Will Business Schools Offer Discounted Tuition Due to Covid-19?

It’s not even October, but the petitions are already flying again at business schools around the world.

As soon as the pandemic hit in March 2020, business schools shut down their buildings and substituted remote instruction. Suddenly, even elite programs like the Stanford Graduate School of Business that lacked previous investments in online MBA education were forced to substitute Zoom video lectures slapped together at the last minute. The unexpected distance-based classes accounted for one reason—but not the only reason—why thousands of students at top on-campus MBA programs signed petitions demanding tuition discounts.

As we pointed out in our April 2020 report “MBA Programs Embrace Online Education,” the best online MBA programs at business schools like the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School, Carnegie Mellon University’s Tepper School of Business, and the University of Michigan’s Ross School of Business often spend as much as $10 million per course to craft outstanding learning experiences. Last year, it reportedly took a typical full professor at Michigan between 200 and 300 hours to develop each course in the new online MBA program at Ross.

But in March 2020, on-campus business schools under pandemic pressure like Stanford neither had the time to develop courses like those from scratch nor had budgeted the financial resources to pay for them. And even if those business schools offered such high-quality online education, it’s doubtful that big-budget online instruction alone would ever have satisfied their students.

Why? In short, that’s because the students who enroll in top on-campus programs demand far more than high-quality instruction. These students have a distinctive vision of what graduate management education should entail. Their vision is vastly more sophisticated and demanding than that for which most average MBA students around the world might be willing to settle—and one shaped by different objectives and priorities.

Instead, elite students demand comprehensive, immersive experiences. These students believe that continuous networking amounts to the most important reason to enroll in an MBA degree program. They believe that clubs and activities are actually crucial laboratories for developing their leadership skills. And they believe that their most valuable lessons often happen while they share with classmates their opinions and experiences.

Here at BSchools, we refuse to accept the premise mistakenly advocated by many of the petition signers that advantages like these aren’t available through online MBA programs. Maybe those benefits are not available through hastily produced Zoom lectures, but they clearly are available through the big-budget blockbuster online initiatives offered by the elite online programs we cover at business schools like UNC, Carnegie Mellon, and Michigan.

In Berkeley, Graduate Management Admission Council board member and Assistant Dean Peter Johnson with the Haas School of Business at the University of California told the Wall Street Journal:

A lot of the value of the program is not only the instruction but the network you create, the relationships with the other people in the program, the opportunities to engage with alumni and faculty. It’s not that you can’t do those things remotely; it’s just different.

The Tuition Revolt Continues

Nevertheless, the petitions demanding rebates and discounts started circulating five months ago, and haven’t stopped. The latest example of this revolt is at New York University’s Stern School of Business, which plans to offer at least two-thirds of all MBA classes online this fall. At Stern—the second most expensive MBA degree in the world with total costs of $233,022—a fall petition signed by 300 MBA students requests an immediate tuition rollback of up to 13.5 percent.

In fact, BSchools is aware of at least nine other MBA petitions since April, all with remarkably similar language. Besides the petition at Stern, students signed petitions at Stanford, the Harvard Business School, the Columbia Business School, the Wharton School of Business, the Yale School of Management, UCLA’s Anderson School of Management, the Sauder School of Business at the University of British Columbia, Spain’s IE Business School, and the global multi-campus Hult International Business School.

The largest group was the 1,069 students who signed the Wharton petition, followed by the 872 on Columbia’s, 819 signatures on Stanford’s, and 813 on Hult’s. The Stanford petition demanded an 80 percent tuition reduction, based on the tuition difference between the on-campus degrees and remote non-MBA programs like Harvard Business School Online and the GSB’s own LEAD online executive program.

Have any of these petitions been successful? So far, some schools like Stanford have offered prorated refunds covering fees for meals and housing services. And a few universities that operate graduate business schools have offered to reduce tuition for undergraduates, like Georgetown University. But at the time of this writing in early August, we are not yet aware of any MBA programs that have offered to discount or refund tuition.

Why Not Reduce Tuition?

Why haven’t any of these petitions been successful? Why wouldn’t the schools simply accede to the demands and reduce their tuition? Indeed, why would they risk alienating entire classes of students who are not only the world’s future business leaders but also individuals presumably only a few years away from becoming the school’s latest crop of wealthy donors?

The reasons why business schools resist discounting tuition may surprise readers.

No Tuition Authority

First, it usually isn’t within a business school’s authority to reduce tuition. Many MBA students need to better understand the political realities of how tuition policy is formulated and implemented within most university administrations.

At most universities, tuition policy is the responsibility of the bursar’s office. That office typically is managed by the university’s provost. At Stanford, for example, the provost and a number of vice provosts in charge of various critical functions like academic planning and development have traditionally served within the President and Provost’s Office. They are the university officers responsible for the tuition amounts charged MBA students—not the dean of Stanford’s Graduate School of Business—and it’s been that way at Stanford for decades.

This is why GSB Dean Jonathan Levin essentially “shut down” when asked at virtual town halls about tuition refunds, reportedly saying “Tuition is decided at the university level. Our hands are tied.” If one appreciates how university administrations typically operate, his response makes complete sense.

University Presidents and Provosts Believe They Can Never Reduce Tuition

The chief executive and financial officers at most universities believe that tuition can never decrease even slightly if their schools are to cover their costs. And in higher education, almost none of those costs are variable, practically all of those costs are fixed, and margins are often razor-thin. Marketing Professor Scott Galloway of NYU Stern offers these insights:

The ugly truth is many college presidents believe they have no choice. College is an expensive operation with a relatively infIexible cost structure. Tenure and union contracts render the largest cost (faculty and administrator salaries) near immovable objects. . .While some universities enjoy revenue streams from technology transfer, hospitals, returns on multibillion-dollar endowments, and public funding, the bulk of colleges have become tuition-dependent.

Professor Galloway is correct that faculty salaries amount to the largest cost within a university’s budget. And at top business schools, the salaries of tenured faculty are frequently staggering.

Business School Professors are Extraordinarily Well-Compensated

When one understands how extraordinarily well business school faculty are paid, it finally makes sense why their universities go to such extreme lengths to avoid reducing tuition during the pandemic. It also makes sense why the tuition charged by many American MBA programs is so outrageously expensive.

Consider these examples:

Professor Dean Takahashi today serves as executive director of the Yale Carbon Containment Lab, a multidisciplinary Yale University climate change laboratory. But in 2016, he was the top-paid professor in graduate management education, earning $3.2 million per year from Yale. Besides teaching finance at the Yale School of Management, he was also responsible for managing much of the $30.3 billion endowment portfolio of the Yale Corporation. That endowment earned about a 12 percent annual rate of return in 2018 at a time when typical stock mutual funds were lucky to earn 7 percent.

Seven years ago, Kannan Ramaswamy, a professor at Arizona State’s Thunderbird School of Global Management, earned $700,000 for nine months of work. At the time, that was more than the earnings of the President of the United States or the dean of the Harvard Business School. But he wasn’t the only Thunderbird professor so well-paid:

Andrew Inkpen, another global strategy professor, was paid $565,457 with benefits in the same year. Graham Rankine, an associate professor of accounting, was paid $492,908. The compensation for three other faculty members—Robert Hisrich, a professor of global entrepreneurship, William Youngdahl, associate professor of operations management, and Mansour Javidan, dean of research—all easily topped $400,000 a year.

It’s not easy to find out what business school professors at private universities earn. But a recent high-profile trial in New York disclosed that Dr. Geert Bekaert—a tenured finance professor at the Columbia Business School with a 32-page resume who only taught three classes during 2018—earned $540,000. Dr. Bekaert’s salary didn’t include nearly $2 million from selling the stock he was paid from his strategy consulting work for a startup, or an additional $200,000 in expert witness litigation fees.

It’s easier to learn what the faculty earn at public business schools. At UCLA’s Anderson School of Management, tenured full finance professors earn between roughly $500,000 and $700,000 per year:

Anderson’s highest-paid finance prof, Frances Longstaff, made $687,012 in pay and benefits in 2016. He was followed by Mark Grinblatt at $627,694, Stuart Gabriel at $625,562, Ivo Welch at $622,016, Avanidhar Subrahmanyan at $547,433, Mark Garmaise at $545,849, Antonio Bernardo at $512,586, [and] Bhagwan Chowdhry at $510,167. The only woman among Anderson’s finance profs, Andrea Eisfeldt, made $494,961.

Anderson pays so incredibly well that even adjunct business professors—who presumably also hold full-time corporate jobs—earn as much as $220,000 to $245,000 each year.

At UC Berkeley’s Haas School, tenured finance profs earn not much less—roughly $100,000 less annually—than those at UCLA. Haas paid Dr. Toby Stuart—the director of the business school’s entrepreneurship center—almost half-a-million dollars in 2016.

High pay isn’t unique to top West Coast public business schools. At Michigan, top tenured faculty like Toni Whited earned about $435,000 in 2018; at the University of Virginia, Robert F. Bruner and Sankaran Venkataraman both earned about $390,000.

To really appreciate the incredible pay of business school faculty, consider the data in this 2019 salary survey from the Association to Advance Collegiate Schools of Business (AACSB). This is an international report with responses representing 514 business schools in 36 nations.

It discloses that based on 1,500 respondents, an average full finance professor earns $197,670 for nine months of work. One who is doing better, at the 75th percentile, earns $260,650.

It’s reasonable to conclude from this data that professors at the top 25 schools earn about double the international professional averages. Even part-time adjunct faculty at an elite business school like UCLA earn more than those averages.

All in all, teaching at a top business school definitely amounts to nice work if you can get it.