Should business school scholarships be awarded on merit or need?

Business school is beyond the means of most and a stretch for many. According to research by my FT colleagues who specialise in data analysis, the average total cost of a full-time MBA programme at a top 100 school is about $200,000.

Not only do most courses come with a hefty price tag, they also carry an opportunity cost as students forgo salaries. Bundle those opportunity costs with tuition fees and living expenses and that $200,000 figure looks daunting to all but the wealthiest prospective students.

Schools recognise this and most offer all manner of financial help across their programmes, such as grants, bursaries, scholarships and stipends. Some are merit-based, others are allocated on the basis of need to those with limited resources — and some schools and awards are more generous than others.

A few students get a business education free of charge. Whether or not you think that is fair, often depends on how likely you are to benefit. Recently, the focus at the top schools seems to be on merit rather than just need. Deans I talk to are increasingly competing to offer free everything to the brightest students.

Paulo Manoel is a good example. When he enrolled as a PhD student at Haas School of Business at University of California Berkeley in the US, he was granted a fellowship that covered tuition fees and a stipend for living expenses. The package meant Manoel chose Haas over its rivals.

All PhD students at Haas receive tuition fees and a stipend. This perhaps explains how the school runs a hyper-competitive PhD programme, admitting only 7 per cent of applicants.

Haas is quick to point out that it is not just stars who receive at least partial financial aid — about 50 per cent of its MBA class receives scholarships. This academic year, it has spent $3.5m on full-time MBA awards. But it must compete with other leading US schools to attract the brightest, which is why its offerings are so eye-catchingly generous.

Dean Richard Lyons told me that generous assistance is not only for PhD students. “We’re seeing a dynamic at the top end, where the effective price of an MBA is going to zero,” he says.

In US business schools, those subsidised students are expected to give back in the form of donations after they graduate

Why would schools subsidise resourceful students to the point where they receive an elite education at a discount and in some cases free of charge? In US business schools, and increasingly in European schools, those students are expected to — and will — give back in the form of donations after they graduate, with tax incentives on top. So the financial logic is sound.

Besides, it makes sense to reward the best — elite schools are all about excellence after all. And why should business schools concern themselves with helping only the less well-off? The average age of an MBA student is 28 — surely the benefits of wider social mobility programmes should have kicked in long before students arrive at business school?

But even if the arguments for merit-based rewards are sound, an increased emphasis could fall out of step with broader concerns about social mobility. Critics may say the focus on merit does not spread the advantages of cost relief widely enough. Students who receive an elite business education free of charge do so regardless of how wealthy they may have been to start with. Those who do not, must make ends meet the best way they can, whether that includes a contribution to their costs or not.

Top schools compete fiercely to stay at or near the top of rankings such as the one we publish today. The most important factor in our rankings is alumni salaries three years after graduation — and the brightest students are likely to earn the most. So it is wise for schools to concentrate resources on those with the potential to buoy their position. And everyone, faculty and alumni, will benefit from a school’s continued high rank for years to come.

As it happens, Paulo Manoel is not wealthy. Quite simply, the Brazilian’s award made study at Haas possible. “My savings would not have been enough to pay for the costs,” he says.

For him, a free elite business education has transformed his life and his career, and he and his school will reap the benefits for years to come.