Exploring the “perfect storm” facing U.S. business education, John Byrne, Maria Wich-Vila, and Caroline Diarte Edwards delve into a landscape fraught with challenges. With insights from a former dean of Yale School of Management, the episode paints a vivid picture of how visa restrictions, changes in tuition models, and increased taxes on college endowments are set to reshape business schools. The hosts consider how these elements might fundamentally alter the playing field, especially for institutions heavily reliant on international student enrollment.

A key takeaway is the intensified competition for domestic students, which might shift the dynamics among elite schools. The discussed tax implications could lead to decreased endowment giving and put financial pressure on faculty hiring and salaries. This prompts a need for business schools to innovate through non-U.S. campuses and global partnerships, potentially expanding their reach beyond traditional borders.

Caroline highlights the “triple whammy” undermining the value proposition for international students: uncertainty in visa processes, potential changes in post-graduation employment opportunities, and doubts about return on investment. These factors pose significant concerns for students from emerging economies looking to benefit from U.S. education. As schools like Harvard and Stanford are seen as well-positioned to weather this storm, others may need to adapt quickly to stay competitive. For MBA applicants, understanding these shifts is crucial in navigating future educational and career decisions.

Episode Transcript

Note: This transcript was generated by AI and may contain minor inaccuracies.

[00:00:07] – John

Well, hello, everyone. This is John Byrne with Poets & Quants. Welcome to business Casual, our weekly podcast with my co-host, Maria Wickvilla and Caroline Diarte Edwards. We just ran a fascinating commentary by the former dean of the Yale School of Management, who before that was the dean of Chicago and had brought in the massive Booth gift, which to this day remains the largest gift ever to a business school. And before that was a dean of the Darden School at University of Virginia. And he’s reflecting on what he calls the daunting challenge facing US business schools. He sees a perfect storm of trouble for business education in the United States that is a function of issues over visas for international students and a function of the budget bill now before the US Senate, which proposes tax rates of up to 21% on the endowment income of private universities with large endowments. And of course, as we know, many of the elite US business schools have their homes at these large private universities. His point of view is that you can expect fundamental changes in business education in the US as a result of these forces. He notes that the competition for domestic students will intensify.

[00:01:43] – John

Some students admitted to a NEC-7 will get a spot in the M7 schools when before they couldn’t. The degree program portfolios of many schools will be reconstructed, in part because specialized master’s level programs have high percentages of international students, and those populations will shrink or go away. He mentions that endowment giving will fall because as economists teach, if you tax something, you’ll get less of it, which is true. He notes that the price discrimination model where international students pay higher average tuition rates will falter and says you should expect flatter pricing and lower annual tuition increases for the schools. He says that as a result of all this, budget pressures will hit faculty and staff, so you can expect less hiring and pay freezes. He’s saying the new PhD students will need to expand their geographic horizons, probably outside the US. As university-wide budget pressures mount, the abilities of a business school dean to protect his or her franchise will be tested. Business schools outside the US will become even more significant competitors for US schools. The dean believes that HBS and Stanford will stand pat, meaning with their stratosphere yield rates, they can and they will fill their classes with more domestic students than internationals who can still matriculate.

[00:03:21] – John

Then finally, other US schools will seize the moment and pursue new strategies involving non-US campuses, partnerships, consortiums, and technological innovations that get them around this issue of losing international students. In fact, some schools, he says, will send their faculty to international students altogether. So, Caroline, what do you make of all this?

[00:03:48] – Caroline

I thought it was a really good article, a great summary of the situation and challenges facing schools. I found it quite disconcerting that the short list of schools that he highlights as being reasonably well positioned to weather the storm comes down to just two schools, Harvard and Stanford. I would have thought that it would have been a slightly longer list of schools. And this guy is coming from Yale, right? One of the most prestigious schools in the country, it doesn’t get much better than Yale. So it is extremely concerning. And he lays out the various challenges very clearly. And I found it interesting how he talked about the triple whammy for students in how the current situation undermines three elements of the value proposition for international students. So one part of that is that in the past, it was pretty easy to get into the US if you’d secured a spot at an MBA program, and that is being fundamentally undermined right now, and we’re not sure what the situation is going to be, so that makes it a less compelling value proposition because of that uncertainty. The The second part is that there has been a promise that if you come to the US and you graduate from a top business school or from an MBA program, then you can stay in the US for a certain length of time and work when you graduate.

[00:05:14] – Caroline

That justifies the high tuition fees and the investment in the degree because for many students, it’s very attractive to be able to move often from an emerging economy where their salaries are pretty low who are coming to the US market where they can demand probably multiples of what they would be able to earn in their home country. Right now that hasn’t changed, but there are question marks around it and whether that might change in the future. So that is a potential huge concern about the return on investment for the students coming to the US. And then, of course, many of those students who do stay and take advantage of those short term visas manage to stay longer term. They’re converting their initial visas into permanent residency and ultimately citizenship. Coming to the US for a graduate degree was seen as a path to be able to stay here long term for many of those students. That may also become more difficult. I thought it was interesting how he laid that out. Yes, it is extremely concerning for international students.

[00:06:27] – John

The other thing, again, is And he believes that this will all make business schools outside the US even more competitive with US schools for students. And we’re already seeing some of that, right, Caroline?

[00:06:41] – Caroline

Yeah. So one of our clients flagged to us that Sieves is advertising that they will automatically admit any student or any future student who’s been admitted to a top 30 US full-time MBA program. And I believe the definition is they are in the top 30 in the Financial Times MBA ranking. So that’s an incredible offer, right? No questions asked about your background, your credentials. You just show your admit letter to one of these top schools, and you have an automatic admit to CEBS. So I wonder if other schools might also be looking at those doing that. I mean, I guess in some ways it’s possibly helpful to students, but not necessarily helpful to the US schools that are no doubt hoping to retain some of these students and ultimately be able to bring them into the country, hoping that the visa appointments will resume and students will be able to come into the country. So I would imagine that some other schools are also looking at whether they can take advantage of the difficult situation in the US, although I doubt that the top international schools would give just automatically an admit from one school into an admit at their school.

[00:08:02] – Caroline

I think that they would… Well, one part is that they’re probably full for the September intake at this point. Some of the international programs, of course, have January classes, but they would still… I would imagine the top schools would still require applications, but it might not be a bad idea to think about applying to a January program if you are hoping to start a program in September, but you’re uncertain about your current visa situation.

[00:08:27] – John

Right. Yeah. Now, Maria, you just returned from an alumni weekend at Harvard. Was there any discussion of the threat to higher education currently?

[00:08:39] – Speaker

Yeah. I mean, there was a lot of, I think, informal discussion amongst various alums wondering what’s going to happen, how can HBS respond, how can any of these universities respond. But in particular, Harvard does seem to be singled out more than others in many ways. What, if anything, should the university be doing? What should we as an alumni community? What should we be doing? What can we be doing, if anything? I think there’s been a lot of informal discussion around that. Caroline mentioned that a lot of the international programs that could benefit from these US policies are full by now. One of the things that I’ve been thinking about is just how terrible the timing is for all of this to go down. Had it all happened several months ago, then many of the schools could have had a heads up to pivot and try to find solutions. Had it happened several months from now, well, at least this year’s incoming class could have enrolled and moved in August. But the fact that it’s happening at the beginning of the summer really is, I don’t know if it was done this way on purpose or not, but it certainly is pretty much the worst timing that you could possibly have.

[00:09:53] – Speaker

It almost makes me wonder, yes, I do think the international programs are absolutely going to benefit, and not only will those programs benefit, but those countries will benefit because they’ll not only attract the world’s top talent as students in the short term, but if that talent chooses to stay in those regions and work and contribute their energies and their ideas to these other countries, then the US will continue to lose to whichever countries are smart enough to take in that talent. But on the other side, I also wonder if some of the US institutions might actually start to follow the INSEAD model. Insead, as usual, ahead of its time with its multiple campuses around world, I can’t help but wonder, should Harvard Business School do… I mean, there’s some of the undergraduate universities that have done this in the US. Duke Kunshan University, there’s NYU Shanghai. I believe there’s an NYU campus in Abu Dhabi or someplace in the Middle East off the top of my head. I almost wonder, will HBS open a Shanghai campus? Will HBS open a London campus? A year ago, one would have said, Well, It’s a cool idea, but there’s no need to do so.

[00:11:03] – Speaker

However, now I can’t help but wonder, if the endowment is going to get taxed anyway, why not start spending a bunch of it, if you can, in real estate and start opening these satellite campuses and basically follow the INSEAD model and just places where everyone can join and continue to have that dynamic pedagogical case study experience. Who knows what’s going to happen, but hopefully some creative solutions can be found.

[00:11:35] – John

Ted Snyder, the former dean at Yale who wrote this commentary, notes that international students are roughly 45% of the full-time MBA program market in the US. He notes correctly that internationals often account for the vast majority of students in specialized master’s programs. One of the things that he did was the back of the envelope calculation. He basically said, Hey, if a business school with an MBA class of 450 students and three specialized master’s programs with a total of 150 students, if they lost 120 international students, the decrease in tuition revenues would be $16 million annually. If they lost 240 internationals, the decreased tuition would be on the order of $32 million annually. So it’s not jump change. It’s a significant part of the financial model that business schools have and would require them to really change fairly dramatically in terms of everything that they do. So it’s a real issue and a big threat, which makes you think, it’s not a whole lot of fun to be a dean of a business school these days, right? Caroline, would you want to be dean of NCI? Although NCI is going to be a beneficiary here, right?

[00:12:59] – Caroline

Nci may well be a beneficiary, yeah. Although I don’t think that they are welcoming this change either. It’s just a really bad blow for the world of business education in general. I think one of the tricky things, or one of the many tricky things, is Maria said, possibly for the US school, developing those international partnerships or even opening international campuses could make a lot of sense. Having seen it, if you had to do that, open the Singapore campus, and then when I was working at the school, opening the Abu Dhabi campus, that’s really such a mammoth undertaking. It’s a multi-year project. And one of the issues is that Trump policies can change from one day to the next. That’s also, of course, the issue with the terrorists, companies trying to make any long term changes based on the latest flavor of the month policy coming out of the White House that could change with the wind tomorrow. So I think it’s very difficult for schools to know whether they should make long term strategic decisions based on what’s happening right now, because who knows where we could be in six months time, and they could have initiated a project that is multi, multi million, if not billion dollars, based on a policy that could then be defunct in a few months’ time.

[00:14:24] – Caroline

So I think that knowing how to plan for the longer term is extremely for business schools right now.

[00:14:32] – Speaker

Maybe what they could do is they could do what Wharton did with its San Francisco campus. They started by basically renting out a floor in an office building and then experimenting with that for a few years and then seeing like, Hey, do we even need this? Should we expand it? Should we reduce it? Unfortunately or fortunately, after COVID, there’s been such a lack of… People are not going back to the office and there’s a lot of commercial real estate. That’s true. Unfortunately, there’s lots of empty office space. Yeah. Unfortunately, for my friends who chose to work in commercial real estate, it hasn’t been great. But the good news is there’s a lot of empty office space. Who knows? There might be some quick thing they can pull together. But it’s certainly under no circumstance is it easy, fast, simple to put together.

[00:15:20] – John

Yeah. I mean, that uncertainty is causing a lot of disruption in and of itself because many companies are not wanting to invest any money not knowing what the world will look like in the short term. And you’re right. Policies that are announced one day are then taken back the next. And so you just don’t know what to expect. This could be all a bunch of bluster, and it can all go away. Although we’ve said before, and I think this is true, and Ted Snyder says it in this article as well, that even if, for example, a State Department resumed scheduling necessary appointments for potential visa holders, essentially, you can’t walk away from this thinking that the welcome map for international students is in tatters. Why go to the US given that? That’s the big issue. I say, Why go to the US? Well, because the institutions that do grant these degrees are exceptional. They’re world-class, and in many cases, they’re ahead of every other place. That’s why you would still come. You would come thinking that, Okay, there’s disruption, there’s uncertainty, but at some point, it’s all going to clear. These are all points that the three of us have made in the past on these podcasts.

[00:16:54] – John

In fact, what will happen is there’ll be less competition for a spot at a great school and a great program. And so, in fact, your odds of getting in and taking advantage of this situation actually increase. So there is that point of view. But if you’re thinking of this from the standpoint of the leadership of a business school, boy, it ain’t fun at all. And Ted makes the point that he really believes that what is going on today is, frankly, the biggest challenge in the entire collective history of business schools in the US. I’m afraid I would have to agree with him. Maria, any final thoughts?

[00:17:42] – Speaker

I mean, yeah, I wish I I wish I had a final thought. I had some wisdom or something optimistic to add here on the tail end, but I don’t know. I think we just all have to hope for the best and prepare for the worst. Yeah, hopefully something will change. Hopefully the courts will hold. Hopefully things like that can continue. But if not, I think we’re going to have to be prepared for some pretty big changes, at least in the upcoming enrollment cycle starting in August.

[00:18:18] – John

Yeah. Even if a school is to pursue a different strategy, meaning what we’ve suggested here and what Ted Snyder has mentioned, that is at a cost to the school and at a cost to the US, because that means fewer people coming, fewer people spending money here, fewer people investing in their own economy, fewer people basically The United States, leveraging the talent and the skills of people who otherwise would not be here. It’s all lost. And there’s a cost to that long term and short term. I don’t see that going away. Caroline, your thoughts?

[00:19:01] – Caroline

Yeah, it’s not a great situation. I was also talking with a young woman who’s admitted to HBS, who is… She has US nationality, but she’s also devastated because She’s well aware of the impact it will have on the potential experience when she gets to school if all of those international students have not been able to come to the program, some of whom she’d already met and started building relationships with. It was almost like she had survivor guilt that She’s going to be able to go, but many of her future classmates are in an incredibly difficult situation and might not be able to join. So it’s not just a question and an impact for the international students. It’s also the opportunity and the education that the US students get, because so much of the learning experience is that peer-to-peer experience, and it will be a less rich experience if the international students aren’t able to come. They add a huge amount to the classroom experience, to the community, to the campus life, and it will be everybody’s loss if they’re not able to join.

[00:20:11] – John

Exactly. All right. So do come to the Poets and Quants and read the Ted Snyder commentary. It’s entitled The Daunting Challenge Facing US Business Schools. He does some quick math, which is quite horrifying, frankly, on on both the impact on endowment revenue as well as tuition revenue, if in fact, these policies and initiatives hold. And really, it’s an exercise of the alarm bells are going off because something really bad is happening that will dramatically change how a dean will lead a school in the future in the US. Have a read. This Burn with Poets & Quants. Thanks for listening.