Based on this year’s R1, applications are down – by a lot (overall apps are down 20% and domestic applications are down 30%). Conversely, there appears to be higher demand for online MBA programs.

Is this merely another cyclical swing in MBA applications, or is the market for the program seeing something more significant? Is it just the case that many people are still seeking the MBA, but in new formats—possibly through the pursuit of other master’s degrees that are MBA-related, such as a master’s in marketing or data analytics?

Listen in to this week’s episode to hear what our hosts think.

Episode Transcript

[00:00:07.440] – John

Well, hello everyone. This is John Byrne with Poets of Quants and my co host Maria Wich Vila and Caroline Diarte Edwards. You are listening to Business Casual, our weekly podcast. We want to address a question out there that is on the minds of a lot of business school administrators, and that is to this. With domestic applications to full time MBA programs down on the order of 30% last year in the US, and with indications that it’s down another 20% at least for round one in this current admission season, more and more people are asking the inevitable question is this just another cycle of up and down applications, or is something more substantial happening in the marketplace for the MBA? So we want to talk a little bit about this because one of the interesting things is that if you really look at the data, you’ll find that more students worldwide are enrolled in MBA programs today than they were five years ago and at all probability forever. But they are not enrolled in full time MBA programs which have seen a decline. And you know, we always focus on the full time programs. After all, those are the premium programs and particularly the highly selective, highly ranked programs that we really are laser focused on.

[00:01:34.840] – John

But it’s a different story when you look at all the numbers and you look at, for example, the large enrollments in online MBA students today, which after all, ten years ago is minuscule. But today online MBA students in the US. Actually exceed by a little bit full time MBA students. So let’s start with Maria. What do you make of this? Are we just simply going through another up and down cycle or is there something more substantial that’s happened, a shift in the MBA marketplace that’s going to be with us forever?

[00:02:09.150] – Maria

I think that there will always be these ups and downs. I think that the speed at which these ups and downs are happening is much faster than it ever has been in the past. Though when the Pandemic happened, whoop, it was this sort of tsunami of bad news as opposed to a more gradual recession that took several years to unfold and then the world reopened again. And so whomp all of a sudden people were staying at their jobs instead of going to business school. And now it looks like, whomp, there’s another recession happening. So I think these ups and downs that do impact business school applications one way or the other, those are always going to be with us. But I just think in the past couple of years they have been happening at a much faster pace. I also think that the interest in business education or management education is probably pretty strong. I just think that the method in which people are seeking it, the full time two year MBA, it may not be the best option for everyone. So I suspect that a lot of people are still pursuing the MBA or some form of graduate management education, maybe the MBA in different formats, maybe other masters degrees that are MBA adjacent, such as maybe data analytics or masters in marketing or what have you.

[00:03:21.790] – Maria

So I think that the full time MBA is probably going to start losing some appeal as people begin finding these other options that fit their lifestyles and their careers and their geography much better.

[00:03:36.660] – John

Caroline, what’s your take?

[00:03:38.320] – Caroline

You know, John, we’ve seen this before, right, when there’s been a downturn, that suddenly there are lots of articles about, is this the end of the MBA? People seem to like to predict its demise and jump on this whenever there is a downturn. But I do think that, as Maria says, it will continue to be a countercyclical market. And unfortunately, it looks like we are heading into recession. And so I do think that then we will see an uptick in MBA applications. Although, as you said, you know, there is quite startling growth in the number of people pursuing online options. And I think that that will continue the trend that we’ve seen of a shake out of schools further down the pecking order. So, as schools like NYU, for example, offer online options that will increase their geographical reach, and people who might have gone to their local business school may decide INSEAD to do an online MBA at one of the top schools. And therefore, I think it will make life much more difficult for the tier two and tier three schools globally. But I think that the top schools will remain in a strong position.

[00:05:00.010] – Caroline

And even though right now they’re seeing a downturn in applications, I think that that will come back again. And it’s really been because of a strong job market. Right, and that’s also reflected in those amazing salary numbers that you’ve been reporting in P and Q from the latest graduating classes. Tremendous increases in salaries that graduates are commanding.

[00:05:24.360] – John

Yeah, that’s really true. And the other interesting thing is, if you start looking at even the full time MBA market, which clearly is down, what you see over time is really some interesting trends where the higher ranked schools, the schools that are in the top 20 or more or less the top 25, let’s put it that way. I’ve actually shown increases in their enrollments. The aggregate enrollments at the top tier schools have actually grown, and schools outside the top tier are those that are suffering the most. So even when you talk about the MBA overall, it’s a different marketplace when you talk about the highly ranked schools that are drawing the elite applicants. And I think this is why in both your cases, you help students get into these schools. You may not be seeing the kinds of drops that many schools are experiencing because you’re at the top end of the market. Wouldn’t you agree?

[00:06:30.560] – Caroline

Yes, I think that top schools are still in a strong position. And the variability that they see from the peaks and troughs of the application cycle don’t necessarily translate into a drop in quality candidates. Because what I experienced when I was working at INSEAD is that when there’s a boom in application volume, the average quality in the pool does not stay the same. Right. Because there are more speculative candidates who are deciding to give it a shot and they’re not necessarily as well prepared and as good a fit for the school as people who have been planning to apply to business school and have been working towards that for several years. And there’s always a solid pipeline of people like that coming through to those top schools. So whilst application volume goes down, it doesn’t necessarily translate into big issues for those top schools. What can happen, though, is that it doesn’t give them as much leeway to manage the class profile. Right. The diversity. So it will be interesting to see if any of the schools take a hit on, for example, the percentage of women in the classroom with the class that is being admitted now to the class that will start in 2023.

[00:07:54.240] – Caroline

Because if things are a bit tighter, then they will continue to work towards those goals of diversity. But it might be a little bit harder on the margins.

[00:08:06.270] – Maria

Right.

[00:08:06.750] – Caroline

And so there may be some slippages there.

[00:08:09.490] – John

Yes. You know, there was a recent analysis done by an academic who I greatly admire. We’re going to be doing a story on this shortly and you might want to look for it. But what’s kind of interesting is that while if you look at the top 20 schools, as I noted earlier, aggregate enrollments have grown. There are some schools that have had some significant declines from their peaks. So the most recent MBA classes at schools including Columbia, Kellogg, Michigan, Ross, Nyustern and UT Austin McConnell’s are between 19% and 36% smaller than their respective peaks during the last 30 years. And incidentally, in the next year, enrollment declines range between 49 and 82% from their peaks over the past 30 years, including schools like Minnesota, Ohio State, Penn State, Rochester, Rutgers, Wisconsin. So there’s definitely some changes out there, but again, you got to look at how the market has changed and I think it’s changed in meaningful ways. It used to be that undergraduate business education was not as big a deal as it has become. It obviously is the most popular major in America. But more importantly, those schools have really done a great job in educating younger people and setting them up for the careers that they want, therefore negating the need for a pivot in their latter twenty s.

[00:09:40.290] – John

And they’re finding that education that they receive is so good that it holds up. So to the extent that that’s all true, and I believe it is, that does bring down the overall population that would be available for an MBA degree second thing, as Maria noted too, there’s been a proliferation of specialty master’s degrees in business. These have been among the most successful and fastest growing degrees from business schools in the last decade in everything from the more traditional masters in finance and accounting to more new wave things like masters in sustainability and masters in diversity, equity and inclusion, and obviously supply chain and business analytics. And those two degrees have really taken off into the extent that they have. They also obviate the need for a fulltime MBA, and then you have just this growing need for flexibility among younger people who are coming out of undergraduate institutions with considerable debt and are lows to get themselves into further debt with a graduate degree. So rather than quit their jobs, they’re enrolling in online MBA programs, which, you know, recently was thought would be more appealing to an older crowd and therefore would not necessarily cannibalize fulltime MBA enrollments.

[00:11:02.800] – John

But we’re finding that that’s really not true, that there are many people who otherwise would have opted for a fulltime program, who are now taking an online MBA instead. And the entrance of, you know, high quality schools like in Michigan, Ross, USC, Indiana, UNC rights into the online MBA market has made that a better and more obvious option for many people. So, you know, you look at the overall business school market and you’re right, it’s still robust, it’s still strong, it’s still growing. But when you look at the fulltime MBA, because of all the alternatives that people are now seeking, and because of all those people who have undergraduate business degrees, it seems like a less promising venture and there’s been a real flight to quality because of it. With fewer applicants in the pool, obviously they’re going to be aimed at the top schools, which is a good thing, don’t you think, Maria?

[00:12:01.950] – Maria

I mean, I think education in any form is a good thing. So if people are finding alternative ways to get the same education that’s giving them the same career outcomes and that kind of growth that they’re looking for, the overall trends, I think are good. I do think, as Caroline has pointed out, there will be casualties, and the casualties are going to be the full time programs at the smaller schools, which I think could be a shame in terms of some localized fulltime programs, and geographies perhaps, that maybe the local community could have benefited from having a full time program there. However, because the online option is so much more viable now than it was even five years ago in terms of not just the fact that it’s being offered, but the technology that has gone into developing a really robust online MBA experience. Even if some smaller regional programs do end up shutting down, there will be opportunities for people living in those other places to get that education. So overall, I think it’s a good thing.

[00:13:03.560] – John

So do we agree that what we’re witnessing now is not a mirror cycle, but a definite shift in the MBA marketplace that is going to last for some time. Caroline, yes or no?

[00:13:21.700] – Caroline

Yes. I think the trust in the peaks will continue to a certain extent. It will remain a cyclical and in fact, a counter cyclical market. But there are long term trends that you can identify despite those shorter term ups and downs. Something else that has happened in Europe that is also affecting this is that with the harmonization of bachelor’s degrees, which has meant that many bachelor’s degrees are shorter than they would have been in the past. In some countries, more young people are doing masters straight out of undergrad. And so they may feel therefore, having done a preexperienced masters, they are less inclined to go back to graduate school later on. And so you have a lot of specialized masters in Europe, and schools like in Seattle and London Business School have got into this market. Right? I mean, NCAD launched the Masters in Management for pre experienced students, and that’s been a huge success. So I think the top schools will benefit from that market. It’s going to be important for them to expand their offerings because, as you say, business education is not going to be as focused exclusively or as exclusively as it was in the past on those flagship fulltime programs.

[00:14:47.280] – Maria

True.

[00:14:47.730] – John

Bria, what do you say? Substantial change in the marketplace or just another cycle?

[00:14:52.990] – Maria

Am I allowed to say both? Woohoo. Cop out.

[00:14:55.570] – John

Of course you can.

[00:14:56.830] – Maria

It’s both and also neither. Whoa. How’s that for covering my bases?

[00:15:01.090] – Caroline

No.

[00:15:03.560] – Maria

I think overall, yes, we are seeing what is going to be a permanent trend or a permanent shift. I think the biggest question that I have right now with the online MBA just exploding in popularity is what are those career outcomes going to be once people graduate from those programs in terms of not just the short term, but even their longterm career success? Because I think one of the reasons the MBA is so popular, it’s not just because of the academic growth. As much as I liked as the daughter of teachers, I like to think that it is. But I also think that people very bluntly use the MBA because they want to get a better job. And what I’m curious about, and I think we’re not going to know for a few years, is if people are signing up for the online MBA. Let’s say they sign up for the Wharton Online MBA, right. I think that’s probably the most elite school that’s offering a full online MBA option right now, or about to if people say, oh my gosh, here’s my chance to get a Wharton MBA, 200 grand, whatever, let’s pay it, it’ll be worth it.

[00:16:02.070] – Maria

And then at the end of that program, they really don’t get those same experiences or the same opportunities, or they don’t have those same outcomes. I wonder if there will ultimately be a kind of a backlash against that. So, just a heads up to all the schools that are jumping into the online offering. Just make sure that you are paying close attention to what your students want. Because if for some reason, let’s say, okay, I take the online degree and yes, I learned finance and accounting just as well as I would have if I would have gone to a full time program. But maybe I didn’t get some of that leadership experience from running a club or a conference or I didn’t develop those networking connections as much as I would have in an in person MBA, then the career outcomes in the short term and or the longer term may not end up being parallel. And so even if the education itself is identical, the outcomes may not be. So I think watch this space. I think it will be interesting to see what happens. But I think if the schools don’t deliver the expectations, then we will see, I think, fewer people than interested in the online MBA in the longer term.

[00:17:08.520] – John

Yeah, really good point, because obviously online MBA firms are not set up for the parade for recruiters to come to campus and interview lots of people, and for internship offers to happen that leads to full time offers. It’s a totally different degree and a totally different impact on one’s career. And the age of online MBA students in almost every online cohort ranges so broadly, as opposed to the 26 to 28 year old sweet spot for full time MBA programs that make recruiting from those schools so lucrative for companies that need young talent. I will say this. I’m very positive about the market as well, including the full time market. Because if you look at as pointed out here earlier, the compensation levels that graduates are getting are at record levels, and in many cases, they’re substantially up from the previous year, owing to a talent shortage of young professionals who are on the move. We just published Harvard’s numbers and they are really incredibly impressive, as are the numbers from a number of other schools Kellogg, NYU, Stern. And I think we’re going to continue to see these very big and high numbers, which changes the ROI calculus for many people.

[00:18:34.240] – John

And I should always say, because people look at the price tag and they just say, oh my God, how can it cost that much money? There’s a lot of scholarship money out there. There’s a lot of discounting that’s going on with a degree. And with compensation levels for starting pay and bonus at record levels, you can earn back on the cost of that degree pretty quickly. All right, Maria, Caroline, thank you so much for your insights and thoughts. This is John Byrne with Poets and Quants listening to Business Casual, our weekly podcast.