Why are MBA programs closing in the United States?

Question

There are various reports about full-time, on-campus MBA programs closing its doors, e.g. from LinkedIn:

MBA programs are getting axed: The number of full-time MBA programs in the U.S. declined by 9% between 2014 and 2018, the Wall Street Journal reports. Wake Forest, Virginia Tech and the University of Iowa are among several universities that have decided to shutter their full-time programs, opting to offer online programs and specialty business masters instead. Applications to full-time MBA programs — even at elite programs like Harvard and Stanford — have declined in recent years,

and also reports about applications dropping steeply, e.g.

in summarizing from a 2018 report [PDF]:

Applications in the United States are down 6.6 percent -- while they are growing in Asia, Canada and Europe.

–"M.B.A. Applications Drop (Except Outside the U.S.)", (2018-10-08)

Why is this happening?

Answer 1

Demand is counter-cyclical. During recessions, demand rises as people seek additional training, hoping to prepare for new careers. But US unemployment is currently at only 3.6%. We haven't seen unemployment that low in decades, so people are not feeling the pressure to seek additional training for new careers.

Here are some references that describe this counter-cyclical behavior of applications to graduate school.

Ilana Kowarski, "Fewer People Are Applying to U.S. Business Schools", US News, Nov 5, 2018

From a U.S. domestic prospective, historically, U.S. business school application volume has run countercyclical to the economy," Basye wrote in an email. "In times of higher unemployment or job loss, people often go back to school. In times of full employment or high GDP growth – like right now – opportunity costs are higher to leave a job and return to school.

Jade Scipioni, "Harvard, Stanford, other top MBA schools see applications drop", Fox Business, October 1, 2018

Sangeet Chowfla, president and CEO at GMAC, notes that historically business school application volume have often run counter cyclical to current economic trends and indicators. And the current low unemployment rate means “young professionals have an increased opportunity cost of leaving their jobs in pursuit of an advanced degree,” Chowfla said.

Wendi Go, "Is Enrollment into Graduate School Affected by the Business Cycle?", Department of Economics, Stanford, May 11, 2009

The findings show that the effect of the business cycle on First-time First-professional enrollment follows a relatively consistent counter-cyclical pattern. More specifically, a 1% increase in employment growth is associated with a 4.09% decrease in enrollment, while a 1% increase in GDP growth corresponds to a 2.04% decrease in First-time First-professional enrollment. Finally, 1% increases in personal income growth and personal disposable income growth are associated with 1.68% and 1.30% decreases in First-time First-professional enrollment respectively.

Srikant Datar, David A. Garvin, Patrick G. Cullen, "Rethinking the MBA: Business Education at a Crossroads", Harvard Business Press, April 22, 2010

Because MBA programs are often viewed by young people, especially those with few other career options, as a safe harbor for weathering economic storms, business school applications have historically been countercyclical.

Answer 2

I would know nothing about this issue except for the link that BrianH provided in a comment to an Inside Higher Ed article. I found it quite interesting; here are the top perceived reasons for the fall in admissions from a survey of admissions officials at 150 MBA programs:

• International students are "concerned about the current political climate" in the U.S.: 31 percent.
• The strong job market in the U.S.: 30 percent.
• The cost of an M.B.A.: 17 percent.
• Questions about the value of the M.B.A.: 13 percent.
• The lack of one-year M.B.A. programs in the United States: 7 percent.
• The perception that fewer jobs require an MBA than in years past: 3 percent.

Regarding the top reason in that list, the very last line of that article has what I think is an important qualifying detail:

A study by the Graduate Management Admission Council found declines in application volume for M.B.A. programs but gains for those in Asia, Canada and Europe.

Here's a link to the article on that specific topic, titled, "M.B.A. Applications Drop (Except Outside the U.S.)".

Answer 3

From watching the MBA market for over 15 years:

1. Applications to MBA programs tend to be countercyclical to the economy. The economy is still (remarkably) strong today, and many people choose to keep their jobs. When we get an economic shock like the 2007-2008 era, app volumes to business schools go up. Apps tend to go down when the economy is stable(r).

2. The current US political environment has had an impact on interest in US schools from international applicants. That's likely behind the large swings in app volumes in the US going down, and going up elsewhere, including Canada, the UK, and Asia. The factors include not just the political climate and, since Charlottesville especially, a concern about safety in the US and that it's unwelcoming to foreigners and non-whites (source: anecdotes shared by applicants privately), and also the reticence of major US employers in taking on the visa process for internationals (this has been tracked by organizations like GMAC and NACE, among others).

3. Average starting salaries have gone UP at most top American schools for the Class of 2018 and, probably will prove to be at an all-time high for the Class of 2019; data TBA. The MBA and other practical, business-focused master's degrees are still very valued by employers in this economy and by Millenials and Gen Z.

4. Top business schools tend to be profitcenters for the parent university based on ability to attract big fees through executive education (see: HBS financial reports). This caused many lower-ranked schools to pile into the bschool market. There are somewhat different factors at play but it's similar to the crash of the law school market, in that lower-tier schools won't survive when the market shrinks; they're the ones, obviously, who suffer the most when application volumes decrease. Haven't seen news of any actual MBA programs closing down recently though, so not sure where OP got that part of the headline.

tl;dr: App volumes are going down for U.S. schools due to politics, American corporate hiring practices, and due to predictable and expected economic factors. This doesn't mean that the MBA is not still in demand or valued by either employers or by students themselves, nor is there any evidence that the best American business schools are in trouble or at risk of failing.

Answer 4

In this comment, you say

... to the point where b-schools would shut down, though? That suggests more than just the result of low unemployment, no? I have in mind a permanent shift away from b-school education, but I'm not sure; it's not like the skill sets gotten from b-school are analogous to skills in ... coal mining? investment bankers, private equity analysts, marketing / product managers are still very much needed, and MBA programs train for those careers, right? I don't have an MBA so am not sure.

Uneven distribution

I think that you misunderstand the problem. Let's say there are three business schools total. They are called

• Wharton (University of Pennsylvania).
• A. J. Palumbo (Duquesne University).
• Rosemont College.

I got these from this list. I picked Pennsylvania because I know that Wharton is often ranked first in the nation. So I am using these as proxies for a very good, average, and weak business school (which may not be true about Rosemont).

Now, let's say that each school can support a thousand students. So in a year with good demand of more than three thousand, they are all turning away students.

Now, let's consider a year of subpar demand. Instead of more than three thousand applicants, there are only two thousand. What happens?

Wharton continues to take a thousand applicants. Because everyone wants to go there. It's the best.

Palumbo takes a thousand applicants who either didn't get into Wharton or didn't even try. Because it's preferred to Rosemont.

Rosemont gets zero applicants who don't go to either Wharton or Palumbo instead. Rosemont goes out of business.

Now, in reality things aren't so clear. Some people will want to go to Rosemont because it is common to pursue an MBA while working and Rosemont happens to be near their job. And Wharton may not lower its standards to take the full enrollment. And price may matter as well. Wharton may charge more. But all this just shifts the problem. If Ivy League schools have to maintain a certain minimum standard, then the tenth best Ivy might take the place of Rosemont in this example. But it doesn't really matter.

If a college has to lower its standards and still only gets half as many applicants, it can't keep the program running. Because even if the industry is only off 10%, you will find that a large number of schools keep their enrollment steady while a few schools drop a lot. Those few schools go out of business.

Business is not a career choice

Another issue is that investment bankers and private equity analysts aren't necessarily business school graduates. Equity analysts are often physicists, because there is hefty math needed. Investment bankers may be lawyers or accountants (or have a degree in banking, finance, or economics). An MBA is not so much for a career choice. An MBA is more of a tool for someone who has experience in a job and has started into management. Now they get the MBA so as to be able to get promoted into a better managerial position.

That's why people with jobs get MBAs. But if someone is laid off, they might also pursue an MBA. Because if the job market is tight, they can't find a job right now and might just as well try to improve themselves. It's that group that is counter-cyclical. An MBA might be that thing they never had time to do. But in a slow economy, they have that time.

Another issue is that if there is a shortage of business school graduates, many of the jobs that they do do not actually require an MBA. If the MBA provides useful training, it might be possible to replace it with on the job training. Because an MBA is necessarily a general degree, while a specific job might only need a small subset of that education.

Another issue is that to some extent, the schools have to compete with businesses for professors. In a good economy, professors' salaries may increase because they get offers from businesses. If the schools want to keep their professors, the schools may have to increase salaries. Which can be problematic if they are also facing falling enrollment. Increasing costs and falling revenues is a recipe for bankruptcy.

In a bad economy, the reverse happens. People who have the qualifications to be professors get laid off from their jobs and return to academia because it happens to be hiring. And now a college might launch a business school because they can.