollments and tuition hikes into the foreseeable future may well be achievable. But do research-based MBA programs provide that return?

    Upstart: Career

    Following the collapse of housing prices, a growing number of people have voiced concerns over a looming collapse of

    Courtesy: Chris Harvey/PhotoXpress Free Images

    higher education tuition. Initial apprehensions were expressed at least as early as 2009 in places like The Economist and The Chronicle of Higher Education. Today, there is a wikipedia page devoted to the topic and, in the last week alone, articles about this issue appeared here, here, and here.

    As Glenn Reynolds, a faculty member at the University of Tennessee law school, points out, higher education shares some salient features with the pre-collapse housing market. (And Mark Perry, a professor of economics and finance at the University of Michigan, puts it in perspective with a handy chart.)

    The doom-and-gloom scenarios always struck me as overly pessimistic. Last week, though, a number of things happened that caused me to reassess.

    First, I learned that the cost of an MBA in the flagship, 2-year program where I teach is roughly $100,000, not counting lost earnings during full-time enrollment. Second, I discovered that the financial projections supporting the construction of our shiny new building assume significant enrollment and tuition rate increases into the foreseeable future. My colleagues refer to this as the Growth Model (although it seems more an aspiration than a plan). Third, I heard that two of our graduates are presently working in low-skill jobs.

    These three points are emblematic of wider problems within the research-based MBA-granting community. While some will rightly point out that, jaw-droppingly expensive or not, as long as the education provides a decent return on investment to students, larger enrollments and tuition hikes into the foreseeable future may well be achievable. But do research-based MBA programs provide that return?

    There’s some evidence that the answer is, “Not for everyone.” Though anecdotal, the two alums mentioned above are troubling indicators. And what happens if a substantial share of students at fancy-priced MBA programs are not landing fancy-paying jobs? In the parlance of economics, this is not an “equilibrium” and, hence, the concern about bursting bubbles.

    If there is a bubble and it does burst, it stands to reason that the schools that weather the crisis relatively well will be those that provide considerable educational value. While the excess administrative costs that have accompanied the Growth Model can be shed quickly in the event of a downturn, less easily fixed is an institution’s educational program.

    The essential question, therefore, is: What is the logic for having world-class academic researchers (who, for the most part, have never managed a business themselves) teach business classes to MBA students

    Read more:


    Upstart: Business and Management for 20-40 Year Old Professionals

    Filed Under: Career


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