For Newly Minted M.B.A.s, a Smaller Paycheck Awaits 01-08

For Newly Minted M.B.A.s, a Smaller Paycheck Awaits

By RUTH SIMON

Like many students, Steve Vonderweidt hoped that a master's degree in business administration would open doors to a new job with a higher paycheck.

Soaring tuition costs, a weak labor market and a glut of recent graduates are upending the notion that M.B.A.s and other professional degrees are a sure ticket to financial success. WSJ's Ruth Simon reports on the News Hub. Photo: AP Images.

But now, about eight months after receiving his M.B.A. from the University of Louisville, Mr. Vonderweidt, 36 years old, hasn't been able to find a job in the private sector, and continues to work as an administrator at a social-service agency that helps Louisville residents obtain food stamps, health care and other assistance. He is saddled with about $75,000 in student-loan debt—much of it from graduate school.

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"It was a really great program," says Mr. Vonderweidt. "But the job part has been atrocious."

Soaring tuition costs, a weak labor market and a glut of recent graduates such as Mr. Vonderweidt are upending the notion that professional degrees like M.B.A.s are a sure ticket to financial success.

The M.B.A.'s lot is partly reflected in starting pay. While available figures vary by schools and employers, recruiters' expected median salary for newly hired M.B.A.s was essentially flat between 2008 and 2011, not adjusting for inflation, according to a survey by the Graduate Management Admission Council.

For graduates with minimal experience—three years or less—median pay was $53,900 in 2012, down 4.6% from 2007-08, according to an analysis conducted for The Wall Street Journal by PayScale.com. Pay fell at 62% of the 186 schools examined.

Even for more seasoned grads the trend is similar, says Katie Bardaro, lead economist for PayScale.com. "In general, it seems that M.B.A. pay is either stagnant or falling," she says.

The pressures are greatest for those attending less prestigious schools, says Stanford Business School professor Paul Oyer, who studies personnel trends. But even at top programs, some graduates are likely to struggle in today's environment, he says.

Another burdensome issue: a high debt load. Nearly 60% of graduating M.B.A.s said they expected to repay some loans after graduation, according to a 2012 GMAC survey. Among households headed by people with student debt who attended graduate school and are under 35, average student loan debt climbed to $81,758 in 2010 according a Wall Street Journal analysis of Federal Reserve data. That figure is up from $55,594 in 2007.

It is all a far cry from the late 1980s and early 1990s heyday for M.B.A.s, when some companies would hire 100 or more M.B.A.s. It wasn't uncommon to recruit first, and fill actual jobs later.

With total student-loan debt approaching the trillion-dollar mark, WSJ's Jason Bellini deconstructs how we got here and what it all means. Image: Getty

"Some of those companies would hire today barely in the single-digits," says Mark Peterson, president of the M.B.A. Career Services Council.

A weak economic climate is only partly to blame for the M.B.A.'s plight. The changing nature of B-school programs, evolving corporate needs—as well as the perceived value of the degree—have all helped dilute the M.B.A.'s allure.

Formerly, the traditional M.B.A. was mainly the product of a full-time, two-year program. But beginning in the early 1990s, many schools created part-time and executive M.B.A. programs, with lower-ranked schools often following in the footsteps of academic leaders. Online degrees also gained in popularity.

As a result, the number of M.B.A. degrees granted has grown faster than the population, says Brooks Holtom, a management professor at Georgetown University's McDonough School of Business.

"An M.B.A. is a club that is now not exclusive," he says. "You should not assume that this less exclusive club is going to confer the same benefits."

Today's global corporate culture amplifies the competition. "We are trying to internationalize our business like everyone else," says Lee Ashton, director of international human resources at spirits maker Brown-Forman Corp. BFB -1.63%With 58% of its business outside the U.S., the Louisville company has stepped up recruiting of M.B.A.s from abroad.

U.S. schools granted a record 126,214 masters degrees in business and administration in the 2010-2011 academic year, a 74% jump from 2000-2001, according to the Department of Education. The M.B.A. march is part of an overall boom in advanced degrees that took on added steam as some recent college graduates and others sought refuge from the recession by pursuing advanced degrees. Tuition and fees for full-time M.B.A. programs has risen 24% over the past three years, according to the main body that accredits U.S. business schools.

It is unclear how many M.B.A.s the market really needs. Recently, more companies have indicated that "they are moving away from an emphasis on M.B.A.s" and are instead hiring more undergraduates at lower salaries that they can then train in-house, says Camille Kelly, vice president of employer branding at Universum, a firm that advises companies on how to attract and retain the best employees. Companies, she says, "still will do M.B.A. hiring, but it won't be to the same extent they have in the past."

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Austin Koester for The Wall Street Journal

R. Charles Moyer, dean of the University of Louisville College of Business, says an MBA remains a 'terrific investment.

United Parcel Service Inc., UPS -0.29%which has a hub in Louisville, puts more emphasis on M.B.A.s and other grad-school types than it did five years ago. Still, know-how trumps all. "We're always going to look at the work experience first and how has that been enhanced through any advanced degree," says spokeswoman Susan Rosenberg.

The University of Louisville illustrates how some M.B.A. programs have struggled to remain attractive, and relevant, in this rocky environment.

R. Charles Moyer, dean of the College of Business, was recruited away from Wake Forest University in 2005 with a mandate to ramp up the Louisville M.B.A. program. Ten local business leaders had pledged to kick in roughly $10,000 each for five years toward his $350,000 paycheck.

Louisville "was growing at that time," recalls C. Edward Glasscock, a local attorney who helped spearhead the fundraising effort. "We had to make sure we had graduates to fill the workforce need."

Mr. Moyer tightened admission standards. Also, in 2007, he revamped the school's existing part-time M.B.A. program, made up of students who were pursuing degrees while working. Under the new program, groups of students moved together through classes over a two-year period, which was later shortened to 20 months.

He also added faculty, increased course options and introduced Saturday "enrichment programs" on negotiation skills, ethics and business etiquette. Three years ago, he introduced a full-time M.B.A. aimed at recent college graduates that includes a paid internship with a local employer. Next year, the school will begin another program for students with 12 to 15 years of work experience.

Mr. Moyer acknowledges that the growth in offerings was driven in part by a desire to boost revenues. "When I get a budget cut, I think about starting a new program," he says. "If we can do it really well and generate a lot of money, we can pour it back into our core business, which is undergraduate education."

Louisville now offers full- and part-time M.B.A.s as well as a highly regarded entrepreneurship program that in total enroll roughly 250 students—roughly a 10% increase since Mr. Moyer's arrival. With total tuition of $32,000, a Louisville M.B.A. is still a relative bargain. But the price tag has more than doubled under Mr. Moyer's tenure. Revenues from the M.B.A. programs have increased by more than 250%.

The dean says an M.B.A. degree remains a "terrific investment," though the returns might not be evident for "a year or two."

Indeed, some of the same companies that supported the Louisville M.B.A. program stress that experience, not the degree alone, opens the door to jobs.

Texas Roadhouse Inc., TXRH -1.94% a Louisville-based restaurant chain, donated a $200,000 student lounge to the B-school and has hired several M.B.A. students as interns and employees. But spokesman Travis Doster says restaurant experience carries more weight than an M.B.A. when the chain fills positions at its corporate office.

Nor does an M.B.A. guarantee a pay hike. "I haven't seen an automatic boost for any degree," says Kevin Stakelum, director of talent acquisition for Humana Inc.,HUM -0.28% one of Louisville's largest employers. While an M.B.A. can be valuable, particularly in certain positions, "it's a piece of the entire puzzle."

Casting a wider net remains a challenge. "It's always difficult to get those upper-tier companies to come and recruit," says T. Vernon Foster, who oversees career services. "Once they do, they are always impressed."

Joshua Sickles, a 2010 graduate of the part-time program, figures his Louisville M.B.A. helped him land a promotion at UPS that added about $15,000 to his paycheck. "It was an investment in myself," says Mr. Sickles, who borrowed roughly $30,000 for his degree.

Other graduates have found returns to be more elusive. "It definitely did not open up a lot of opportunities right away," says Matthew Wilson, 29, a 2010 graduate who says having an M.B.A. wasn't a prerequisite for his current position in financial services. "I definitely would do it again," he says. "But I don't think it carries the same weight as it used to."

—Rob Barry contributed to this article.
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