Hefty tuition increases are common at every B-school. Though MBA programs have multimillion-dollar operating budgets, schools say tuition revenues cover less than half of their annual expenses, making cost-hiking a necessary evil. Each year, B-school tuition is often bumped up 4% to 7%, bringing the average tuition cost for the two-year degree to more than $60,000 in 2004. And that doesn't include housing, books, and student fees, which can tack on another $10,000 a year -- and often much more.
Most B-schools that submitted tuition estimates to BusinessWeek Online say they plan to raise fees. The University of North Carolina's Kenan-Flagler Business School estimated it would up the 2004 tuition for the two-year MBA by 10.7%, to $67,000, while Michigan Business School planned to raise the two-year tuition 8.7%, to $75,376. Tuck School of Business at Dartmouth College is expected to charge $77,715 to the Class of 2006, about 9% more than for the Class of 2005 -- likely the second-highest price tag after Harvard Business School's reported $78,200.
FEWER BARGAINS. With application volume to MBA programs already lower worldwide, some schools worry enrollment could suffer further if they're unable to convince students that B-school is a bargain. In California, even state schools are getting more expensive, sparked by a jump in student fees that schools must pay to help fund the higher-education deficit.
In 2004, one-year tuition rose 17%, to $33,750, at the University of California-Berkeley's Haas School of Business and 26%, to $33,900, at the University of California-Irvine's Graduate School of Management. MBAs graduating from these B-schools in 2006 will pay at least $67,500 in tuition for the two-year degree, though tuition will likely rise again during their second year. "MBA programs are definitely subject to pressure to raise tuitions, and what kind of funding is going to come from the state and government is in question right now," says Pete Johnson, director of international admissions at Haas.
Sure, annual increases are also necessary to improve services and buildings, but at top schools, the real culprit is the cost of hiring and retaining more expensive professors. Full B-school professor salaries rose an average of 2%, to $108,900, in 2003, according to nonprofit AACSB-International, an organization focused on improving management education. Averages are often higher among schools like Chicago and Harvard, where brand-name scholars help attract both desirable MBAs and corporate clients.
The well-known professors are "very expensive, and they don't teach that much...maybe three classes per year," says Tuck Dean Paul Danos. "The rest of the time they're researching." For that reason, he believes the return on investment in top-20 MBA programs is worth the money students spend. The ROI "isn't quite as good as you go down the [rankings] list," says Danos. Cornell Dean Robert Swieringa agrees: "The payback period is going to look different, but it's still a good investment."
SIX-FIGURE SALVATION. For now, MBAs don't seem too bothered. And judging by the starting salaries for some, the ROI could almost immediately outweigh tuition costs. At Stanford Graduate School of Business, graduates report median base salaries of $100,000. Stanford's two-year program will cost an estimated $75,996 for MBAs graduating in 2006. At Wharton, MBAs snagged a reported $99,000 median base salary in 2004, and took a median of $88,500 in MBA loans, mostly for tuition.
Gregory Touret, a 29-year-old MBA who paid $55,000 in tuition for a two-year degree from Northwestern University's Kellogg Graduate School of Management in 2001, was surprised to learn that the price tag at his alma mater is now around $72,740, about 25% higher. Touret, who's now a managing director at GIFT ventures, a private-equity fund, says his MBA was still well worth the cost. "I wasn't lucky enough to go to a good [undergraduate] college in France...so I bought myself credibility" by going to Kellogg. "If I had to pay twice that money to have that [same] result, I'd have done it anyway."
Incoming students don't look as closely at price as they do at quality, says Jim Pavelko, assistant dean of finance and administration at the UC-Irvine. "It's an investment in yourself. As long as they get that quality, I don't think they're as worried about the price."
DEBT DILEMMAS. Yet the outlook isn't as optimistic for everyone. International students who are more likely to return home to jobs and be paid in local currency will carry MBA debt in U.S. dollars, making it riskier to loan foreign students the money to attend B-school. "Even if they get a huge job [in their home countries] at $35,000 per year, you can't service that debt, " says Rosemaria Martinelli, head of MBA admissions and financial aid at Wharton.
Among international students, default rates are now around 10% to 15%, says Sue Roberts, president of Student Loan Corp., a subsidiary of Citibank. "Our experience is that if they go to their home countries, the default rates are higher."
Schools aren't blind to student need. When applications started to wane in 2002, many programs increased scholarship aid to top applicants to help counter the sticker shock. At Thunderbird (The Garvin School of Business Management in Arizona), new scholarships allowed 26% of the class of 2006 to receive some aid, vs. just 15% of the class of 2004, says President Angel Cabrera. Tuition at Thunderbird in 2004 rose an estimated 5.7%, to $61,040, for the 16-month MBA in International Management.
"PERSONAL INVESTMENT." It's important for students to keep tuition hikes in perspective, especially since an education is a personal investment, not just a financial one. Danny Sack, a second-year student at the University of Chicago's Graduate School of Business who will seek a brand-management job once he graduates, says he has no false expectations and is content with the two-year tuition of around $73,000. "I'm not changing into a high-dollar profession, like banking and consulting, where you can do a one- or two-year ROI," says 29-year-old Sack. "My ROI is multiple years." Still, he's confident that the money spent on B-school tuition will give him skills today that will pay off handsomely in his long-term career.
B-school provides "security that not only will you get into an income bracket that's worth the investment but that you're likely to stay there," say McNeilly, who's now a business-development director for energy company Areva T&D. And if graduates continue to see relatively positive ROIs down the line -- both in salary and skill set -- schools can keep raising tuition without a grimace from their MBAs. Schneider is a reporter for BusinessWeek Online in LondonEdited by Suzanne Robitaille