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|  | APRIL 7, 2005
By Jennifer Merritt MBA Applicants Are MIA As tuition soars and the job market strengthens, some B-schools are downsizing -- and all are getting less selective When the deans of seven of the top U.S. business schools got together for their biannual meeting on a chilly, gray day earlier this year, the usual topics of conversation -- MBA recruiting, new courses, and leadership training -- quickly gave way to a gloomier subject. According to people privy to the secretive meetings, the men, gathered at an Ivy League campus, solemnly broached a sensitive topic: Applications for the class entering in the fall would be down -- just as they were last fall. Rumors were whispered that some schools in the top tier might not fill their classes. One dean was even called out for deciding not to report applicant and selectivity numbers. Indeed, applications to BusinessWeek's Top 30 MBA programs have dropped almost 30% overall since 1998, with some schools seeing declines of 50% or more. And with the job market improving, more prospective applicants may find themselves with opportunities that will, if history is any indicator, pull them away from B-school. What's more, to cope with sliding interest, some schools have gone so far as to quietly reduce the number of students they enroll each year, BusinessWeek has learned. Carnegie Mellon University's Tepper School of Business has cut its class size from 240 students to a target of 160. Vanderbilt University's Owen School of Management dropped from 220 to 180 students per class. Other schools have done the same. OVERSEAS PRESSURE. "We're seeing more of our peer schools competing with us for the same students," says James Bradford, dean at Vanderbilt. "Schools are setting new expectations based on what the market is." Even as they're downsizing their expectations, some schools that were historically highly selective, admitting fewer than 20% to 25% of applicants, gave a thumbs-up to 35% or more applicants for the class entering last fall. Vanderbilt, for one, admitted some 68% of its applicants in 2004 -- up 30 points in just four years.These troubles come at a time when MBA programs find themselves facing one hurdle after another. Blame for not being a stronger bulwark against corporate scandal and poor business ethics is still being hurled at the schools. Tuition is skyrocketing -- as high as $39,100 a year at Harvard Business School, where applications were down 16% in 2004 over 2003. And post-MBA salaries have stagnated, stuck at an average of around $84,000, giving many wannabe MBAs pause. Plus, competition from European schools for bright Americans has U.S. schools on edge. Foreign students, once a dependable presence, have trouble obtaining visas to attend U.S. B-schools post-September 11. TUITION SHOCK. Add to that a shift in hiring, with employers recruiting more undergrads and industry types, and B-schools find themselves beset by worries. No wonder one dean at the B-school powwow questioned aloud whether all of the Top 30 MBA programs would make it through this protracted slump, sources say. Admitted another dean, according to reports: "This is a serious problem." Perhaps the toughest issue is soaring tuition. At top-tier schools, tuition is up nearly 55% over the past six years, to an average of $33,774 for each of the two school years. And students bear far more than the cost of the degree. With an average of five years' work experience, the typical 27-year-old student gives up an average pre-MBA salary of about $67,000. MBAs also fork over cash for everyday expenses such as housing, food, and utilities -- costs that are also on the rise. Schools such as Columbia Business School in New York City and Stanford Graduate School of Business in Palo Alto, Calif., recommend that single students budget more than $64,000 a year. "IT DOESN'T COMPUTE." Increasingly, that's looking prohibitive. Students "are bumping into their loan maximums," says Edward Snyder, dean of University of Chicago's Graduate School of Business, which has raised its tuition 6% to 8% each year for the past five years and has seen applications go down for two straight years. "If the [loan] does not cover all of the costs, some people literally cannot put a package together to come." At most schools -- Chicago included -- scholarships and other financial help haven't kept pace with tuition hikes. Having piled up all that debt, MBAs want to count on a healthy premium in their post-degree salaries. But these days there's no guarantee. Salaries have barely budged in the past six years. After shooting up from $77,800 in 1998 to about $84,250 in 2000, they have been fairly flat, with average base pay for 2004 grads ringing in at $84,030. "It's one thing if you're getting a big signing bonus and salary [in banking], but there are people who imagine B-school is a good thing to do, then they do the math, and it doesn't compute," says Robert J. Dolan, dean of University of Michigan's Ross School of Business. "We have to be very concerned."
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