Whenever people ask me why I chose to get my MBA, I tell them it’s because the dealership was out of Ferraris. Tuition alone at NYU Stern runs to roughly $140,000 for a standard two-year program, and it isn’t the only top school with an aggressive price tag. Of the top 14 business schools according to the 2016 U.S. News & World Report ranking, the University of California-Berkeley’s Haas School of Business is the only one that boasts a two-year out-of-state tuition cost under $130,000.
Big deal though, right? We all know MBA programs are expensive. Here’s the kicker: if you look at the price of tuition at Stern in 2010 and correct for inflation—I was conservative and put annual inflation at 2.1 percent based on an average of the last 10 years—2017 tuition costs are around $35,000 higher for a full-time student who completes the program in the expected two years. That’s a total of $30M over the entire full-time student body. Why does it cost $30M more ($15M annually) now to run Stern’s full-time program than it did just seven years ago?
Whenever I see growing costs at any organization, I ask (like any good Stern student) if these additional expenses are contributing surplus value to their mission and/or shareholders. Ignoring the consultant buzzword bonanza inherent in that last sentence, what is “surplus value” for a top-tier MBA program? Well, it’s clearly the happiness, intellectual growth, earning power, and fulfillment its graduates experience throughout their academic careers at the institution and beyond, due to the unique benefits their degree conveys. Since no one has the time to calculate that (thank you, recruiting), I’ll just simplify it to rankings and first-year graduate salaries. The box score runs as follows:
Rankings for Top FT MBA Programs
NYU Stern ranked at No. 9 in the 2010 US News & World Report ranking of top MBA programs (full-time and part-time inclusive). In 2017, Stern came in at No. 12.
First Year Income (CAGR)
Those who graduated from NYU Stern between 2010 and 2016 experienced an average base salary growth of 3.14 percent. At the same time, the tuition rate increase (including tuition and registration fees) is approximately 6.5 percent. If tuition continues to increase at the same rate, one year of tuition will equal the average first-year base salary in just 18 years.
Over the past seven years, the rankings have remained generally constant, and the average base salary has essentially been growing with inflation. For the sake of ease in the following analysis, I used base pay numbers, and didn’t factor in the widely-varying bonuses across industries; with these considerations in mind, evidence indicates that total compensation actually declined/remained flat between 2012 and 2014.
To be fair to Stern, these costs are growing at a rate similar to that of other institutions (again, see the U.S. News & World Report rankings over the past few years), but why should we consider that a mark of success? If two competing teams are working on a car, and neither team successfully builds a car, we don’t give a prize to the team that builds the best “not-working” car. Furthermore, is this just a spending arms race with Tuck, for example? If that’s the case, why have we continued to try to mirror the resource allocation of competing schools without getting strategic about leapfrogging them in the rankings?
Costs are growing, but it isn’t clear what additional resources and benefits these costs provide to students and how these expenditures are tied to improved outcomes for students. To NYU’s credit, the University is paying out more Financial Aid as a share of tuition costs than in previous years (although it isn’t clear how this aid is divided between schools), so I think it’s premature to take this analysis as rote and start the march on the administration, but some reasonable follow up is warranted.
Every for-profit company in the world has clear quantitative and qualitative goals. Shareholders and owners evaluate management’s performance against these goals. They ask tough questions when managers are off course and reward them when they’re on target. I think it’s difficult to say that Stern’s “management” is off course, because honestly, we don’t always know what “the course” is, which brings me to the following questions:
What does a successful year at Stern look like?
Is this success quantitatively measured? Do we need to hit certain U.S. News ranking goals, both the holistic rank as well as the individual criteria that it consists of? What about start-up funding or innovation goals? Also, as costs become a growing portion of the national dialogue on higher education:
What are the plans to reduce tuition and cost of attendance at Stern?
Please note, I’m not asking about “slowing” the growth rate; I mean stopping it. Last year, NYU’s cost of attendance grew at its lowest rate in 20 years: 2 percent. Why stop here? Given that we’re focusing on tough questions, I’d like to continue with what I view to be an important follow up:
If we are to compensate NYU leadership at the same level as their corporate exec counterparts, how do we plan to hold them accountable to questions one and two above, and how can we reward them if they exceed expectations?
John Sexton, President Emeritus of NYU, was paid approximately $1.48M in 2014, as per the latest data released by The Chronicle of Higher Education. Although the current salary of President Andy Hamilton has yet to be officially released, he does live in an NYU-owned penthouse (see the December 2015 New York Times article on its recent face-lift; it seems divine). It would be unfair to assume that leadership salaries are unwarranted, but it’s unclear what tangible outcomes these employees are responsible for, which is particularly concerning in a time when public outcry about rising tuition costs is nearing a fever pitch.
Finally, although less related to the questions above, I can’t help but ask:
What on earth is the endowment for?
NYU has a relatively small endowment for its size (around $3B), but only 4 percent of the annual budget (also around $3B) is paid by the endowment. This is bizarre in a world where the S&P is up ~15 per cent YTD—although, in a world where schools like Harvard enjoy an endowment of over $35 billion, conservative spending appears rational.
As explained by Dean Henry, one of the central messages of 2017 LAUNCH was a concept of humility and hard work; it continues to resonate with me. Over these first few months, I have felt honored to be included in a class of brilliant and engaging peers. Yet I can’t shake the feeling that I’ve never thanked someone so much after giving them so much money. Still, it’s great to promote humility—and after Professor Silber’s Finance exam and Professor Bartov’s Accounting exam, I am eating nothing but humble pie for the foreseeable future. Frankly, that’s all I can afford anyhow.