This article is part of a series on the financial challenges facing colleges amid the coronavirus pandemic.
Congress is in the process of offering another major financial-assistance package. Likely to come in around $500 billion, it will support hospitals, small businesses, coronavirus testing, and other programs. The details are still being finalized, but it seems that the package will ignore higher ed. The $14 billion earmarked in the Coronavirus Aid, Relief, and Economic Security (Cares) Act for higher education was very welcome, but only a start. Higher ed faces the most significant headwinds in its history. We need more help, and Congress can provide that. Furthermore, if congressional assistance is done correctly, the entire sector can improve. Let’s use this opportunity to transform higher education together.
There are at least three major reasons why colleges require special attention right now.
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.
First, students are at risk. A recent survey of college presidents suggested that 84 percent expect decreases in enrollments next year, and of particular concern are underrepresented, lower-income, and international students. Many will delay their education, especially if campuses are closed in the fall. America’s international-student base faces legislative and logistical challenges to returning to campus. The American Council on Education estimates enrollment drops of up to 15 percent, with international students losing 25 percent or more. Such drops would irreparably harm the high number of tuition-dependent small colleges.
Second, if higher education sinks, so does the economy. Recently, Moody’s downgraded the entire higher-education sector from “stable” to “negative.” If 20 percent of colleges really face closure, as some experts predict, local college communities across the nation would be devastated. Estimates of the economic impact of higher education vary from $2 to $7 per $1 invested. Every year, colleges spend around $584 billion. If the industry contracted by, say, a quarter, this could translate to a hit to the economy of anywhere from $292 billion to over $1 trillion.
Finally, supporting our sector would help protect jobs. Over four million people work in academe. Other industries deservedly receiving significant stimulus funds include airlines, hospitality, and health care with 10 million, 17 million, and 16 million respectively. With so many academic leaders exploring layoffs and furloughs, surely our industry deserves stimulus consideration as well.
The $14 billion higher ed received from the Cares Act was necessary but insufficient. Higher ed received roughly 3.2 percent of the 2009 American Recovery and Reinvestment Act (ARRA). A proportional amount for the sector under the Cares Act? That would be $63 billion. Assuming $1 trillion more in future federal stimulus and the same proportions as in ARRA, higher education should be looking at $81 billion on top of the $14 billion it has already received.
That seems unlikely at the moment, but it need not be a remote possibility. Academic leaders should work with Congress to help them see our sector’s needs as investment opportunities, rather than just another bailout. And there’s a powerful case to be made along those lines. A stimulus could unlock greater efficiency across our sector, especially in decreasing excess administrative processes and investing in student-related areas. We should encourage Congress to see their approach to our sector through this lens.
What would a federal stimulus informed by these insights look like? Here’s my proposal for a three-part, $81-billion “Transform Higher Ed Act.” America has a history of bold game-changing initiatives like this, and the time for another one is now.
The ‘Students Are Our Future’ Initiative: $34 billion
The Cares Act provides approximately $7 billion to students in emergency financial-aid grants for pandemic-related disruption, which doesn’t go far enough. This is the time to make a huge investment in our students, which would not only dramatically improve their lives, but simultaneously lower our unemployment rate. Here’s how we should start allocating such an investment.
First, we should double Pell Grants. These grants now provide $28 billion per year to help students of lesser means attend college. Now is the time to expand this program with an eye toward adult learners, as well as current deserving students who are still incurring debt while enrolled. We could convert unemployed adults to matriculated students with appropriate support to cover tuition, fees, and related expenses. These funds would also go to developing new programs, building widespread public awareness of them, and to supplemental college preparation and support to ensure equal access.
Congress should see our sector’s needs as investment opportunities, rather than just another bailout.
The current maximum Pell Grant award, $6,195, is not enough to cover college costs. It covers only 59 percent of average published tuition and fees, and 28 percent of average tuition, fees, room, and board at public four-year colleges, according to the College Board. Doubling the Pell Grant to $12,390 would help current students and encourage adults to return to school. At $28 billion, it is a bargain, and if it generates positive returns, the investment should be recurring.
The second component of this effort would spend $6 billion to expand the College Scorecard and study student outcomes. The College Scorecard provides institutional information about the college cost, student debt, graduation rates, and postgraduation earnings by major. It has been extremely helpful to students and university leaders alike but could get even better. Investing in the Scorecard would expand the team tracking the data and sponsor university research on outcomes to compare approaches by university and disseminate best practices for improvement across academe. The data could come to include first-year-retention rates and other more granular information on student segments. A portion of the funds could also be spent on marketing the Scorecard as the value tool it is for students making college decisions and for researchers studying the impact of higher education.
The ‘Stabilize Our Schools’ Initiative: $29 billion
Public colleges depend on state support. That funding is already under pressure as states scramble to cover new health-care and unemployment costs; a coming drop in tax revenues due to lower economic activity will only make things worse. We should encourage states to keep their support alive, as well as increase the public accountability around that support. So, the first $16 billion of this initiative should go to supporting the states. Each year, they invest $78 billion into our sector, the third-largest category for state budgets. A danger is that while elementary- and secondary-school investment is often mandated by law, higher-ed spending is usually considered discretionary.
If states were to drastically cut spending on public colleges, as they did in the last recession, the effect would be severe. The federal government should serve as a backstop to replace those funds, using the influence of its funds to require certain outcomes. Such a federal program could persuade laggard states to follow the lead of the many states, notably Ohio and Florida, that have switched to performance-based funding. Key metrics include student access to programs, retention and graduation rates, the diversity of students, and operational efficiencies. With those in mind, we should earmark $16 billion for states — enough to cover a loss of 20 percent of the $78 billion they now invest in higher ed.
Secondly, this initiative should spend its remaining $13 billion creating an educational bankruptcy option. Amid the economic fallout to come, some colleges will inevitably close, merge, or reorganize. We should help them by giving them a bankruptcy option to ensure protection of students, employees, and assets.
Bankruptcy courts serve a valuable role in our business world. Universities should have similar access. Federal funding could cover judges’ and supporting court time and expenses, as well as state and federal counsel. This would allow for institutional debt forgiveness, plans of reorganization, temporary leadership and stewardship options, and even liquidations or consolidations where necessary. There is no shortage of higher-ed consulting firms that could assist universities as they revamp their strategies, value propositions, and operational models in this process. Placing that process in a bankruptcy court would create a more orderly sense of dynamic change for institutions unaccustomed to variance. This process would also offer short-term bridge loans as universities restructure debt and endowment portfolios.
The ‘New American Model of Higher Ed’ Initiative: $18 billion
The final area of strategic investment is in higher ed itself. While providing invaluable services to society and improving hundreds of millions of lives, our basic model has not changed much over the past 100 years. We can do more, especially to become more student focused, outcomes based, and operationally efficient.
Of the $18 billion, $10 billion should go toward a university core-competency expansion program. Good organizational strategy means connecting an organization’s competencies to customer needs in a unique way. All organizations must adapt as customer demand shifts and external forces reveal more efficient and effective business models. In the case of higher education, I see three key areas where investment is needed to advance our academic and operational models.
The first is virtual education. Before the coronavirus, 15 percent of students enrolled in pure online programs, and 18 percent were experiencing some online classes. We are in the midst of a completely unpredicted shift to 100-percent online education, at least for this semester. While this is an outstanding opportunity to explore distance learning, colleges have clear concerns with the quality of the current experience. High-quality online programs require significant investment in the training of professors and in instructional design. Only with such investment can we ensure quality learning, interaction, and assessment.
The “customer” is speaking out — many are questioning the results of the online shift, and some are demanding tuition refunds. Higher ed needs an investment to jump-start its move to better online courses. The investment, however, should have a clear vision (such as, “50 percent of all students enrolled in continuing online education”) and ensure that high standards of quality are met.
Higher ed is under siege and needs help.
Another key area requiring change is university relationships with employers, who may question the critical thinking and applicable skills that graduates hold. We need to consult industry with the aim of creating joint programs, centers, and even curriculum. We should set goals, such as, “75 percent of students get real-world work experience during their college years.” Finally, all of this work should be carefully coordinated, with best-practice sharing and in collaboration with professional educational associations and academic leaders.
The final $8 billion should go toward overhauling higher ed’s operational models (I’ll call this the “Re-Engineer Higher Education Project”). Over the past few decades, institutions have generally grown every year — adding processes and people, increasing spending, and raising tuition. Many universities, especially public institutions dealing with cuts to instate funding, have had to streamline their operations to spread fixed costs over a larger base. Consortiums like ABC Insights, which I co-founded, and the University Innovation Alliance help institutions share data and their thinking on the best ways to achieve student success and other efficiency goals — and the results have been striking.
We should bolster and expand such efforts to a more national level. We need to invest more in the National Center for Education Statistics and build off of the great progress it has made with the Ipeds data it releases. We should ensure university institutional researchers consistently report classifications of spending and gather more granular data. The re-engineering project would involve academic leaders to ensure the data gathered will be useful to their decision making. It would also expedite Ipeds data collection: The current two-year delay in the publication of the data make it less useful for timely benchmarking.
We also need to fix our administrative and academic processes. What are the core functions on a campus to ensure positive outcomes for students and research objectives? Most industries continuously review processes and people to cut efforts that add no value and invest in new competencies as the organization evolves. Universities are exploring ways to cut expenses, but if they fail to do that strategically, they could cause unnecessary institutional pain. Struggling colleges will need help in this process but should be made accountable for the assistance they would receive. I propose this program support them, while requiring efficiency gains, such as “20 percent fewer processes and people in low-value-added areas.”
There are several other key provisions that I would propose in the next federal stimulus package related to an effort to save higher education:
- Include student workers in the individual stimulus funding.
- Allow smaller universities and colleges to apply for the current and future Payment Protection Program.
- Allow larger universities to apply to the new Federal Reserve $600-billion low-interest loan program, the Main Street Lending Program.
Colleges are under siege and need help. But crucially, they need an investment, not a bailout. This moment is an opportunity to completely transform how higher education is delivered, and with the right federal policy choices we can improve student outcomes while maintaining high levels of employment and economic impact. An investment in higher ed will not only generate high returns but guarantee our nation’s universities retain their global pre-eminence. It’s an opportunity that we can’t afford to pass up.
