A Bear Market in B-School Applications

As the likelihood of a hot job fades, so does the MBA's allure

Recessions usually are good for business schools. Applications flood into such august institutions as the Wharton School, Dartmouth College's Tuck School of Business, and Stanford University as the young and talented of the corporate world opt to hide out in graduate school, earn an MBA, and emerge when jobs are plentiful again.

For the first two years of the current downturn that pattern largely held. But this year, business school is suddenly less of a draw. Applications for the B-school Class of '05 -- the students who will hit the books this fall -- have fallen by as much as 30% at some top schools compared with last year. The University of Chicago's Graduate School of Business, for example, has received 27% fewer applications for the autumn term than it did in 2002.

Why the drop-off? For one thing, fewer would-be applicants can afford to forgo their salaries or pay annual tuition of $30,000-plus. And new visa restrictions are making it harder for foreigners to apply. But the big reason many twentysomethings may be hanging on to their jobs, however unrewarding, is that the once-coveted MBA no longer comes with the implicit guarantee of a big-bucks job offer on graduation. "When the downturn is this prolonged, the optimism fades," says Daphne Atkinson, vice-president of the Graduate Management Admission Council, which administers the GMAT entrance exam.

It's easy to see why America's fledgling manager class is balking these days. Over the past two years, potential MBA candidates have watched many B-school grads flail upon re-entering the real world. Consider that some 30% of grads at BusinessWeek's Top 30 MBA programs had no solid job offer at graduation in 2002. Two years earlier, only 2% went begging. So while an MBA might enhance a would-be executive's prospects if the economy picks up, the current crop of overachievers isn't about to forsake a regular paycheck. Says a New York investment banker who had planned to go to B-school: "I want to hold on to my job."

You can't blame him, since there are few signs that the job market is improving. Many B-schools say job prospects are similar or only slightly better for the Class of '03. At Dartmouth's Tuck, for instance, some 29% of spring graduates had no job at commencement. A typical example is Christopher Blaydon. Despite dozens of interviews, he has yet to land a job in strategy consulting or strategic planning.

And it's not just job prospects -- affordability is another issue. Many potential MBA candidates have found their paychecks shrinking and their savings and investment portfolios dwindling -- which makes financing a pricey MBA more difficult. Meanwhile, lower investment yields have left some schools with fewer fellowships and scholarships to attract students. Sherry Wallace, admissions director at University of North Carolina's Kenan-Flagler Business School, says her institution will award one-third fewer fellowships this year than last.

Tougher visa rules, a weak global economy, and even SARS-related travel restrictions have prompted fewer foreigners to apply to U.S. B-schools, too. Although foreign MBA students have made up roughly 35% of the class over the last decade, B-school deans expect that number to fall this year. While the impact of SARS and slow economic growth overseas are likely to be short-lived phenomena, the schools are more worried about visa rules that were tightened in the wake of September 11. "We have an applicant who works for the president of a country, and he can't get a visa," says Stuart I. Greenbaum, dean of the John M. Olin School of Business at Washington University in St. Louis.

With fewer people to choose from, B-schools are digging deeper into their applicant pools to fill the fall roster. "Right now, many [schools] are still working their wait lists even though it is fairly late in the game," says Joseph P. Fox, associate dean at Olin. As the big schools get less picky, lower-ranked ones could find it hard to fill their slots.

The problems may not end there: The next application cycle -- for the Class of 2006 -- kicks off in November, just four months from now. "It's difficult to predict what next year will look like, especially in light of continued economic uncertainty," says Julia Min, assistant dean at New York University's Stern School of Business. If the job picture doesn't improve soon, the B-school blues may well continue.

By Jennifer Merritt in New York

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