The REAL Reason Top-Tier MBA's are Declining
Ten years ago when I was recruiting for graduate programs, I would say something like “a Masters/MBA is today’s equivalent of a Bachelor’s 20 years ago.” I wasn’t wrong. In the 1980’s (and previously), it would seem the majority of professional jobs required a high-school diploma. Bachelor’s degrees were considered advanced. In 2007-08, the majority of professional jobs required a Bachelor’s and a Master’s was often preferred or required for promotion and mobility.
Then came the economic crash of 2007 into 2008. Unemployment rose, companies laid off and froze hiring, and the job market became much more competitive. I’ve heard stories of how even professionals with MBA’s were struggling because some companies didn’t want to pay the salary demands an MBA recipient would request. In 2009, then President Obama set a goal to rejuvenate education and to see 60%+ of millennials with a college degree. As recently as 2014, 65% of all jobs (not just professional jobs) were to require a post-secondary degree by 2020. That trend appears to be slowing down, but the train is still moving in the direction of more education.
It’s 2018, and millennials are the most educated generation of all time. So why is interest in top-tier MBA programs declining (recently reported by the Wall Street Journal)? The answer isn’t rocket science.
Strong Job Market and a Booming Economy
It’s common knowledge that unemployment is down across the board. Unemployment rates for recent Bachelor’s degree recipients is well below the national average. Companies are hiring. Wages are improving. Companies are getting creative to provide millenials with what interests them, other than money. If the majority of jobs required a Bachelor’s and a Master’s was required to get ahead, that would be one story. But that’s not the case. Of if the job market was as predatory as it was in 2008, we’d still be seeing more Bachelor’s recipients going into graduate and MBA programs rather than entering the work force. But the job market is healthy. In a nutshell, recent graduates don’t need a Master’s or an MBA as much as was previously predicted.
The High Cost of a Top-Tier MBA
An MBA is more costly than most other Master’s degrees. Even at an institution’s identical per credit hour rate, MBA programs often come with additional requirements (e.g. international travel) and/or require additional credits. (source?)
Additionally, there’s a high markup for brand value and recognition. (Ivy league compared to Bloch or a regional top-tier)
Bottom line, most 22-26 year olds can’t afford the high cost of an MBA and the even higher markup of a nationally renowned top-tier MBA. In many cases, they already have too much…
Student Debt
Being the most educated generation at a time when college is the costliest it’s ever been in a socioeconomic environment in which the standard deviation from the average Expected Family Contribution is growing, you have a recipe for increasing student debt.
I am not anti-student debt. I’m glad I borrowed for college. I did so responsibly and it afforded me opportunities I would not have had otherwise. I view student debt as I view a home mortgage (low interest loan on an appreciating asset) rather than what I would consider bad debt — any loan on a depreciating asset.
I am also not pro-debt. Some of the headlines sicken me, but I’m thankful that the last 10 years have taught the rising college generation to be responsible. I’m not convinced we are in a crisis or a bubble, but if we are, it’s because of irresponsible borrowing, which got carried away prior to 2010 and has seen excellent improvements since 2010. Students are taking our fewer loans and are defaulting less. Every public and private non-profit 4 year college comes in below the national average.
This heightened sense of responsibility in millennials has encouraged potential Master’s students to weigh heavily the cost, time, and options of such programs. A higher sticker price and significantly fewer opportunities for financial assistance at top-tier programs have scared off a group of financially wary students who might have been less wary 10-20 years ago.
My wife and I bought a bit of a fixer-upper home more than 7 years ago. We could have lived in it as is, but we planned on updating nearly every room of the house. Just a few weeks ago, we undertook perhaps our final improvement, the most expensive one. I started to wonder if it was even worth it, given that our growing family is outgrowing the home. If we moved in the near future, would we recoup the investment? Highly unlikely. Our realtor helped us shift the conversation from “how much of my investment can I recoup” to “how quickly do you want to sell your home when you are ready to sell.” I had never considered that question before. I’ve heard that time is money, but when selling a home, I don’t think it’s a metaphor. Selling quickly puts more money in the seller’s pocket and having multiple bidders can push the sale price above the asking price…something which is unlikely if the house sits on the market.
What does this story have to do with an MBA?
The MBA of 2018 is about getting that job or promotion or career change. An MBA from Wharton will do it. Most likely, an MBA from Bloch or an unbranded public or private college will do it. If the job pays $100k, and a wide range of MBA’s will do it, why pay double?
For some people, it’s worth it. For most people, it’s not as big of a necessity as might have been thought or predicted 10 years ago. Even if it is, a better value MBA (i.e. lower brand value and thus lower sticker price) or even another Master’s degree (e.g. Organizational Leadership) is more than enough.
A Top-Tier MBA’s Value Proposition Has Never Been Weaker
It all boils down to value proposition. Why should a student attend a top-tier MBA program instead of a mid-tier MBA program? The reasons are becoming fewer. Is there data to quantify the ROI of a top-tier program or a mid-tier program? If there is, I haven’t seen it and shame on top-tier programs for not shouting that from the mountaintops. If not, it’s a harder sale.
This is not a knock against top-tier MBA program. I’m drawing attention to the shrinking gap between top-tier and mid-tier. Both are a good investment that will likely pay for itself several times over.
I enjoy watching the occasional episode of ABC’s Shark Tank. Watch it enough and you’ll learn quite a few good and bad examples of value and measuring the decision-making process. I’ve noticed most entrepreneurs avoid royalty investments as if it were the plague. Why? Cash is king. It’s tough to swallow taking money off the top when a company is so young and there’s so little cash (thus entrepreneurs are seeking cash infusions from investors) to go around. In some cases, it might be a good long term play. It might be better than nothing. But nobody has a crystal ball or the benefit of hindsight, and the short term risks are too high for most entrepreneurs.
So why would choosing an MBA program be any different…paying a premium up front when there so little (or nothing) cash to go around. Or from an investing standpoint, if a mid-tier degree pays for itself in 4 years (and we don’t know that…if we did, this value proposition question would be solved), but a top-tier degree will take 6 years, what investor would be comfortable with a 2 year longer timetable to recoup their investment? None.
Top-tier MBA programs still have the strongest brand value, which is evident in how much they charge, and it differentiates them from the others. At least they can live off their brand value…for now.