Four Reasons Why There Are Fewer MBA Applicants In The Pipeline - Poets&Quants

Fewer applicants coming through the full-time MBA pipeline, especially at U.S. business schools

HIghly ranked U.S. business schools have seen MBA application volume rise in recent years just as second- and third-tier schools have experienced declines. No longer. This past year many of the most highly selective schools at the top of the rankings are seeing 4% to 5% drops in the number of people who have applied to their schools.

You can blame four things for the fact that there are fewer MBA applicants in the full-time pipeline:

1. The strong U.S. economy
2. The rising cost of MBA programs and the unwillingness of many millenials to go into debt to get the degree.
3. Donald Trump who has scared off thousands of international candidates who had been helping to offset a continual decline in domestic applicants for a number of years.
4. A greater number of shorter, cheaper alternatives to a two-year, full-time MBA program, from one-year and online options to specialty master’s degrees in such subjects as data analytics and entrepreneurship.

When the Graduate Management Admission Council, meeting in Boston this week for its annual conference, surveyed prospective students recently it found that employment—yes employment—has become a formidable alternative to going back to business school to get a graduate degree. The survey is based on 9,471 individuals who registered on GMAC’s website between February and December of 2017. The complete findings rely on responses from more than 126,000 prospective students from 2009 through the end of last year.

‘EMPLOYMENT IS THE BIGGEST COMPETITOR TO BUSINESS SCHOOL’

Let’s take the economy first. Since the 2008-2009 financial crisis that caused the onset of the Great Recession, the U.S. economy had growth in each of the past 96 months, now the third largest economic expansion in U.S. history. While many economists believe the risk of a recession is rising, it’s possible that this could become the longest expansion on record. Only the expansions from March 1991 to March 2001 [120 months] and from February 1961 to December 1969 [106 months] were longer.

Strong economies depress MBA application volume. With the U.S. near full employment, professionals have plenty of job opportunities without having to pursue a graduate degree.  And during economic downturns, when layoffs occur, many young professionals seek refuge in school.

Today, GMAC estimates that seven of every ten prospective students in North America are considering alternatives to business school to achieve their goals. In Asia-Pacific, it’s even worse. Some 74%, vs. the 70% in the U.S., see alternatives to business school.

“Employment is the biggest competitor to business school,” according to the first of a series of reports on GMAC’s Prospective Student Report published last month. “Sixty-one percent of prospective students are considering pursuing a new job and 43% are considering remaining in their current job as an alternative to business school (see chart below).

Source: 2018 GMAC Prospectuve Student Survey

The rising cost of a two-year MBA program is causing sticker shock

STICKER SHOCK CAUSING MANY POTENTIAL STUDENTS TO STAY AWAY

To paraphrase Clinton advisor James Carville, it is the economy, stupid. But in this case it’s not sluggish or declining economic prospects, it’s the strength of the U.S. economy—and the rise of other study options, from shorter non-degree certificates to MOOCs (massive open online courses) (see table at side).

And when millenials do look at MBA and other business graduate degrees, the sticker prices of these programs are causing second thoughts. “The cost of a graduate business degree and the need to take on student debt have the biggest potential impact and are the most likely to divert candidates from the B-school pipeline,” GMAC found.

So while more schools than ever are dangling more scholarship dollars in front of their their MBA candidates than ever before, those discounts are not evident to would-be applicants who only see rising cost of MBA tuition and fees and the loss of nearly two years of income they would have to give up to attend an on-campus program.

“Overall, about one in four of prospective students say that having to take on large debts and requiring more money than is available may prevent their plans to pursue graduate management. Another big reservation is fear of what the economy may be like when candidates graduate and how it may impact their job outlook. Additionally, others have reservations about having to delay attractive job opportunities (see table below).”

Source: GMAC 2018 Student Prospectives Survey

THE TRUMP EFFECT: SCARING AWAY INTERNATIONALS

And then there is Donald Trump. All the anti-immigrant talk in the U.S. and widespread concern about getting visas to work in the country after gaining an MBA has caused the international applicant pool to shrink. “Trump is scaring off internationals from considering an MBA in the U.S.,” says Jeremy Shinewald, founder and CEO of mbaMission, a leading MBA admissions firms.

Shinewald’s firm has seen the number of free consultations given to potential Indian applicants fall by half in the past year. One U.S. school recently held an infomation session for its MBA program in Paris and drew only three people, down from a more typical 30-person crowd, Shinewald notes. Admission directors from several schools say their international apps are down again this year, including some dramatic declines.

For the first time ever, fewer than half the prospective students for a full-time MBA program now want to study in the U.S. The GMAC report found that 47% have a preference for the U.S. now, down nine percentage points from 56% in 2016. Meantime, Western Europe has become singificantly more popular. Today, 33% of would-be, full-time MBA students prefer to study in Western Europe, up seven percentage points from last year’s 26%. In a single year, the European schools have closed the gap between them and the U.S. by an astounding 16 percentage points.

INCREASING OPTIONS, RISING INTEREST IN MASTER’S IN DATA ANALYTICS, ENTREPRENEURSHIP

It’s also true that young professionals have a much larger portfolio of options today than at any other time, from online MBA programs to a wild proliferation of specialty master’s in business. One intriguing finding in the latest GMAC report is that students who are most likely to prefer a graduate degree in business tend to have no work experience which does not make them eligible for the better full-time MBA programs. “They begin considering business school a median of 10 months before completing their undergraduate education,” GMAC found.

In fact, 46% of prospective graduate students told GMAC that they now are considering both the MBA and business master’s degrees, more than those that merely consider an MBA which came to 34% of the total. Some 19% of the respondents are set on a graduate business program that is not an MBA (see chart below).

Source: GMAC 2018 Prospective Student Survey

The master of data analytics—the fastest growing business master’s program—is drawing substantially more attention. Today, a record 17% of prospective students are considering the degree, more than double the number only five years ago when only 7% had an analytics degree in sight.

But would-be student interest is up in a wide variety of these specialized masters in the past five years, including finance, marketing, entrepreneurship, health administration, supply chain management, project management, and information technology.

Ultimately, however, there is a bottom line to all this: If business school deans want to stem the decline and see further growth in their full-time MBA programs, they should be hoping for a good, solid recession.

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