B-Schools Confront the High Cost of Change
At McGill University's Desautels Faculty of Management in Montreal (Desautels Full-Time MBA Profile), students paid $1,500 a year for tuition, a tiny fraction of the average annual cost for MBA programs, which now hovers around $26,000.A bargain, no doubt, but not enough to attract students unfamiliar with the quality of the B-school.And the school was struggling to make ends meet because of waning provincial support and the government's unwillingness to permit tuition increases.In contrast, other Canadian MBA programs such as Queen's (Queen's Full-Time MBA Profile) and Western Ontario (Western Ontario Full-time MBA Profile) that had sworn off government support years earlier and had essentially gone private, were thriving. Meanwhile at the University of Wyoming's College of Business, Dean Brent Hathaway was in charge of a solid, but dated, MBA program. While Wyoming's program was as good as any other in the country 30 years ago, "today it's not," he says, noting the lack of curriculum features that are now common at even mid-tier schools. To make matters worse, the low tuition cost—just $7,700 for Wyoming residents—was giving prospective students the wrong impression about the quality of the program. "It drove me insane," Hathaway concedes. For Wyoming and McGill, it was time for a change. In both cases, that change has come in the form of major tuition hikes for the MBA programs—increases designed to raise the stature of both institutions in the eyes of prospective students, who see a high price tag as a sign of academic quality, and to improve the quality of the programs to justify the heftier price. Steep Tuition IncreasesAt Wyoming, administrators have torn apart the old MBA structure as well as the facilities and created a new-look MBA to convince the state government the program was worth a much higher price tag. McGill, meanwhile, has decided to follow the lead of its peer schools in Canada and cut its government ties entirely. Percentage-wise, the price increases are staggering. On average, MBA programs increase tuition between 4% and 10% annually. At Wyoming, the increase for in-state MBA students will be 178%. At McGill, students from Quebec will face an astounding increase of more than 1,600%. But because the base prices were so low, the new annual costs—$21,378 at Wyoming and $29,500 at McGill—are still within the typical range for MBA programs. While the tuition hikes at Wyoming and McGill are unusual by virtue of their size, the economic pressures that drove them to take such drastic steps are anything but unique. Across North America, rising costs, declining endowments, and reductions in state aid are putting schools, including B-schools in a bind, forcing many to impose tuition increases sometimes far in excess of inflation. At Johns Hopkins University, undergraduate students at the Carey Business School last year were hit with a 43% tuition hike to pay for expanded academic programs, new technology, and improved classroom facilities. In Illinois, the state has yet to make good on $770 million it owes the state university system, and furloughs and hiring freezes are the order of the day. At the University of California, Berkeley, a 32% undergraduate tuition increase has triggered violent demonstrations and the occupation of one campus building, leading to dozens of arrests. On the surface, the increases at Wyoming and McGill couldn't come at a worse time. True, MBA applications are up across the board. But with prospective students weighing the value of leaving behind a job to pursue an expensive graduate degree that won't necessarily guarantee them a better position when they reenter the workforce and MBA programs doing all they can to hold the line on tuition increases for fear applicants will enroll elsewhere, a massive hike could scare potential applicants away. Waiting for the financial markets to turn around could be disastrous, though, says John Fernandes, president and CEO of AACSB International, an organization that accredits B-schools. "These schools are most likely concerned about making sure their programs are viewed well and are received well by students," Fernandes says. "Therefore, if they don't make the investment now, it's going to be worse long-term. At that point, maybe they won't be able to turn it around. There are a lot of forces working here." Ending Government SupportAt McGill, one of those forces is an ever-increasing deficit. The revenue collected from tuition and provincial support accounts for only about half of the $22,000 it costs the B-school to put a student through the program annually. "For a number of years we didn't have enough money to run the program," says Peter Todd, dean of the Desautels Faculty of Management at McGill. "We've been running deficits and were not able to make ends meet." Todd and his team, after grappling with the school's financial problems for the past few years, finally decided that their only option was for McGill to end government's support and become a private program. "In order to be competitive, we had to make a change," Todd says. "The economics of it just didn't work with the government system." McGill is simply following a path that many Canadian MBA programs have already taken. Queen's University was the first to go private in 1996, shunning provincial support in order to charge tuition rates comparable to U.S. programs. David Saunders, now dean at Queen's, was then an associate professor of business at McGill. "I was quite surprised that Queen's would privatize and relaunch its MBA program at four times the going rate," he says. "But I quickly realized that deregulation allowed Queen's to compete—and win—on the international stage with a superior student experience." And compete it has, taking the top spot in the last three Bloomberg BusinessWeek rankings of the best international MBA programs. It's not a surprise, then, that Saunders sees McGill's decision to go it alone as a "very smart move." Transforming the CurriculumBut it hasn't been such an easy sell to those who will be affected most by McGill's change, namely, the residents of Quebec. Local newspapers attacked the steep tuition increase, and readers were quick to make their opinions known via the Internet, calling the increase "self-serving," "sneaky," and "outrageous." Todd was expecting the less-than-positive response. "In Quebec, tuition is a very sensitive issue," he says. "In that context, we weren't at all surprised that there was negative reaction in the press. In fact, we were somewhat surprised that the reactions were split." Todd adds: "It's only a big increase because [the tuition cost] was so far below everyone else," he says. "We wanted to come into the market near the level of other top Canadian MBA programs. It's still inexpensive compared to many top U.S. schools." With the higher tuition rates, Desautels will be able to implement an integrated approach to teaching core courses, with multiple professors in the classroom at the same time. Also, it will allow the school to invest more in career services and experiential learning options outside of the classroom. "These are things we've been trying to do but haven't had the necessary resources," Todd says. "Over time we hope it will allow us to build new and better facilities for students, and we'll put a lot more money into student aid. It's a new world for us." The University of Wyoming's MBA program is going through a similar transformation, and for Dean Hathaway, it can't come soon enough. The MBA model that Wyoming had been using was old-fashioned, or "simple," as Hathaway puts it. Students would take classes, get a little help with recruiting, and tailor a few papers toward the industry or sector they were interested in. At the end, they would go out and look for a job. "We needed to radically change our model," he says. But Hathaway and his team first had to convince the university and state legislature that a major tuition boost in the MBA program was necessary. In the past two years, MBA administrators have been developing a plan for what a new MBA program would look like. Included was the addition of a multilayered orientation at the front end of the program with various team-building activities weaved in. It's something nearly every other MBA program already does. But Hathaway's program simply couldn't afford to do it. "We have some of the most pristine country in the world right out our back door, and we weren't using it because it was too expensive," he says. Wyoming's Redesigned MBAAlso included in the proposal was an integrated approach to teaching, which means throwing out the traditional academic silos in favor of business classes that use the same case studies and faculty members across various courses. A required summer consulting project also was proposed, where small groups of students would work with companies in nearby cities such as Denver and Salt Lake City to solve real problems with the oversight of a faculty member. In late November, the university's board of trustees passed the tuition increase. The new MBA program will launch this fall to coincide with the opening of a new MBA facility. For nonresident students, tuition at the Wyoming MBA program will rise from $523 per credit hour to $726, a 39% increase. For in-state students, the change is more radical, going from $183 per credit hour to $509, a 178% jump. For students already enrolled in the program, the university will use government stimulus funds to off-set the tuition increases. Hathaway has received some pushback from applicants already in the queue about the increases, but for the most part, the reaction has been positive. "I think most students are pretty thrilled about what they'll be getting in the new, redesigned MBA," he says. Thanks to the countercyclical nature of MBA admissions with regard to the economy, which promises to keep applications surging until the recovery is under way, Hathaway feels the timing is perfect for launching the program. "It's a good time to be rebranding our college," he says.