CNN Money: The privatization of California’s B-schools

As California slashes billions from its higher education budget, the state's premier public business schools have quietly focused its efforts on raising private dollars.

-By John A. Byrne

June 27, 2011- In the past few years, billions of dollars have been slashed from California's higher education budget. Some have warned that the cutbacks are impacting the quality of a state university system that has long been considered the crown jewel of public higher education.

What has been the impact on the state's premier public business schools?

Surprisingly, there's been little to no impact, according to the B-school deans. A year ago, faculty and staff endured a "furlough" that led to a one-time average pay cut of 8%. But the prestige and quality of the full-time MBA programs has been protected as state support of the schools has diminished.

What has occurred is a quiet privatization of business education. The B-schools have pushed through dramatic increases in MBA tuition and fees, stepped up efforts to increase endowments, and added more non-degree executive programs that produce "revenue surpluses" to offset the cuts.

"Basically, all of us have been phasing out our reliance on state funding for many years," says Steven C. Currall, dean of UC-Davis' Graduate School of Management. But Currall winces at the notion that he and his fellow deans have "privatized" the business schools.

"Some in the UC system see privatization as radioactive," he concedes. "I prefer the words financial sustainability. We're reducing our reliance on state funds, which makes our business model much more akin to a private university…."

Tuition spikes on the left coast

Students have borne much of the brunt of these changes. Over the past 10 years, the largest increases in MBA tuition have occurred at California's public programs. Berkeley's Haas School, the highest ranked of the full-time MBA programs in the state, boosted the price of its two-year MBA to state residents by 301% to $86,396 this year from $19,996 in 2001. Non-resident tuition jumped by 142% to $100,356 from $41,404 in the same timeframe. In comparison, the two-year tuition bill at Stanford rose 72.5%, while the price of a Harvard Business School MBA increased by 79.6%.

Ten years ago, a California resident who went to Berkeley paid only 31% of what a graduate student paid at Stanford for the MBA degree. Today, state residents who go to Berkeley pay 78% of what Stanford students pay. The differences are similar at UCLA's Anderson School and other University of California business schools.

More shocking, perhaps, is how these increases — along with a sluggish economy — have dramatically altered the payback of the MBA degree. Graduates of Berkeley's Class of 2000 earned median starting base salaries of $85,000. Last year, Haas MBAs earned median salaries of $110,000 each. So while the non-resident tuition bill has risen by 301%, median starting salaries have increased by just 29%.

The public universities in California, of course, have plenty of company. The University of Michigan's Ross School of Business and the University of Virginia's Darden School effectively "privatized" their full-time programs long ago.

"Berkeley MBA graduate salaries are among the most competitive, while tuition is still below our private counterparts — and, in the case of California residents, significantly below," says Richard Lyons, dean of the Haas School.

Lyons argues that for California residents the MBA program at Haas is still a bargain at $86,396 because it's roughly $20,000 less than tuition for Northwestern's Kellogg School of Management and $27,000 below the price tag of a Wharton MBA.

Besides, adds Lyons, "our increase in MBA fees has allowed us to make a lot of investments in new faculty, curriculum and student services. The MBA education we are offering is a much stronger product than it was 10 years ago."


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