Tuition Smackdown: Deans Snyder and Kole
Report From a Conversation About the Tuition Increase
Andrew Van Fossen, '06 and Vineet Hemrajani, '07
Issue date: 4/27/06 Section: GSB News
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Tuition at the GSB for the 2006-07 academic year will increase to $4,160 per class from $3,880 per class, a 7.2% increase. As second-years thank their lucky stars for allowing them to escape the increase, first-years will no doubt curse their bad luck and timing. This year's increase is the most recent in a persistent trend of tuition increases at the GSB and the fifth year in a row that the GSB tuition went up by a rate higher than inflation.
We sat down with Dean Ted Snyder and Deputy Dean Stacey Kole to discuss the increase and understand how such increases help the school achieve its ultimate goal of being the best business school in the world. We talked about why tuition has been increasing so rapidly, and the improvements students will see at the GSB as a direct result of this latest hike.
How do tuition increases help the school?
The obvious answer here is that they increase the GSB's revenues and the school can use this incremental revenue to provide a better overall 'product', through a stronger marketing presence targeted towards prospective students and hiring organizations, a larger career services department to develop deeper relationships with companies looking to hire at the GSB, and what we learnt was the single largest expense at the school, world-class faculty.
Retaining the best professors, especially the younger ones who show the most promise, is an especially salient issue for Dean Snyder: "We have been very good at retaining our faculty and that has been one of the bigger drivers of our cost."
That being said, we should recognize that tuition increases are not the only options available to increase income, but both Deans believe that it is the preferred way to raise the additional revenue required without compromising the quality of the educational experience provided by institution. The GSB does have the capacity to admit more students, but chooses not to in order to preserve the overall quality of the program and the incoming class. Other revenue streams such as licensing CRSP, executive education, and returns from our endowment have a comparatively limited contribution potential.
Another source of revenue is the selling of naming rights for everything from classrooms (9 of the 10 classrooms have been named after donors who have given in excess of $1 million) to the Rothman Winter Garden to the Alpert Student Lounge. This leaves two large, albeit controversial, opportunities: the Hyde Park Center and the Graduate School of Business itself. It is the naming rights to the school that the Deans are especially sensitive to. "How much would you be willing to sell the naming rights to the school for?" Dean Snyder asked. "Would you do it for $200 million, $500 million? Is there any price you would do it for? It's something we would consider but it would absolutely not be taken lightly." All this leaves tuition increases as one of the few ways to increase the school's revenues.
Why has tuition been increasing so rapidly?
The succinct answer is because the GSB can do so. From a pricing perspective, those of you who have taken 37202-Pricing Strategies with Professor Dube can attest, the GSB is dealing with customers who are largely price insensitive (regardless of how fervently we complain when it does happen). While these tuition increases have clearly outpaced inflation and educational operating expenses, they have been well in line with the tuition increases at other top-tier MBA programs, and they have been less than the value of a top-tier MBA degree as measured against metrics such as starting salary or life-time earnings. The time-series data on peer tuition show that the GSB is neither a leader nor a follower on tuition. GSB tuition next year will be lower than MIT, Stanford, and Wharton.
Each year demand for the GSB exceeds supply - more students, who would make fine additions to the school, apply than are accepted. This low price sensitivity and excess demand begs the question why does tuition not increase even more? Here Dean Kole pointed out that international students have limited debt options compared to American students, placing downward pressure on tuition costs. Also, given the proximity of the Kellogg School of Management, GSB faces a competitive dynamic for part-time students which is unique compared to other schools.
What improvements can we expect?
The GSB is not in any financial distress, as Dean Snyder has repeatedly pointed out, and it doesn't have any imminent, massive undertakings that are calling for the additional funds, although there are a few improvements that we will see next year. There is an initiative to bring facilities at the Gleacher Center, particularly the classrooms, on par with the HPC (Dean Snyder chuckled at the irony that only a couple years ago the Gleacher Center was the envy of those taking classes in Hyde Park). Also, marketing expenses are budgeted to double this coming year; here we can expect more exposure for the school as it seeks to attract more of the finest students.
So where will the remaining money go? One answer is the endowment. While both Deans are pleased with the current state of the GSB, they are acutely aware of the threats to our place as one of the premier business schools in the world. Dean Snyder explained, "10 years ago there were 30 schools saying they were going to be among the best business schools in the world. It has become very clear that there is only place for about 10 schools in that club." More specifically, Snyder says that "only a small number of schools can compete successfully on a multi-brass ring strategy." What does he mean? He says Chicago will be among a small set of schools that compete for world-class students, recruit and retain the best faculty, build strong relationships with top companies, develop a vibrant network with entrepreneurs, compete globally, and leverage a powerful brand.
Dean Kole agreed, "In the not too distant future, you'll see a real degrading of the talent at middle-tier schools." While there are no pressing needs today, the Deans want to build on to the endowment to allow the GSB the agility to pursue opportunities, be it retaining or recruiting a professor with Nobel promise or making a technological investment or something else we can't imagine right now, more quickly than we can today.
The increase of 7.2% is indeed quite steep for the majority of the international students who do not have access to subsidized federal loans, and finance tuition almost entirely through IDAPP supported loans. As most of the other U.S top schools have increased the tuitions this year, the Chicago GSB will continue to remain just as attractive to the international student (relative to other top US schools). However, tuition increases can lead to, as seen before, an overall drop in international application rates. Dean Kole said, "The school is increasing its common pool of scholarships and creating emerging market fellowships to ensure that it attracts the best available international talent going forward." She also mentioned that Priscilla Parker, Director of Financial Aid, will be sending more information on the changes to the loan programs (due to the tuition increase) in the near future.
We sat down with Dean Ted Snyder and Deputy Dean Stacey Kole to discuss the increase and understand how such increases help the school achieve its ultimate goal of being the best business school in the world. We talked about why tuition has been increasing so rapidly, and the improvements students will see at the GSB as a direct result of this latest hike.
 |
How do tuition increases help the school?
The obvious answer here is that they increase the GSB's revenues and the school can use this incremental revenue to provide a better overall 'product', through a stronger marketing presence targeted towards prospective students and hiring organizations, a larger career services department to develop deeper relationships with companies looking to hire at the GSB, and what we learnt was the single largest expense at the school, world-class faculty.
Retaining the best professors, especially the younger ones who show the most promise, is an especially salient issue for Dean Snyder: "We have been very good at retaining our faculty and that has been one of the bigger drivers of our cost."
That being said, we should recognize that tuition increases are not the only options available to increase income, but both Deans believe that it is the preferred way to raise the additional revenue required without compromising the quality of the educational experience provided by institution. The GSB does have the capacity to admit more students, but chooses not to in order to preserve the overall quality of the program and the incoming class. Other revenue streams such as licensing CRSP, executive education, and returns from our endowment have a comparatively limited contribution potential.
 |
Another source of revenue is the selling of naming rights for everything from classrooms (9 of the 10 classrooms have been named after donors who have given in excess of $1 million) to the Rothman Winter Garden to the Alpert Student Lounge. This leaves two large, albeit controversial, opportunities: the Hyde Park Center and the Graduate School of Business itself. It is the naming rights to the school that the Deans are especially sensitive to. "How much would you be willing to sell the naming rights to the school for?" Dean Snyder asked. "Would you do it for $200 million, $500 million? Is there any price you would do it for? It's something we would consider but it would absolutely not be taken lightly." All this leaves tuition increases as one of the few ways to increase the school's revenues.
Why has tuition been increasing so rapidly?
The succinct answer is because the GSB can do so. From a pricing perspective, those of you who have taken 37202-Pricing Strategies with Professor Dube can attest, the GSB is dealing with customers who are largely price insensitive (regardless of how fervently we complain when it does happen). While these tuition increases have clearly outpaced inflation and educational operating expenses, they have been well in line with the tuition increases at other top-tier MBA programs, and they have been less than the value of a top-tier MBA degree as measured against metrics such as starting salary or life-time earnings. The time-series data on peer tuition show that the GSB is neither a leader nor a follower on tuition. GSB tuition next year will be lower than MIT, Stanford, and Wharton.
Each year demand for the GSB exceeds supply - more students, who would make fine additions to the school, apply than are accepted. This low price sensitivity and excess demand begs the question why does tuition not increase even more? Here Dean Kole pointed out that international students have limited debt options compared to American students, placing downward pressure on tuition costs. Also, given the proximity of the Kellogg School of Management, GSB faces a competitive dynamic for part-time students which is unique compared to other schools.
What improvements can we expect?
The GSB is not in any financial distress, as Dean Snyder has repeatedly pointed out, and it doesn't have any imminent, massive undertakings that are calling for the additional funds, although there are a few improvements that we will see next year. There is an initiative to bring facilities at the Gleacher Center, particularly the classrooms, on par with the HPC (Dean Snyder chuckled at the irony that only a couple years ago the Gleacher Center was the envy of those taking classes in Hyde Park). Also, marketing expenses are budgeted to double this coming year; here we can expect more exposure for the school as it seeks to attract more of the finest students.
So where will the remaining money go? One answer is the endowment. While both Deans are pleased with the current state of the GSB, they are acutely aware of the threats to our place as one of the premier business schools in the world. Dean Snyder explained, "10 years ago there were 30 schools saying they were going to be among the best business schools in the world. It has become very clear that there is only place for about 10 schools in that club." More specifically, Snyder says that "only a small number of schools can compete successfully on a multi-brass ring strategy." What does he mean? He says Chicago will be among a small set of schools that compete for world-class students, recruit and retain the best faculty, build strong relationships with top companies, develop a vibrant network with entrepreneurs, compete globally, and leverage a powerful brand.
Dean Kole agreed, "In the not too distant future, you'll see a real degrading of the talent at middle-tier schools." While there are no pressing needs today, the Deans want to build on to the endowment to allow the GSB the agility to pursue opportunities, be it retaining or recruiting a professor with Nobel promise or making a technological investment or something else we can't imagine right now, more quickly than we can today.
The increase of 7.2% is indeed quite steep for the majority of the international students who do not have access to subsidized federal loans, and finance tuition almost entirely through IDAPP supported loans. As most of the other U.S top schools have increased the tuitions this year, the Chicago GSB will continue to remain just as attractive to the international student (relative to other top US schools). However, tuition increases can lead to, as seen before, an overall drop in international application rates. Dean Kole said, "The school is increasing its common pool of scholarships and creating emerging market fellowships to ensure that it attracts the best available international talent going forward." She also mentioned that Priscilla Parker, Director of Financial Aid, will be sending more information on the changes to the loan programs (due to the tuition increase) in the near future.
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