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The financial crisis has sent US business schools into a spin, causing them to question what they teach and how they teach it. But they need to ask a more fundamental question: is the two-year MBA programme still a viable model? Or, put another way, are US MBA programmes pricing themselves out of the market?

The cost of a two-year MBA programme – fees, living accommodation and, most significantly, the opportunity cost of giving up paid employment for two years – was always predicated on participants getting a highly paid job on graduation. This was in order to pay off debts, frequently in excess of $150,000 (€10,000, £92,000). But if these high salary jobs become increasingly rare, will managers still want to sink the price of a small apartment into a project that will bring little short- or medium- term financial reward? With graduates citing better jobs and higher salaries as reasons for studying for an MBA, the indications are that many will think twice.

The problem is particularly acute for students outside the US, hampered by the cost of borrowing and the dearth of US jobs on graduation. All but the most exceptional Indian or Chinese students would find it impossible to return to their home country and repay their dollar loans on a rupee or renminbi salary.

But US students will be hit, too. Not only is the cost of borrowing high but cuts in business school income owing to the fall in endowment value and cuts in state government spending also mean only the top schools can maintain or increase their scholarship schemes. It also means many fee increases this year.

Initially this seems like good news for the one-year MBA, pioneered by Insead, which celebrates its 50th anniversary this year. Data collected by the Financial Times from alumni for the latest annual rankings* show the cost of completing an MBA, including the opportunity cost, was the equivalent of almost $230,000 at one of the top 20, two-year programmes, while the cost of studying for a one-year degree at a top 20 programme was less than $150,000.

Of course, leading two-year programmes such as Wharton, Harvard and Chicago in the US and London Business School in Europe will probably always have their pick of the top students. But the average cost of studying at one of the two-year US programmes ranked by the FT between 21 and 50 is more than $210,000 – 40 per cent more than for a top-tier one-year course.

And although the cost of studying on a one-year programme is less, an outlay of $150,000 in the current economic climate is not for the fainthearted.

As to two-year degrees, professors at US schools defend the model on the grounds that students cannot learn all they need to know in 12 months. But why are professors entrusted with this decision? The employment records of schools such as Insead and IMD in Europe amply demonstrate that top recruiters are as likely to favour a candidate from a leading one-year programme as from a top two-year course.

US deans have always argued that the internship element of the two-year programme enabled job- changers to sample other careers before making a final decision on their chosen route. But with many this year unable to get an internship and others working in the non-government organisation and charity sectors, this argument no longer holds water.

Of course, these arguments were raised in 2001 and 2002, when MBA graduates also saw job offers rescinded and corporations dismissing recruits. But then the job market bounced back and with it the bullish attitude to MBA programmes. Some of the more thoughtful schools, such as Stanford, took the opportunity to recalibrate their programmes. But many deans put their heads in the sand, hoping for the best.

Will they do the same again? And if so, will their programmes survive?

*The 2009 FT Global MBA rankings were compiled from data supplied by the graduating class of 2005.

Della Bradshaw is business education editor of the Financial Times

Copyright The Financial Times Limited 2017. All rights reserved.

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