As concern about a possible recession grows, graduate school typically offers a safe haven—but only up to a point
It may sound counterintuitive, but with the R word—recession—increasingly being bandied about by economic forecasters, business schools could soon be seeing the highest application volume they've seen since the burst of the dot-com bubble. If that happens, it would fit into the counter-cyclical trend of business-school applications, where students initially flock to business schools when the economy shows signs of faltering.
The Graduate Management Admission Council reported last month that applications to B-schools are surging (BusinessWeek.com, 8/15/07). And while they aren't yet at record highs, admissions officers say that could change if actions such as the Sept. 18 Federal Reserve rate cut fail to keep the economy growing and potential business school students in the workforce.
"We've seen trends that indicate that when there's a downturn in the economy—especially if people are laid off—that people always consider that a good time to go back for more education," says Debbie Berechman, executive director of the MBA program at MIT's Sloan School of Management. "But it's not clear exactly what that means now, and it depends on how much of a downturn there is."
The most recent example of economic factors influencing business-school application volume is the burst of the tech bubble in the late 1990s and early 2000. As the bubble deflated, the job market tightened and workers began losing jobs; as a result, more people chose to pursue an MBA. The number of GMAT test takers surged, and the number of business-school applications submitted reached an all-time high. Many schools, including Vanderbilt's Owen Graduate School of Management, saw record application volume during that period. "If things are not necessarily going well, especially in the financial market, it might be a good time to take a year or two out, especially if you're intending to get an MBA," says John Roeder, director of admissions at Owen.
However, the initial surge leveled off as household income began to decline and the unemployment rate stayed flat, says Rachel Edgington, director of market research and analysis at the GMAC, which oversees the GMAT test. Around 2002, a hiring freeze was put in place at many companies, with many midlevel managers eliminated and few new job openings.
Many prospective applicants took a wait-and-see approach to business school during that time, ultimately leading to a decline in B-school applications in 2003 and 2004. Application volume has since recovered.
Gauging the Impact
School shoppers, meanwhile, remain out in force. Attendance was up 15% to 40% at two recent MBA fairs in California, according to the MBA Tour, an organization that sponsors MBA events in 28 countries. Attendance at such events was also up in cities, including New York and Boston. "The economy has not had any effect on our increase this year. You just don't hear about it," says Peter von Loesecke, managing director of the MBA Tour.
That's not to say that applicants aren't taking note of recent economic events and trying to gauge how they will affect plans. For example, at the Sept. 15 MBA Tour event in New York, attendees packed a lecture given by a mathematics professor on how to interpret the effect of the subprime mortgage meltdown on the banking industry. "We had a packed class from 6 p.m. to 9 p.m. on a Saturday night. So, I don't know if it was math driving them there, or if there was some intrigue as to how to decipher how this is really going to affect the banking industry," von Loesecke says.
Meanwhile, one of the key factors driving business-school admissions—demand from recruiters—is expected to continue to be strong this year, in some cases even dramatically increasing, the GMAC's Edgington says. "The things that are happening in the economy aren't impacting the companies," Edgington says. "It's only at this point impacting individuals. When it really gets to the point that recruiters aren't hiring anymore, that's when you start worrying about applications."