About a year ago, we talked about how certain schools are putting even more emphasis on GMAT score than ever before. That was based on our experience last season (Class of 2018 admissions). We saw how that affected the Class of 2018 profiles – Wharton’s average GMAT score is now up to 724, but perhaps…
With all this political uncertainty, there is one thing that we know: All the schools are looking at their admissions decisions and class strategies differently right now. In November, we wondered about what the impact might be on international applicants to American schools, fearing that the adcoms might be nervous with Round 2. We believed…
While that substitution effect that we described recently, with people swapping out the MBA for the JD in building their future careers, is likely a factor, it does not explain why app volumes would be increasing so markedly, or why app QUALITY has been going up with so many stronger profiles trying for the MBA in the past few years. More people switching from law school to bschool would not likely result in GMAT scores going up as they have. So what else is behind it?
Well, when you live in America, where the economy is chugging along and is actually doing reasonably okay, it’s easy to forget that that’s not the case elsewhere in the world. With the new economic reality of negative interest rates in Japan and Europe and the European Central Bank implementing their own program for quantitative easing , it should be clear that other countries are having trouble. The U.S. Fed ended its QE program in 2014 and implemented its first interest rate hike since the Great Recession in Q3 2015. It’s unlikely that Janet Yellen will be raising rates again in the next few months but we do think it will happen sometime in 2016. The Fed only raises rates when the economy is growing. We don’t know of any other economies in the world where they’re even having that discussion. When you live here – unless you’re in the tech sector – it may not seem like America is doing all that great, since there are still many many people who have been unemployed for a really long time. But compared to the rest of the world, things are pretty good here (especially, at least for now, in the tech sector).
So while we have no direct knowledge of this since the adcoms don’t tend to publicly share these data (Ross sometimes does but most don’t), we’re betting that a good chunk of the increased MBA app volumes is international. We certainly don’t see any tapering off of Indians and Chinese and Singaporeans and Koreans interested in American bschools. There’s also plenty of Europeans and South/Central Americans, too, though those traditionally have made up fewer slices of the applicant pie. [Post-publication update: We just saw a report that overall across all American university, there’s been an increase in international students in the U.S. and that one-fifth of those students are studying business (data includes undergrads too). Despite what you might expect given the stereotype of the international student, only 12% are focusing on the sciences. Reasons cited are that other economies are now strong enough that families can afford to send their children overseas (which does not contradict what we said above about U.S economic strength). source ]
And of course there’s that tech sector. We’re not certain of which is the cause and which is the effect, but certainly there are lots and lots of BSers who say they want to go to work for Facebook and Google and Amazon and Uber after they complete their degree. It’s more probable that these people are interested in the MBA first, and then decide on the tech sector thing second (that typically is how it worked when everyone was saying they wanted to go into finance after bschool, a decade ago) but who knows. There is a massive aura of sexiness where tech companies are concerned, and Silicon Valley has become the seat of power, pulling talent and money and many many dreamers away from the original base of Wall Street. It’s hard to resist the siren call of wanting to go to bschool and then trying to land at one of those places. This is true for plenty of Americans and, it seems, even greater numbers of Indian applicants especially. A quick review of our client roster for the current season shows the vast majority of BSers saying they want to go into consulting (that’s been the standout trend for several seasons now) and then the next-popular goal being product management at a tech firm. In fact, about the same number of BSers we worked with this past year were saying prodmgmt as said all forms of finance (investment management, IB, PE, etc.). These are not minority numbers.
So you get all these people around the world whose countries are not doing so great, and you get the allure associated with working for a high-prestige brand-name company like Facebook or Google, and the Mark Zuckerberg Effect where it seems so simple that anybody can create fabulous success and wealth for themselves in tech, and it’s an obvious equation for increased interest in the American MBA to get there.
The thing with trends is that they don’t last forever. At some point this will give way, too. Hopefully the business schools won’t see a crash the way law schools have – though the “bubble” in management education has been predicted over and over again for decades. Hopefully the economies of countries around the world will improve and opportunities will expand such that people of MBA age won’t feel like they’re in a dead end with their jobs and careers. For now, things are going to remain competitive when you’re trying for a big jump that a lot of other people are also trying for. A strong profile will always make it in to a good MBA program – but it may take longer than expected, or happen in a different way than originally envisioned, and the definition of “strong” may be narrowing before it becomes broad again.
You may have heard the news that over the past several years, interest in law school has tanked in this country. According to a 2015 Bloomberg article, app volumes for a three-year JD degree are at 15-year lows . Here’s the chart they posted based on data from the Law School Admissions Council:
The type of person who (originally thought she) wants to go to law school is not all that different from all of you who are interested in the MBA – in fact, one of our theories on why the interest in bschool has skyrocketed in recent years (thus putting a squeeze on admissions for everyone) is because that category of young person (the wanna-be lawyer) is now substituting business school, where they previously would have been trying for the law.
Makes sense, right? It’s the same type of motivated, up-and-comer, wanna go do something with my life person. But they’re no dumb cookies. They see the signs. Unemployment among new lawyers is really high. There was even a lawsuit recently by an alumna of Thomas Jefferson Law School (an unranked school in San Diego) who claimed that the school inflated their graduate placement numbers – she has been unable to land a job as a lawyer in the ten years since she’s been out. (She lost the suit. ) The outcomes for the Class of 2013 were abysmal; more than half of grads could not find jobs requiring the law degree (source ).
Or just the basic human response to trends: When you hear that everyone else is interested in something (or not) then frequently you decide you’re interested in it (or not) only because that’s what everyone else is doing. If you see enough articles in the media about the decline of the legal profession and you hear how much the law schools are struggling, with all the doom-and-gloom reports about how the lower-ranked schools will need to close, or how others are merging (merging! schools are merging! this article explains the economics in one region ).
Where are these kids gonna go if they’re not gonna go to law school? “Well, gee, why not an MBA instead?”
In economics they call this the “substitution effect”; it’s like when Coke is on sale at Target then that’s what dad buys, but then the next week, Pepsi is on sale, so mom stocks up on it when she’s out shopping. Those two products are seen as interchangeable by economists.
The law degree and the business degree are not exactly interchangeable (but neither are Coke and Pepsi – you cannot force the ‘Snark to drink Pepsi, thanks anyway) however they are both high-prestige graduate degrees that lead to higher incomes (or, traditionally have, at least) and it’s the same type of consumer who is interested in both.
That graph above shows about a 20,000 app decrease in law school app volumes over that 14-year period. Dang, that’s a lot. In just the past 4 years, HBS alone has seen a 7+% increase in applications, which for them represents about 1,000 more apps for the Class of 2018 over the Class of 2014. The GMAC research people reported that for the Class of 2017, 59% of full-time MBA programs in the U.S. saw an increase in domestic applications; previous-year gains had been driven much more by international applicants. Clearly not all of the formerly law-school-bound Americans decided they’d rather be bschool-bound — but we’re betting that a significant chunk of them have.
If not, then where else are all these new applicants coming from?
We also heard that applications to Teach for America are also down for the third straight year, now off 35% from a recent peak . Those who go for TFA are coming straight out of college, so they’re less likely to be substituting bschool instead, since work experience is generally a pre-req to getting in. However, more and more bschools are now offering tracks for recent college grads, and we are hearing of more and more interest in those programs. So, while certainly a much smaller chunk of the overall app pool, there is reason to believe that this trend could be driving volumes higher.
Our other theory that also cannot be proven: That these young people may be feeling smitten by status and prestige, as a by-product of our ever more appearance-based (narcissistic?) social media driven society. When you are questing for status, then how natural to be interested in the MBA. Getting into a top bschool can offer validation that you’re important. (No, nobody says this stuff out loud, but be honest. Many of you have such ideas lurking beneath the surface, if you care to examine them. We’re not criticizing that. We’re just recognizing it.)
Or, it’s related to the changes in our economy where a college degree, rather than a high school diploma, is now a bare-minimum requirement to make it in this world, and so the graduate degree is now what a college degree used to be, in terms offering opportunity.
Who knows. Presumably there are some smart academics in those ivory towers tackling these questions. It’s what EssaySnark thinks about when faced with the craziness of a competitive application season. Where are all these BSers coming from?
To finish up from yesterday…
Check it out: If you use bschool to launch a business, then that means you’re going to not only have the standard massive student loan debt to deal with on graduation, but you’re also going to be working on a startup founder’s income – which typically is called “not much.” And often it’s called “nothing.”
Oh, but don’t worry – there’s people who want to invest in you! You can even get a peer-to-peer loan from individuals who want to see you be successful (they get a cut of your future earnings). Which basically means you’re hocking your future even further. (Sorry but something is unsettling to us about the idea of asking people to pay you to cover your Harvard MBA loans… which we know is being done there. This is just us but it doesn’t sit right.)
HERE’S THE DEAL: If there is in fact a bubble in startup-land, then this easy money – from bschool startup challenges and bplan competitions to these peer-to-peer lending sites – it’s gonna dry up.
If you’re reading this blahg now, that means you’re probably thinking about applying to bschool this fall, which in most cases means you’ll be graduating in 2017. That’s a long ways away. The economy can do many things in that time, and none of them are predictable – certainly not by the ‘Snark. A bubble in Silicon Valley could pop and have little impact on the rest of us, or whatever impact could be absorbed by the time you’re graduating. Or there could be no bubble at all.
However we just have to wonder at the logic of going to bschool and taking on all that debt and then tossing your hat into the ring of lottery players in the startup scene.
Remember, MOST STARTUPS FAIL. The schools don’t tout those statistics. Does Harvard tell us what percentage of those 50% of graduates’ companies go bankrupt? The schools do like to brag about the big success stories – there’s companies like Honest Tea (founders from Yale SOM) and Bonobos (founders from Stanford) and we’re sure many more (you can name examples in the comments if you think of some) but the on-the-ground reality of real challenges in building a viable business means that many of these student startups are not going to last.
Most of you are very young and maybe don’t even have solid memories of what the dot-com bubble was like. That was in 2001. You were, what, in grade school then? Old Crusty Snark has to tell you, it wasn’t pretty. A site called “f—edcompany.com” went up to track news of layoffs and bankruptcies. It was a very busy site.
Oh hey, there’s an idea! If there is another such bubble burst, you could start your own 20xx version of it! Oh wait, maybe that market is covered.
So hm. It sounds like we’re telling you to drop your dreams, that your ambitions have no place in this world, that you’re never going to have a chance at it. Phooey on that. That’s counter to everything we believe in. It’s not what we’re saying.
We’re just offering the idea that you may want to think things through on this.
And we’re mildly wondering how ethical it actually is for the bschools to be promoting this entrepreneurship craze, given how getting an MBA is not exactly the most cost-effective endeavor in the world to begin with. Sure, your school can be very supportive of your startup, and you can (theoretically) tap the vast network of alumni for help and even funds. But the schools don’t have to live with the consequences of their actions. They can promote starting a business through bschool all they want; their tuition was already paid, they’re not saddled with the debt.
The economics the situation of graduating with an MBA, with no income, and lots of risk… well that is pretty scary when you dig into it.
Ever since the housing market crash of 2008, which came after the dot-com crash of 2000, many people seem nervous about bubbles. Understandably so. It was no fun to go through the chaos of the markets and watch your home or stock portfolio – or both – lose massive amounts of value in a matter of weeks.
For several years now, there’s been talk of a bubble in Silicon Valley – and for even longer, there’s been people saying that about the MBA itself. We’re seeing more and more signs that the former is happening but we’re just not sure about the latter. We first discussed the “MBA bubble” thing here on the blahg in summer 2011, and touched on it again a couple months back. Another respected entrepreneur-turned-VC, Marc Andreessen, claims that we’re not in a bubble, though he admits that the influx of MBAs to tech companies would be an indication of one (not sure if he was kidding with that comment or not). The jury is out. Even (or especially) the experts are notoriously bad at predicting the future.
And EssaySnark is no expert in economics nor high-powered VC. All we can talk about is what we see on the ground with MBA admissions. What we know about that is that there are a LOT more Brave Supplicants pitching entrepreneurial goals in their MBA applications than ever – massive amounts of them – and in the past six months especially, we’re seeing a market shift from the schools where they’re starting to encourage it.
Dean Hubbard of Columbia made comments in an interview on Fox recently talking about the rise of interest in tech startups and how startups are booming in NYC and how Columbia grads are flocking to them. Cornell and Google have a partnership in New York with the new Tech MBA at Johnson.
Frankly, all of this should be a warning sign.
Schools and universities – including MBA programs – are not exactly the first movers in our economy. Maybe they learned something in the past two decades (hopefully) but their historical slow adoption to change means that when a bschool is embracing a big new “trend”, that, to us, is a warning sign that the trend may be close to flaming out.
There are some exceptions to this – NYU, for example, launched a Big Data program surprisingly long ago (their MS in Business Analytics has been around since like 2012). And, in the throes of the 2008 market meltdown, some schools became almost nimble, with professors throwing out their syllabi and reacting dynamically to the events of the world within their classroom curriculum. Wharton did this (see the paragraph about their “24-hour teach-ins” in this article), and by 2009, it was even more widespread (this article talks about undergrad programs’ reaction to the crisis).
However, as Darden Dean Bruner says in this 2009 WSJ interview, “business schools tend to be followers” – and we’re starting to be concerned on the behalf of Brave Supplicants everywhere about how these trends may collide.
The positive near-term outcome of these shifts for many of you will be that adcoms are going to be more open to hearing a short-term entrepreneurial career goal. We’re still going to push back mightily when we see someone pitching this, but it’s not hard to see that the schools have become more accepting of such goals in an application.
On the negative side? Well, if you really do bounce into bschool with stars in your eyes and decide that you’re going to launch your change-the-world business while you’re there … we just are skeptical how this is going to turn out.
If you peruse the pages of any bschool newspaper you will see PLENTY of articles and announcements about PLENTY of student startups; they’re all the rage! Here’s one. And another. A BSer recently pointed out to us that Harvard claims that 50% of its grads will start a business within 15 years of graduation.
Nice statistic, but how many of them are successful?
To be continued… CONTINUED HERE)
We’re just full of hot air these days.
First we have the audacity to publish our own Top 19 list of MBA programs (it’s “Top 19” because EssaySnark).
Then we’ve been spouting out predictions of how the schools will change their essay questions this year (see individual school pages for a selection of these).
Now we’re going to make a projection for the entire coming admissions season:
And that is, we predict that applications will go DOWN for 2014-’15.
That should be (slightly) reassuring to all of you Brave Supplicants who are planning to apply this year. Fewer apps means less competition!
Actually it doesn’t. Not necessarily.
When apps go up, we hear over and over again from admissions directors that quality does not necessarily follow. Even if you hear that schools are receiving more apps – which Harvard did again this past year – it shouldn’t actually bother you in the slightest. We see what many people phone in to the schools. A good chunk of apps are very low quality. Harvard and other schools like to say that the vast majority of their candidates are qualified – meaning, GMAT and GPA and work experience in range – but that doesn’t mean that they’re competitive. So don’t let any of our little prognastications phase you one way or another.
Going back to our Punxsutawney Phil moment: We’re going to go out on a limb and make a super-early prediction for 2014-’15 that MBA application volumes at the top schools will dip down a bit — only because these numbers are looking pretty darned lofty to us.
You may have observed in our HBS Class Profile comparison post the other day that not much changed this past year in terms of the aggregate of the incoming class. The GMAT range shifted slightly to the right, but that’s about it that we can see.
Beyond that, the only other marginal change was that app volumes went up but not by huge numbers – from 9315 to 9543. HBS saw a bigger tick-up in both of the two years prior. For this just-finished season, this increase looks about par for the course. Every bschool we’ve talked to so far has mentioned that they also saw an increase in apps this past year.
But let’s put that in perspective:
Almost 10,000 apps to Harvard? That’s just like, wow.
Not that that’s a record. They broke the 10,000 mark for the Class of 2004, if memory serves. That would’ve been the application cycle in 2001-’02. Hmmm, what was happening that year? Oh yeah, a major collapse in the economy (the dot-com bust). Hopefully we don’t have another anytime soon.
This past year’s volume at Harvard is actually 20 apps more than they we saw in 2009-’10, which was the peak caused from the most recent recession (2008 housing bust). The economy looks nothing like it did then; still not fully “recovered” but things aren’t doing so bad for a lot of people. Why this increasing demand in the MBA? Typically it’s fully counter-cyclical to the economy.
Things are looking up, yet people are still flocking to bschool.
And everyone wants to go to Harvard.
UPDATE March 2017: We were totally wrong! Not only did the 2014-2015 admissions season not see a dip in applications, volumes actually grew significantly at several schools, and they have continued to do so the two seasons since then! It’s hard to imagine that this steady march upward will be continuing this year too (but that’s what we’ve been saying about the stock market, and we just crossed 21,000 with the Dow). We will have to see what happens!