An unexpected B-school arms race for top students

December 12, 2011: 9:35 AM ET

Competition for the best students has never been more intense among the leading business schools.

By John A. Byrne, contributor

USC Marshall

University of Southern California's Marshall School hands out the highest average MBA scholarships in the nation at $35,490 a clip.

(Poets&Quants) -- You may know that MBA applications at most schools have been down for two years running and that the cost of attending a two-year MBA program is nearly out of reach for many applicants. But what you may not know is that competition for the best and brightest students has never been more intense among the leading business schools.

Last year, Harvard Business School, arguably the institution least in need of passing out cash to applicants or students, doled out a whopping $28 million on scholarships to its MBA candidates. And at the University of Southern California's Marshall School, the average scholarship award for an MBA is now a record $35,490 a year, up from $33,650 a year earlier.

"It is an arms race," says Alison Davis-Blake, dean of the University of Michigan's Ross School of Business. "The race has gotten so hot, so fast that schools are using operating money to pay for a lot of these scholarships. No one had ever, ever done that in MBA land. Almost everybody is doing it now."

Among the top 20 MBA programs in the U.S., at least four schools -- Yale, Harvard, Northwestern, and UCLA -- have increased their average scholarship payouts to students by more than 100% since the 2004-2005 academic year. Yale upped its average scholarship by 150% to $25,000 last year from $10,000 in 2005, while Harvard increased its average scholarships to MBA candidates by 146% to $28,410 from $11,543 five years ago.

"We have all collectively started a very dangerous game," says Trip Davis, a senior associate dean at the University of Virginia's Darden School and the president of the Darden School Foundation. "A new standard has been set and there are some, like us, who have set a priority to fund that in perpetuity."

Buying top-notch applicants, at what price?

Some schools are literally buying applicants with high GMAT scores, partly because deans are under pressure to perform well in MBA rankings that measure the quality of incoming students. Some schools are simply trying to stay competitive in a business where growth has slowed, particularly in the U.S., as more business schools have emerged in Europe and Asia. More

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