Other U.S. schools will seize the moment and pursue new strategies involving non-U.S. campuses, partnerships, consortia, and technological innovations. Some schools will send their faculty to international students.

HBS and Stanford will “stand pat.” With their stratospheric yield rates, they can will fill their classes with more domestic students and internationals who can matriculate.

The degree-program portfolios of many U.S. schools will be reconstructed. Specialized Masters-level programs with high percentages of international students will shrink or go away.

The prospective losses of tuition revenue and endowment income will have far-reaching effects. One might think that schools at the top of the hierarchy will be able to adjust because they are top schools. I don’t think so.

Two, the budget bill before the U.S. Senate proposes tax rates of up to 21% on the endowment incomes of private universities with large endowments. Those universities are, of course, home to many of the elite U.S. business schools.

But going into the 2025-26 academic year, U.S. business schools face the biggest challenge in their collective history for two reasons that are easy to spot. One, international students admitted to U.S. business schools may not get the visas they need. Even if the State Department resumes scheduling the necessary appointments, the welcome mat for international students is in tatters. For many, the question will be why go to the U.S.?

My four decades in management education have been terrific. Demand for what business schools do, i.e., teach how markets work and how organizations function, has been strong. U.S. business schools have been highly sought after by students all over the world. And many schools have built up endowments in the billions.

Story Continues

THE TUITION HIT

International students are about 45% of the full-time MBA programs in the U.S.. International students often account for the vast majority of students in specialized Masters’ programs. Here’s my ‘back-of-the-envelope’ calculation: Consider a business school with an MBA class of 450 students and three specialized Masters’ programs with a total of 150 students. A loss of 120 international students could decrease tuition revenues by $16 million annually. A loss of 240 internationals would decrease tuition revenues by $32 million annually.

Can U.S. schools fill the gaps left by fewer international students? The challenge is tougher given that the schools charge “full tuition” or “nearly full tuition” to students from China, India, and other countries, and, at the same time, charge discounted tuition to many domestic students. So, if two “full-pay” students do not enroll, the school may need three domestic students to cover the lost tuition.

Harvard and Stanford can fill most of the gap because their yield rates are so high. If they chose to, they can admit more domestic students and use deeper Wait Lists, if needed. But I doubt that other U.S. schools can fill the gaps. Most will not be “net winners” in the battles for domestic students.

Might schools turn back the clock to the early 1980s when business schools filled half of their classes with students right out of college? That adjustment would take a lot of time. Moreover, a relevant question is whether talented younger students see enough value to pay $90,000 in tuition and fees.

I expect that the finely-tuned price discrimination model whereby international students pay higher average tuition rates than domestic students will unravel. This price discrimination has worked because the value proposition for international students has had three parts: the U.S. educational experience; the opportunity to compete for jobs in the U.S.; and the possibility of permanent residence or citizenship. Now with each of these components in doubt, fewer students want to come to the U.S. and their willingness-to-pay falls. In addition, the unrelenting rise in tuition rates will finally end.

THE TAX ON ENDOWMENT INCOME

The size of the budget hit from the proposed endowment taxes will depend on the tax rate – either 14% or 21% for most universities with substantial endowments. Here is, again, a calculation. Take a business school with $1 billion in endowment that earns an 8% return ($80 million before taxes). Typically, the endowment payout is about 5.5% and the school gets $55 million at the beginning of the fiscal year. The difference of $25 million is reinvested.

If the school’s tax rate becomes 21%, then the return falls by $16.8 million. The school may avoid a direct hit, i.e., it will still receive the same payout. But with the new taxes, the endowment will grow more slowly for two reasons. One, less reinvestment. Two, less giving to the endowment. Another big issue is how home universities will respond to a multi-dimensional fiscal crisis. From the outside, business schools may seem like stand-alone units. But they are embedded in universities. Yale University, my academic home, could lose $1 billion per year – one sixth of its annual budget. Oftentimes, when the home university suffers, the pain is spread.

DEANS IN THE ‘HOT SEAT’

Unless this turmoil is magically eliminated, U.S. Deans are in the hot seat. As the positions of U.S. business schools slip in the global market of management education, the multi-dimensional competition among U.S. schools (top faculty, great facilities, supportive staff, and compelling programmatic features) will cool dramatically.

Some schools have strategic resources, e.g., campuses outside the U.S., they can leverage. New global arrangements may develop. That’s the fun part of being a Dean. But the rest of what Deans will have to contend with will be no fun: little or no hiring of faculty and staff, tough job markets for their prized Ph.D. students, and less growth in resources. Maybe toughest is the loss of being truly global.

Dean Edward Snyder. Yale SOM photo

Edward A. Snyder is the William S. Beinecke Professor of Economics and Management at the Yale School of Management. Snyder served as dean of the Yale SOM from 2011 to 2019, during which time the school developed a global network of top business schools, introduced its Master of Advanced Management degree for graduates of the Global Network for Advanced Management, introduced its Master of Management Studies degree with tracks in Asset Management, Systematic Risk, and Global Business and Society, and broadened its MBA for Executives program. Prior to coming to Yale in 2011, Snyder was the Dean and George Shultz Professor of Economics at the University of Chicago Booth School of Business and Dean of the Darden School of Business at the University of Virginia.

His research and teaching are focused on industrial organization, antitrust economics, law and economics, and financial institutions. He teaches Economic Analysis of High-Tech Industries, a course that applies industrial organization concepts and valuation frameworks to global high-tech industries. He also contributes to Stakeholders and Capitalism, a seminar that develops a contracts-based view of how firms can manage stakeholders. Snyder began his professional career as an economist with the U.S. Department of Justice’s Antitrust Division. He earned a PhD in Economics and an MA in Public Policy from the University of Chicago. He began his academic career at the University of Michigan where he developed programs in Central Europe, China, India, and Russia.

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