MBA News: The Best Time in History To Apply for MBA Degrees

In our article on the buyer’s market for MBA degrees, we presented several reasons why now might be the best time to apply to business schools in history. But since we published that report, new data has emerged, suggesting some very practical reasons why wise candidates are suddenly rushing to file their business school applications.

Potential candidates to MBA programs need to understand that a window of opportunity that has seldom existed in graduate management education might likely be opening. Opportunity windows like these offer greater probabilities for winning admission at better business schools than candidates ever would during a typical year, with larger scholarship and grant awards offered to the right applicants.

The previous time such an opportunity window existed took place when large sectors of the United States economy suddenly ceased functioning just before the catastrophic Great Recession—the second-worst economic downturn besides the Great Depression—hit in December 2007.

Before that occurrence, another window opened starting with the dot-com crash beginning in March 2000, which kicked off the early 2000s recession starting in March 2001.

A third window materialized just before the early 1990s recession in July 1990, and yet another opened just before the severe “double-dip” recessions that followed in rapid succession starting in 1980.

Readers should recognize the pattern underlying this trend, one which wasn’t understood before the last few years. These opportunity windows depend upon recessions, which the windows immediately precede. But why? And do business school applicants currently enjoy an opportunity to win entry at better business schools, with better scholarship awards for some—an opportunity they must seize immediately if it is not to be missed?

Phase Effects in Graduate Management Education

Because university attendance has increased during each recession since the 1960s, higher education is well-known to be counter-cyclical, with economic cycle phase effects that run opposite those in the rest of the economy. According to Stanford economics professor Caroline Hoxby,

What happens is that the opportunity cost of going to college—the job opportunities a person forgoes while in college—drops very dramatically during recessions. It is harder to find a job, to keep a job or to get a promotion. Thus, some people who would not enroll do enroll. People who would drop out stay enrolled. And people who would have taken some time off between undergraduate and graduate school decide to go straight to graduate school.

In short, even though families may find it more painful to pay for college during a recession because their incomes and home values are stagnant or falling, they do pay for college. This is the sense in which higher education is a counter-cyclical industry.

Graduate management education mirrors this trend. Currently, we’re in the tenth year of the longest economic expansion in United States history. During extensive expansions like this one, business school applications decline because jobs and opportunities for career growth are abundant—and many potential applicants see less of a need for an MBA degree.

The Business School Applications Crisis

The new data released only days ago demonstrate that our suspicions voiced in the previous article in this series—that schools would soon announce even larger drops in MBA applications than at any time during the past five consecutive years of declines—were indeed correct. The 2018-2019 academic year has turned out to be a devastating year for business school admissions, with some leading experts now talking about a crisis facing the MBA degree.

Several of the application declines from the previous year have indeed been catastrophic, even at top-ranked schools. For example, the two universities currently tied for the top online MBA programs ranking in U.S. News and World Report witnessed startling declines in applications to their full-time, on-campus programs: Indiana University’s Kelley School of Business, down 30 percent, and the University of North Carolina at Chapel Hill’s Kenan Flagler Business School, down 25 percent.

Then there are the remarkable numbers just reported by the Tuck School of Business at Dartmouth College, which withstood a 22 percent applications decline. The school’s acceptance rate climbed by 11 points over the previous year to about 35 percent, while Tuck’s yield rate dropped about six points to 41 percent.

What those values imply are shocking: more than one in three candidates could expect to win entry from Tuck even though, at the same time, roughly six out of every ten candidates offered entry refused the school’s offers—and among full-time programs, Tuck is ranked #12 by U.S. News!

Anyone who doesn’t believe this bloodbath in MBA admissions has profound implications needs to consider one dean’s remarks reported by Forbes:

The MBA market is in dire straits right now,” concedes Andrew Ainslie, dean of the University of Rochester’s Simon School of Business. “The joke among deans is that ‘flat is the new up.’ If we can just hold our numbers, that is an incredible achievement.” Ainslie says that when he meets with fellow deans, “half of our discussion is, ‘What are you doing about your MBA program?’

Ainslie recently participated in an accreditation review at a leading business school and was shocked to find that its full-time MBA program now gets only three applicants for every enrolled student. “Most of us feel we need to make three offers to get one student,” says Ainslie. “So once you get there, that means you are making offers to just about everyone. And this is at a school that is an internationally known brand.”

Popping the Corks in the Admission Offices

In almost all sectors of the economy, professionals view the prospect of a recession with extreme apprehension. As sales and stock prices nosedive, no employee wants to be stuck in a situation where they face extended periods without raises or promotions, the prospect of downsizing or layoffs, or a lack of career mobility because job options at other companies have suddenly dried up.

But in higher education, the effects are very different. Higher education admissions might be the only industry sector in the world where professionals break out the champagne, pop the corks, and start celebrating the very instant that economists forecast a recession—especially if it might be a severe one.

This effect might seem peculiar, but it nonetheless offers benefits. Again, according to Hoxby,

Our population ends up more educated as the result of a recession. If you think that people ought to be getting more education anyway, this is an unexpected benefit. Also, since the demand for higher education goes up, not down, during recessions, institutions are somewhat insulated from economic downturns. Because demand for education goes up, they can expand enrollment or raise tuition to make up for losses elsewhere.

This is why during economic contractions, many out-of-work college graduates unable to find jobs instead pursue advanced degrees. In particular, MBA program applications surge as smart applicants concerned about career stagnation seek refuge within business schools. And surge those applications do—they quite literally deluge business schools. According to the Poets & Quants editor-in-chief John Byrne:

Previous recessions have sent MBA apps soaring, typically in double digits. Back in 2009, in the last Great Recession, more than two-thirds of full-time MBA programs received more applications than they did the previous year, their best performance for five years, according to the Graduate Management Admission Council. When many of those students graduated in 2011-2012, more master’s degrees in business were conferred on U.S. graduates than ever before: 191,616, 25.5 percent of all graduate degrees awarded. And after the dot-com bust-led recession of the early 2000s, graduates of master’s degrees in business made up the highest percentage of all graduate degrees ever: 30.1 percent or 146,406 of the 473,502 master’s degrees conferred in 2000-2001.

Moreover, it’s the impression of the author of this BSchools article that most people who could have gone to business school during such recessions but instead plodded along in jobs wish they had never stayed in the labor market during those contractions. Professionals facing career stagnation can experience better long-term career outcomes from brief detours into the safe harbor of graduate management education than they ever would by continuing to fruitlessly plug away in dead-end jobs during a recession.

Are We Headed for Another Recession?

Although a thorough macroeconomic analysis is beyond the scope of this article, it’s far from apparent that we are imminently heading into another recession. In the United States’ economic history, there has only been one other instance where a self-inflicted injury similar to the current trade war with China had substantially contributed to a downturn. That was though the protectionist Smoot-Hawley Tariff Act and trading partner retaliations 89 years ago, during the pre-World War II era when the world was a very different place.

Nevertheless, those readers considering an MBA program who believe that a recession may be imminent need to start filing their applications, according to Jeremy Shinewald, the CEO of the admissions consulting firm MBA Mission. Shinewald told Poets & Quants that “those who are betting on a recession should give consideration to getting ahead of the potential wave of applicants so that they can compete in a less competitive year.”

I agree with Shinewald (but disagree with the headline of the article in which he’s quoted). Think about it: when a candidate could squeeze through an admissions opportunity window at a time when they stand a one-in-three probability of admission at a business school as highly-ranked as Dartmouth’s, why in the world would they want to wait? Why wait another 12 or 18 months only to apply during a recession when business schools are once again flooded with applicants—and after that window had already slammed shut?

To pass up that opportunity for something better, one would need to be working at an amazing job with lucrative compensation, or perhaps running a successful startup on the verge of going public. But for most potential MBA applicants concerned about their long-term careers, it could be very painful indeed to get caught in that slamming opportunity window.