According to the Wall Street Journal, the Thunderbird School of Management is having to sell itself to a for-profit operator after applications tumbled. The Journal is presenting this as an example of the decline-and-fall of the MBA, but I’m not sure that’s actually what’s happening. The Journal calls Thunderbird a top-ranked program, but my recollection from the MBA application process is that Thunderbird was pretty far down there in the rankings, though they did have an international specialization that was attractive to some students.
The Thunderbird story seems like an example of the increasingly variable returns to education. An MBA from a third ranked school is usually a good way to rack up a lot of debt without substantially improving your employment prospects. And it’s possible that potential students are beginning to wake up to those dangers, just as they did with law school. There are a lot of unnecessary MBA programs and law schools out there, created by colleges who viewed them as an easy cash cow–the courses are cheap to teach, requiring only a professor and some whiteboards, but starry-eyed students could and did borrow six-figure sums to get what they thought was a sterling credential that would guarantee them a good job.
But that doesn’t mean that the MBA is losing its value–when I returned to Chicago in October 2011 for my 10th business-school reunion, I saw no signs that Booth graduates were having any trouble finding high-paying jobs. Indeed, a top-tier MBA may be more valuable than ever. Just as in the broader economy, the top is pulling away from the rest.
The problem is that third-tier schools had been issuing a lot of degrees, charging tuition that only made sense if you were going to get a Harvard-caliber job. And those jobs aren’t available to the graduates of a small regional program. I’m not saying that those people aren’t good enough for those jobs, or don’t deserve them, but the reality is that the companies offering those glamorous-sounding, high-paying jobs in tech or consulting or finance only recruit at a handful of schools. This was true even when I was in school. But when unemployment was low, it wasn’t so obvious to folks considering an MBA from the University of Louisville. Now it is.
In the summer of 2012 when I wrote a piece on whether there was a higher education bubble, my focus was on college. But it is the graduate schools that the collapse has begun. That doesn’t mean that graduate education will go away (after all, neither tulip bulbs nor stock exchanges went away when those bubbles collapsed); rather, the market will get dramatically smaller, with the shakiest programs going bust, others retrenching, and the top ones continuing to draw more students than they can enroll. If it spreads to college, we should expect to see the same pattern: top tier schools surviving and even thriving, while lesser ranked schools pitched into financial crises by declining enrollment.
Overall, I think that’s a good thing; over the last decade or so, a lot of students ended up spending a lot of money on degrees that did them no good. If prospective students are wising up to the risks, that’s great. But it’s a bit hard on the professors who abandoned the private sector for tenured positions at institutions that may shortly cease to exist. And what do we tell the students who can no longer pin their hopes on more education?