The Covid-19 pandemic threatens the health of millions across the country, and it has pitched the remainder of the academic year into chaos and uncertainty. While students wait to learn how, or if, they can finish out their terms, college leaders are beginning to grapple with the longer-term financial ramifications.
But “there’s so much we don’t know about this,” says Kent J. Chabotar, president emeritus of Guilford College and an expert in higher-education finance. No one can say how serious the coronavirus’s effects will be or how long they will last, which makes it hard to predict outcomes.
The longer the pandemic disrupts everyday life, the greater the chance that its effects will disrupt business as usual.
Some key considerations, however, are emerging: Revenue from tuition may be in for a shock, budgeting has become unpredictable, and the length of time that campuses must remain closed will help determine the size of the financial challenge that awaits.
Veteran higher-ed leaders aren’t too worried about colleges’ ability to keep funding their operations in the short term. It’s the long-term picture that concerns them: If the pandemic locks down the country for an extended time, causing campuses to remain closed into the fall or beyond, or if the economy tanks, it could push colleges that are financially on the edge right over it.
The good news is that years of financial shocks and risk-management preparation have bred caution and contingency plans. After the Great Recession temporarily cut off access to short-term credit, many institutions started keeping more cash on hand than they had previously.
Most colleges can cover three to five months of operating expenses, says Dean O. Smith, a former university administrator and an expert on higher-education finances: “They’re basically rainy-day funds, and this is certainly a rainy day.”
Many institutions have already prepared for closures and remote operations due to natural disasters, and those plans may come in handy now.
The longer the pandemic disrupts everyday life, the greater the chance that its effects will disrupt business as usual. The regular progression of enrollment events will be derailed, and ordinary fall enrollment itself may be in jeopardy.
Covid-19 might prove less of a challenge if the sector weren’t already so stressed.
Given how dependent many institutions are on tuition revenue, and how many of them struggle to bring in that revenue in an increasingly competitive environment, that could cause serious financial problems for the coming academic year. If the pandemic hobbles the economy in the long term, that could affect family finances, state support for public colleges, and endowment performance.
Covid-19 might prove less of a challenge if the sector weren’t already so stressed, says Chabotar.
“We’ve run into a crisis, and our flexibility is shot, because we’ve already given away the store” with high tuition-discount rates and other desperate measures. If the pandemic continues into next year, he says, “the damage is significant but not necessarily fatal” for most institutions.
The longer the disruption continues, especially if the economy suffers, the more that the most vulnerable colleges will feel increased pressure to merge or close.
‘We Don’t Know’
Covid-19 arrived just as college presidents across the country were trying to firm up their revenue and spending projections for next year.
“By March, you are well into planning your fiscal year ‘21 budget,” says Frederick M. Lawrence, chief executive officer of Phi Beta Kappa and a former president of Brandeis University. “You should be ready to be showing that to the finance committee of your board, and be well along in the process of having that ready to be finalized.”
The uncertainty over what will happen over the coming weeks and months has put college leaders in the toughest budgeting position of all, which, he says, “is a small probability of a colossally bad outcome.”
Presidents have to weigh decisions and their potential consequences, both immediate and in the long term. At Dominican University of California, for example, canceling nonessential travel for faculty and staff members may provide an unexpected upside by saving the institution some money, which may offset unexpected costs over the next few months, says Mary B. Marcy, the president.
Looking further out, though, the view is murkier. The number of applications and admissions at Dominican has been on pace, if not slightly ahead, of last year’s figure.
“The challenge that we have is, Is that predictive now?” Marcy says. “We don’t know.”
If you’re not confident about your fall enrollment and its accompanying tuition revenue, you can’t be confident about next year’s budget.
As colleges and universities have struggled to devise policies to respond to the quickly evolving situation, here are links to The Chronicle’s key coverage of how this worldwide health crisis is affecting campuses.
The worldwide scope of the pandemic could ravage enrollment on many American campuses if it keeps international students at home next fall.
Many colleges have stress-tested their international-enrollment model against currency fluctuations or visa difficulties, says Lawrence, “but I don’t know anybody who’s stress-tested it on, What if it goes from 12 percent of your entering class to zero?” Since most international students pay full tuition, the dollars they bring in help subsidize institutional aid for domestic students, so fewer students from overseas would limit the funds available to recruit homegrown students as well.
While tuition-dependent private institutions may feel the biggest pinch from lingering disruption, public colleges could be affected financially, too. They may face uncertain enrollment in the fall, and if the larger economy suffers, that may lead to reduced state support.
Smith, the finance expert, was an administrator at the University of Hawaii in the mid-1990s when the system suffered a 15-percent cut in state dollars because of economic factors beyond the system’s control: The faltering Japanese economy led to a drop in the number of tourists visiting the islands from that country. A similar dynamic may be repeating itself: A recent study by economists at the University of Hawaii found that the number of visitors from Japan alone had dropped 31 percent during the first week of March, compared with last year.
Conventional wisdom holds that a bad economy is good for college enrollment, but that may not help all institutions. Over all, the wisdom holds true: The recession saw 2.4 million additional students enroll in college from 2007 to 2011. But much of that economically driven enrollment goes to community colleges.
Small private colleges “attract a different type of student,” Smith says. “Those that are caught in spiraling discounts and tuition and so forth, they are vulnerable.”
How many students return after a crisis — or whether they return at all — can be unpredictable, says Scott S. Cowen, president emeritus of Tulane University. Cowen was president when Hurricane Katrina flooded New Orleans, in August 2005. The university was open again by January, and many students returned. But only about half the expected entering class enrolled the following fall.
“It took about six years to rebuild the population,” Cowen says.
New students, especially, may be most unpredictable. “Will they sit out a year to see what happens? Will they go more locally? Will they go to less-expensive institutions?” Cowen asks. “These are all the kinds of scenarios that the schools have to begin to prepare themselves for.”
No Fat to Trim
The pandemic’s effects on the broader economy could have sweeping effects on colleges. If financial markets suffer, “you assume it affects financial giving and people’s capacity,” Marcy says. Dominican has had a record fund-raising year, she adds, but “we’re kind of wondering if that’s going to continue.”
At Tulane after Katrina, Cowen found many alumni and foundations ready to help the university get back on its feet. But some potential donors hesitated, uncertain about putting their money into a shaken institution and its city. If colleges endure prolonged closures and the economy suffers, Cowen says, “I’m guessing people will sit on the sidelines for a while.”
If the stock market continues to sink, as it’s been doing, it could also harm endowments. That could be especially fateful for colleges where “there’s not fat to trim into anymore,” says Lawrence. Institutions would be loath to dip into endowment funds to prop up shaky finances at a time when the size of their endowment could be shrinking. Some institutions will not even have that luxury.
Colleges may be able to find some savings, and possibly even some financial silver linings. Cutting back on travel and public events will save money, and the turn to online teaching as a temporary solution may allow for some savings on facilities costs as well.
Low interest rates meant to help stabilize the economy could be a boon to colleges that want to refinance their long-term debt, Smith says. Institutions could start planning now for a smaller fall class, Lawrence says. That would reduce some expenses, though it would also lessen tuition revenue.
Right now, college leaders must feel their way forward, hoping for the best and trying to plan for the worst.
Dominican is holding faculty-development workshops to gear up for online teaching. The admissions office is moving a planned on-campus enrollment event online, too.
As for next fall, Marcy says, “we have not developed any new scenarios yet, because we don’t quite know where to put the stake in the ground.”
