Ross School of Business, University of Michigan
Ross School of Business, University of Michigan Courtesy of Ross School of Business—Flickr

The MBA scholarship wars

(Poets&Quants) -- "Discount MBA degrees. Get 'em while they're cheap!" It’s not a sign you'll see hanging from any respectable business school, but highly regarded institutions across the U.S. are increasingly providing deep MBA discounts as they fight ferociously over the most talented applicants.

Rivers of scholarship cash are flowing from schools to candidates—well over $200 million a year from the top 25 U.S. business schools alone—drastically cutting MBA costs for many students. As the money pours forth, it's countering the rise in tuition costs, creating a two-tier market for a business education. There’s the high sticker price for the degree, and then there’s the discounted price for the most sought-after candidates.

At the moment, the battle for students has become so frenzied that several prominent schools are quietly negotiating with candidates, often competing with rival offers from other MBA programs. And some second-tier institutions have quietly contacted at least one major admissions consulting firm to present a highly unusual proposition: send your most impressive clients to us, and we'll give them scholarship funds that we've set aside especially for your clients.

Surging numbers of international applicants and a growing number of MBA spaces globally have ratcheted up the intensity in the battle for students. In turn, schools are spending more and more money on scholarships, says Alison Davis-Blake, dean of the Ross School of Business at the University of Michigan. Some buy candidates who will improve a school’s standing in business school rankings, which measure incoming GMAT and GPA scores and outgoing salaries and job offers. Other schools are simply hoping to land the best and brightest to their programs in the expectation that their future success will reflect well on the institution.

"It's a nuclear arms race," Davis-Blake says, before switching metaphors to address the tug-of-war over stellar applicants. "It's more like hand to hand guerrilla warfare, it's fought sort of person by person. We see scholarship amounts increasing. We see more large awards. We see a broader array of students getting awards.”

The top 25 business schools in the U.S. annually dole out more than $220 million in scholarships to their MBA students, according to estimates compiled by Poets&Quants. When it comes to cash, no school beats Harvard, which has a $31.5 million scholarship war chest for little more than 1,800 MBA students, up from $22 million just four years ago. All told, Harvard Business School’s scholarship money constitutes roughly 29% of the school’s gross tuition revenues. Another way to look at this: HBS routinely discounts its MBA sticker price by 29%.

Yet, as significant as that support may be, other prestige MBA programs offer more. Rice University’s Jones Graduate School of Business, with a $6.7 million scholarship budget for just 216 MBA students, is handing out scholarship support equal to 59% of the school’s MBA tuition revenue.

It’s also not merely a game played by private institutions with big endowments. Several highly selective public universities have more recently anted up, including the University of Michigan’s Ross School and UCLA’s Anderson School. Ross now boasts a financial aid kitty of $19.2 million; Anderson has more than doubled its scholarship support in the past five years, to $12.1 million from $5.8 million.

In fact, it’s hard to find a school that has not significantly boosted its scholarship funds in recent years or is not in the midst of a fundraising campaign for which a major portion of the new money will go to discount tuition. At Yale University’s School of Management, Dean Edward “Ted” Snyder says scholarship funds now total 13% of gross tuition revenue for the 2014-2015 academic year, up from only 5% in 2011-2012. For Yale, that roughly translates into a $6.2 million pot, still well below many peer schools.

In most cases, the increases in scholarship support have vastly outstripped the off-putting sticker price of the degree. At Stanford Graduate School of Business, tuition has gone up by 16% in the past five years, but the pool of money available for scholarships has grown by 44%, to $12.5 million from $8.7 million. Many MBA admission consultants now claim to have won their clients millions in scholarship aid. Stratus Prep, an admissions consulting firm based in New York, says its MBA clients alone have received more than $15 million in scholarships since 2011.

This is largely an American business school game. Most of the leading European schools, which have meager endowments and are far behind in tapping alumni for fundraising campaigns, have very little money to lure the world’s best students. INSEAD, for example, has just $3.8 million in scholarship money for more than 1,000 MBA students, less than 5% of its estimated gross revenue tuition of $80.2 million, or less than one-fourth the median scholarship support at a Top 25 U.S. school.

In the U.S., many admissions officers are shocked at how aggressive the awards have become, especially to candidates whose GMAT scores are under 700. “It is crazy the money that some schools are throwing at people,” says Rob Weiller, associate dean of admissions at UCLA’s Anderson School of Business. “People who we were offering nothing to were getting five-digit aid packages from schools ranked in the top five. I hate the arms race it creates, but that is the reality. If you want to play and compete that is what you have to do today.”

This past year, he recalls, a solid candidate with a sub-700 GMAT declined an offer from a Top 20 school and agreed to attend UCLA’s Anderson School of Management. “But they came back and offered him a $40,000 scholarship three weeks before the school’s MBA program started,” says Weiller. “We said, ‘Look, that’s a lot of money and you should be flattered, but we are not going to match offers.” The candidate decided to honor his commitment to start in Anderson’s MBA program.

Admissions consultants say that even The Wharton School has negotiated with candidates, offering a full ride to a woman with a 780 GMAT this past year who was also accepted to MIT Sloan. In some cases, money is being thrown at applicants who in years past would never have qualified for a merit scholarship. A female candidate with a 660 GMAT score was offered $20,000 a year from the University of Chicago’s Booth School this past year. “She had a solid GPA, undergraduate and work background, but we were not blown away by her,” says a rival admissions director.

Given the high stakes, schools are trying to get smarter about using the cash they have to lure the best candidates. At UCLA’s Anderson School, for example, the admissions staff consulted with one of its economists and finance professors, Ivo Welch, to see how it could maximize yield by using its $12.1 million in annual scholarship money more effectively. “When you focus too much aid at the top with full fellowships to super great candidates, you run out of money fast,” explains Weiller. “Welch asked us, ‘What if you just award $5,000 and took it really far down the list and signaled to as many applicants as possible that they were wanted?’ We thought about it and decided that $5,000 was probably not enough. Maybe if it was $10,000 it would be more impactful. So we started spreading the awards down to the next tier down. That is now where the $15,000 awards get made. These are really solid people and we award to a good 50% of our students now.”

Now is the time to haggle

Recruiting the most talented students to an MBA class often involves head-to-head competition between schools, in some cases encouraging applicants to try to negotiate offers. "That's one of the secrets of the industry," says Shimri Winters, owner of multinational admissions consulting firm Aringo. "I've definitely seen good candidates [who] have been accepted to two or three places feel very comfortable ... asking for scholarships. They base their decision on the answer about these scholarships. The money can be a huge difference.”

Frequently, and increasingly, students offered scholarships at one school are going to other schools asking them to match or beat the aid amount, Davis-Blake says. "People ask for anything and everything," Davis-Blake adds. "Asking doesn't mean getting. All kinds of negotiations happen, just like they would over a salary for a job.”

The competition has led Emory University's Goizueta Business School to "over reward" to beat rivals' offers, says dean of admissions Julie Barefoot. To gain intelligence for the scholarship game, Barefoot and other staff pay attention to what other schools are offering Goizueta applicants. "We watch Duke, Chapel Hill, Virginia, Cornell, and it is always good intel," Barefoot says, adding that information from Goizueta applicants also targeting Harvard Business School provided an early revelation of HBS' move to gain more female students through scholarship offers, a focus that soon caught on among other schools.

Some schools deny negotiating over scholarships. Some admit to it. Some say they don't but do and call it something else.

At the University of Virginia's Darden School of Business, financial aid director Susan Loduha says flatly, "Darden scholarships are not negotiable. Darden determines scholarships by selecting the top candidates in each round, then sending their data to the Scholarship Committee for review. They select the students that will receive a scholarship and the amount." New York University's Stern School of Business commented similarly: "NYU Stern does not negotiate scholarships.”

MBA admissions director Evan Bouffides at Washington University's Olin Business School says, "We do, in fact, engage in some negotiation. I believe it is becoming increasingly common for applicants to attempt to negotiate scholarship amounts," Bouffides says.

Christie St. John, admissions director at Vanderbilt University's Owen Graduate School of Business says applicants sometimes come back to the school asking it to match scholarship offers from other institutions but "we don't negotiate very often."

"We consider our competitive position with regard to that school, how many scholarship dollars remain at the time of year, all in the context of the merit of that candidate," St. John says.

Applicants hoping to improve scholarship offers at Goizueta have no hope unless they can come up with something not in their original application that shows why they'd be a useful addition to the school's student population, says admissions dean Barefoot. "If they don’t have new information that changes their candidacy, that changes where they meet our class profile, we are unlikely to change their award," Barefoot says.

Back room negotiations?

At Georgetown University's McDonough School of Business "there is no room to negotiate," although "a lot of people will try," says Shari Hubert, associate dean of MBA admissions. However, there's negotiation, and there's what sounds like negotiation but apparently doesn't fit the school's definition. "What we do is allow students to request an appeal for a scholarship," Hubert says. "Normally they would email us and request additional scholarships. We keep track of those requests and revisit them at a later date. It is happening more and more. Sometimes, even if they do hot have another, better offer, they will ask.”

At Ross, some offer matching takes place, Davis-Blake says, adding that "if you're engaged in a ton of over-matching, that doesn't seem like an appropriate use of funds."

Does that mean Ross applicants with scholarship offers from other schools can only hope for a match at best and nothing more? "I wouldn't say that," Davis-Blake says. "There are so many outcomes that are possible. It's very individualized.”

Aringo admissions consulting firm owner Shimri Winters says more than one but fewer than 10 schools have contacted the company saying they had set aside scholarship funds especially for Aringo clients in exchange for assurance from Aringo that its best candidates would apply to those schools. "This is something new," says Winters, adding that the schools were below the top 10. "We've been 12 years in the business, and last year was the first time we've seen this. They're offering [students] part of their yearly tuition—you can call it a discount to yearly tuition.”

Admissions and financial aid officials are generally reluctant to describe scholarship negotiations, and tend to downplay any haggling that may take place. "We're seeing a lot of people who are getting fellowship offers across more than one program. We get a lot of requests with that kind of negotiation [but] it's very unusual that we would reconsider a fellowship offer," says Maura Herson, MBA director at the MIT Sloan School of Management.

Sloan officials typically avoid matching or beating other schools' offers because word of such behavior can spread quickly in the age of social media, Herson says. "It's not a good strategy.”

Financial need vs. merit

Harvard Business School and Stanford's Graduate School of Business say they offer only need-based financial aid, and no merit scholarships, exempting themselves to some extent from the competitive fray by virtue of their extraordinarily high "yields"—the number of students who actually enroll after receiving an admission offer. HBS has a yield of 89%, while Stanford's is about 84%.

The University of Chicago Booth School of Business, though high on any list of elite institutions, does offer merit-based scholarships. "An MBA is a large investment and there's a lot of talent out there coming from different fields, backgrounds, experiences," says assistant admissions director Glenn Carrere. "The factor of price can be stressful depending on different backgrounds. It's really about finding an opportunity for students we feel will be a tremendous fit in the community and the culture.”

Carrere says back-and-forth negotiating with applicants over scholarships "is not something that happens ... it does not go down in that particular way." If a student with multiple offers comes seeking scholarship funds beyond any they may have been offered, "we'll take another look," but when it comes to, 'X school offered me this, what can you do?' that is not something we really participate in," Carrere says.

However, two admissions consultants tell Poets&Quants that Booth is among the schools most generous with scholarship money, using it to attract students away from other highly ranked institutions.

Lower-level schools are taking a more focused approach to spending scholarship money, targeting one or two categories of students they want to add, such as those with histories of academic excellence or backgrounds that boost a school's diversity, Ross Dean Davis-Blake says.

Bottom line, many schools will spend money to acquire a particular student, but only if they have to. "They're also asking themselves that question, 'What's the likelihood of this person coming here without the aid—do we need it in order to win somebody whom we would otherwise lose?'" Bauer says.

Anderson director of financial aid Ji Choi says the school doesn't negotiate over scholarships, but has seen an increase in requests from students to do so.

The scholarship party may soon be coming to a close

With haggling over scholarships on the upswing, schools may very well become fed up with the scholarship haggling. Goizueta has deliberately cut back its willingness to negotiate, says admissions dean Barefoot, after a period in which they went back and forth more often with students over scholarships. "It was not fruitful," Barefoot says. "It was not helpful for us. I always questioned, 'Why did I do this?' Someone has come into my office after enrolling, after comparing with a fellow student and told me they got this and the other student got that, and [they] were upset."

As ferocious as the feeding frenzy over MBA students currently is, it arises from cyclical conditions, and the era of productive haggling may be waning, for now. Data from the Graduate Management Admission Council suggest the intense competition for students may cool down as interest in MBA programs rises—applicant numbers at most U.S. full-time, two-year MBA programs rose in 2014. Globally, 61% of full-time, two-year MBA programs reported growth in applications, the first time in five years that a majority of schools reported an increase. And in the past few months, GMAC has noted a slight increase in GMAT test-taking by U.S. citizens, says the company's vice-president of global communications Rich D’Amato.

The apparent upswing in demand for MBA degrees fits with a historical pattern, in which recession-period job losses and uncertain employment markets propel more people back to school, until the economy improves, the trend reverses, and MBA applications drop. Then, finally, the situation stabilizes, with limited growth. "That's what we're beginning to see now," D'Amato says.

Aggressive pursuit of scholarship money by MBA applicants can be counterproductive, says Ann Richards, financial aid director at Cornell University's Johnson School of Management. "What I'm starting to see is that money is the deciding factor in which school to attend rather than what is the right school for them," Richards says. "If you're choosing a school that isn't really a good fit for you, because they gave you $10,000 more in scholarship support, over your lifetime, that is nothing. If you choose a program that may not challenge you, may not meet your needs, may not give you the same opportunities that you are expecting from your degree program ... it has cost you more than it has saved you.”

MIT Sloan first-year MBA candidate Dana Buchbut made the kind of decision Richards recommends. A medical doctor and reservist in the Israel Defense Forces, Buchbut received scholarship offers from two other top-five schools, one of them totaling $60,000, which was higher than what MIT put on the table. But Buchbut was interested in innovation and entrepreneurship, and she believed Sloan would do the best job of preparing her for work in health care devices, software, and marketing. "I went with them because I think that that's the best fit for me," says Buchbut, 31. Even if MIT had offered her nothing, Buchbut says, "I would go to Sloan anyway.”

Instead of looking for tuition discounts via scholarships, MBA applicants are better off preparing financially by saving money and adjusting in advance to a less expensive student lifestyle, Richards says. "We tell students, 'Don't quit your job as soon as you're admitted—keep working. Don't take that trip of a lifetime before you start school. You can take that trip of a lifetime after you get your signing bonus.’

"The students who are prepared financially are in the best position to choose the program that's right for them. If students start thinking about this at the same time that they start to think about the application process, it becomes a much less emotional decision.”

For now, however, it’s a multi-million-dollar war for the best and the brightest—and the beneficiaries are the students who have what it takes to get the cash.

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