The Collapse in Demand for Standardized MBA Admissions Tests (Part 1)

The Testing Demand Collapse

For a vivid impression of how widespread this collapse in demand for admission testing has become, one only needs to glance at the searchable online database maintained by FairTest, the National Center for Fair & Open Testing. Since 1983, this Brooklyn-based advocacy group has worked to “end the misuses and flaws of standardized testing and to ensure that evaluation of students, teachers, and schools is fair, open, valid and educationally beneficial.”

As we go to press in November 2024, the data shows a record number of colleges and universities are test-optional or test-free for fall 2025 applicants: 2,085 institutions. And according to data from the National Center for Education Statistics, there are 2,637 Title IV, four-year, baccalaureate degree-granting colleges and universities in the United States.

That means almost 80 percent of American postsecondary institutions are test-free or test-optional for 2025.

Moreover, the test-free and test-optional institutions include many of the world’s most popular colleges and universities, along with some of the biggest brands in higher education. For example, to kick off this trend, the University of Chicago went test-free in 2018, and the entire University of California System is now test-free. The test-optional colleges include Stanford University, Dartmouth College, Columbia University, Princeton University, the University of Pennsylvania, and Carnegie Mellon University.

The shift starting in 2018 to all these test-optional policies meant that ETS had faced years of mounting market challenges that only intensified once the Covid pandemic got underway. Prominent among those challenges was the crash in the GRE’s popularity once its customer base plummeted because of the normalization of graduate programs’ test-optional policies.

As a result, GRE sales sunk from 541,750 tests in 2017 to 341,571 in 2021, a 37 percent decline. Those numbers drove ETS to attempt to attract more sales by revising the examination into a much shorter two-hour format with some sections truncated, cutting the time required to complete the GRE by 50 percent.

At ETS, Did the “Bullet Hit the Bone?”

ETS was formed and spun off by three former owners: the Carnegie Foundation for the Advancement of Teaching, the American Council on Education (ACE), and the College Entrance Examination Board. ETS claims to be the world’s largest private nonprofit educational testing company, which administers over 50 million tests annually.

All those tests include K-12 assessments along with college and graduate school exams, such as its longtime crown jewel and marquee asset property since 1947, the GRE. However, in recent years, ETS has been forced to market the GRE to universities as a kind of “one-stop shop” to compete with various specialized graduate admission tests. ETS was forced to adopt that strategy after it had been fired by the owners of the Law School Admission Test (LSAT) in 1982, then also fired 11 years later by the owners of the Graduate Management Admission Test (GMAT).

And in June 2024, another test owner just fired ETS. A spokesperson confirmed that the College Board had canceled its contract for ETS to administer the Scholastic Aptitude Test (SAT). This 2023 audit by the London-based Big Four public accounting firm Deloitte Touche Tohmatsu shows that the College Board account alone had provided the source of roughly a third of ETS’ revenue, or about $300 million every year.

Keep in mind that ETS is a billion-dollar company with roughly 20,000 employees across 200 countries and operations on a massive scale around the world. Based in the New York suburb of Lawrence Township, New Jersey, not far from Princeton University, its opulent headquarters and lush landscaping adjacent to a famous duck pond reflect the organization’s royal stature as gatekeepers on top of the world’s education industry.

But now, how is ETS going to maintain all that opulence? It’s difficult to overstate how critical the College Board’s account has been to the survival of ETS and how devastating that loss could become.

Data from the ProPublica Nonprofit Explorer shows that even before the College Board’s firing, and because of the collapse in demand and steeply declining sales due to years of universities’ test-optional policies, ETS was bleeding cash. In 2023, ETS earned $1.058 billion, but its expenses were $1.067 billion, meaning it lost almost $10 million that year. What’s more, ETS was certainly helped by its nonprofit status since as a public for-profit company, it would have also been responsible for a corporate income tax rate of 21 percent.

This detailed report from a local New Jersey online magazine called Planet Princeton chronicles the layoffs at ETS. It turns out that ETS began layoffs in April 2020, four months after the pandemic started, and carried out layoffs four times between then and September 2021. That was the pandemic year when the number of students taking the SAT had been cut in half, from 1.5 million to 700,000.

ETS chief executive officer and Harvard MBA Amit Sevak tried to put a positive spin on news of the latest job cuts, claiming that by offering voluntary severance agreements, ETS was “putting this decision in [employees’] hands. The purpose is to reduce our staff in the most gracious way we can,” he said. “This is an opportunity.”

But that’s not how the rank-and-file employees viewed that news. Based on what a longtime ETS employee who had received the buyout offer told Inside Higher Ed, the situation at ETS appears to be dire.

“It’s been an hour since the news broke, and folks are earnestly sharing self-harm and suicide-prevention hotlines,” the employee said.

Inside Higher Ed had also obtained responses to an internal ETS employee satisfaction survey around the time of the September 2023 layoffs, which had confirmed the source’s reporting that morale had been low throughout the company for a long time. But the anonymous employee also reported that morale had fallen even further since the fall job cuts, and that more bad news had been generally expected within ETS for months.

“There are so many people who just want to do their jobs, for their work to improve, and that hasn’t happened,” said the source. “We’ve all been kind of waiting for the bullet to hit the bone.”

That may or may not have been what had happened with these job cuts. In a video released to employees, Sevak said that for those who don’t accept the buyouts, the pace of change at ETS would be “intense,” and that the holdouts would all be expected to give “110 percent.” He also warned them that “when this process of voluntary separation is over, it is likely that we may need to proceed with an involuntary layoff.”

Upheaval at ACT

Players throughout the testing industry besides ETS have also been impacted by the demand collapse. The American College Testing Program—the main competitor of ETS and traditionally the dominant undergraduate entrance examination throughout non-coastal U.S. regions like the Midwest and Great Plains—lost $78.5 million since 2020.

ACT sustained heavy losses in part because, in 2023, 400,000 fewer students took its American College Test (ACT) than during 2019—a plummet of 100,000 fewer sales than the drop of 300,000 students who also didn’t take the SAT during the same interval. As a result, in 2023, ACT laid off 100 employees and started selling buildings at its headquarters in Iowa City, not far from the University of Iowa.

But in a huge shakeup for the standardized testing sector, ACT was acquired in April 2024 by a private equity firm, Nexus Capital Management. Nexus plans to take ACT private, and that’s raised alarm among observers.

Dr. Charlie Eaton, a professor of sociology with the University of California at Merced, told Inside Higher Ed’s Liam Knox that the Nexus purchase of ACT concerns him. The author of the 2022 book Bankers in the Ivory Tower published by the University of Chicago Press and an expert on higher education finance, Dr. Eaton said that private equity firms bolstered the rise of exploitative for-profit colleges. “Private equity investors oversaw much of the growth in for-profit colleges that sucked up federal student loans and other subsidies,” he said.

GMAC’s Greatest Loss In History

In addition to the poor sales at ETS and ACT, sales of the Graduate Management Admission Test (GMAT) in the United States have been hammered particularly hard, after those sales had sunk in 2021 to a record low of merely 38,509. That low had never before been observed in the 70 year-old-history of this examination first launched for applicants to MBA programs in 1954.

The contrast with earlier years is striking: in the exam’s peak year of 2012, a record 117,511 tests were taken in the U.S. alone. That means the test volume plummeted by 67 percent during those nine years. The 38,509 volume also represents a decline of nearly half (48 percent) from the last pre-pandemic academic year of 2018-2019, when examinees sat for 73,556 U.S. exams.

As a result, the Graduate Management Admission Council, which administers the GMAT, turned a profit for only a single year during the last four years when records were available, between 2019 and 2022. That happened in 2021 when the Council posted a $9.9 million profit. But in 2019, GMAC lost $5.7 million; in 2020, it lost $3.4 million; and in 2022, the Council posted its greatest loss in history of $6.6 million.

Poets & Quants’ editor John Byrne says that the collapse in demand for the GMAT and GRE was brought about by the pandemic because it caused many business schools to grant waivers for standardized tests to more applicants, or to switch to test-optional policies. “Just 2 percent of the latest cohort of students to join the online MBA program at the University of North Carolina’s Kenan-Flagler Business School submitted a GMAT for entry; another 2 percent handed over a GRE score,” he wrote in January 2022. “At Indiana University’s Kelley School of Business, just 19 percent of the latest Online MBA cohort took a GMAT test, while 9 percent sat for the GRE.”

However, Byrne also cites the explosion of online business degree programs like those we track here at BSchools as a second factor leading to the collapse in demand for both the GMAT and GRE.

“New program launches in business master’s and online degrees, moreover, rarely require the submission of a standardized test,” he says. “The vast majority of these programs do not require a GMAT or GRE for admission, and some of them make clear that they believe the test reflects racial disparity and perpetuates inequity. So the GMAT and the GRE are not fully sharing in the growth of what is the fastest growing sector of graduate management education.”

Byrne also says that competition made for a third factor that reduced sales of the GMAT. That’s because the GRE has consistently taken market share away from the GMAT in recent years. Despite its overall plummeting sales, the GRE now controls 23 percent of the business school market—triple the 7.6 percent it controlled in 2016.

g the same period, the proportion of MBA students who took the GRE instead of the GMAT has doubled or tripled, based on totals counted through the fall of 2022.

Poets points out that students admitted with GRE scores now amount to more than a third of the MBA classes at Yale, Michigan, Dartmouth, Duke, and Notre Dame. In Harvard Business School’s Class of 2023, 29 percent won entry with GRE scores, more than double the 12 percent in 2020. And the GRE has transformed into the dominant test taken by more than half of all admits at Georgetown, Ohio State, Washington University in St. Louis, and the University of Pittsburgh.

Some of these examples are dramatic. For example, at the University of California, the Haas School of Business in Berkeley started with only 11 percent of the MBA cohort admitted with GRE scores in 2018, but in the 2022 class, almost half (45 percent) sat for the GRE: a 309 percent increase. At Stanford’s Graduate School of Business, a third of a recent class enrolled with GRE scores, up from 18 percent five years earlier for an 83 percent increase. And at the University of Pennsylvania’s Wharton School, only one in ten admits submitted GRE scores in 2018—and that percentage jumped to 30 percent in 2022, a 200 percent increase.

Coming Up in Part Two

In Part Two of this report, we examine two recently emerging factors that are further accelerating the collapse in demand for standardized testing among MBA and master’s degree program applicants.

The first of these factors involves a comprehensive 2023 meta-analysis reviewing 201 studies of the GRE’s predictive validity, a report compiled by professors from Utah State University and China’s Binzhou Medical University. The professors concluded that the GRE cannot predict 97.44 percent of the variance in graduate students’ first-year grades—results that were devastating for ETS.

The second factor involves the rise of performance-based admissions. The most disruptive higher education trend in decades, performance admissions represents a dangerous threat to testing firms like ETS because this new paradigm obviates any need for admission testing.

What’s more, recent internal data from two graduate engineering programs shows that when given a choice between traditional and test-free performance admissions, 100 percent of applicants chose the performance admissions pathway.

We then conclude our report by speculating that Educational Testing Service as we know it faces a future where bankruptcy and reorganization are highly likely scenarios. Don’t miss Part Two of our report on the decline and fall of ETS and the standardized testing industry.