This article is part of a series on the financial challenges facing colleges and universities amid the coronavirus pandemic and the need for proactive strategies.
Colleges and university leaders are working overtime to take care of their students and faculty and staff members amid the greatest crisis ever facing higher education. As the coronavirus pandemic spreads more widely across the country, most institutions are thoughtfully considering their situations, conducting scenario planning, and developing strategies accordingly.
A survey of presidents conducted in late March reveals that 70 percent expect revenue decreases of 10 percent or more on their campuses. As a result, a large majority are freezing hiring, and more than half expect to lay off staff and implement furloughs. Perhaps just as importantly, nearly all presidents say they expect to examine their processes and make changes to how people do their work, academically and administratively.
While the majority of respondents, 64 percent, are optimistic that the coronavirus will generally resolve over the summer and that campuses will return to normalcy in the fall, 36 percent of the presidents think that serious disruption awaits us come September. One president went so far as to suggest that he anticipates his campus remaining in virtual-instruction mode for all of fiscal 2021.
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.
“I think that there will be spikes of disruption but regionally specific; online courses and remote work will become much more normal,” predicted one president of a medium-sized public university. “Even if Covid is under control in the summer, there will be a new ‘normal.’ We are planning many scenarios, and even the best case is not back to normal.”
The vast majority of presidents, 84 percent, anticipate a drop in enrollments, both for new and returning students, a development that is particularly worrisome for small private colleges already strained by their dependence on tuition and lack of endowment funds. Even a 10-percent drop in enrollment can be enough to set off dramatic cash shortages at some colleges. Particularly at risk are institutions with higher percentages of international students and students of lower financial means. A typical mitigating factor to enrollment drops during a recession would be increases in unemployment, which could reach more than 30 percent this time around.
“My biggest concern, given drops in enrollments and financial resources, is whether or not we will even be able to open again in the fall,” lamented one leader of a small private college.
The survey was sent March 27 to 285 presidents and chancellors who are members of the Presidents’ Trust of the Association of American Colleges & Universities. The survey, a collaboration between the AAC&U and ABC Insights, received 142 responses from presidents at a mix of institutional sizes and types representative of general higher education.
A key issue all universities are trying to assess is the potential decrease in resources for planning and budget considerations. As a comparison, during the last recession the University of North Carolina at Chapel Hill had a 25-percent hit to revenue due to reduced state support, philanthropy, and endowment returns. The hits to universities this time around could be even worse, depending on the level of federal stimulus support for higher education, which currently stands at $14 billion.
The contribution to higher education after the Great Recession was $35 billion ($42 billion in today’s dollars), and that was on a full stimulus of $832 billion, whereas this stimulus is over $2 trillion and counting. In fact, extrapolating a 25-percent drop in resources (not including the impact of potential drops in enrollments) would equate to a $146-billion loss across the sector expenditure of $584 billion.
The presidents in our survey seem a bit more optimistic. Only 18 percent said they expected revenue losses greater than 20 percent, though 52 percent expect decreases of revenue between 10 and 20 percent.
The good news for students is that most universities don’t plan to make up for revenue shortfalls with tuition increases, as they did after the last recession. Eighty-one percent of presidents surveyed anticipate maintaining current tuition levels, while 8 percent are considering decreasing them. Eighty-five percent also plan to reimburse students for room and board as classes move to virtual format, but most don’t anticipate needing to reimburse students for tuition, assuming that quality standards are maintained.
In scenario planning that includes online classes in the fall, I recommend calculating estimates for students demanding refunds for at least some portion of tuition costs. For example, a recent survey suggested that 43 percent of M.B.A. students believe that their tuition should drop by an average of 37.5 percent if classes remain online. They say they want a more full experience by physically being on campus, with in-person classes, networking, and social experiences.
Similar arguments are likely to be presented by students in heavy experiential courses such as art, theater, and even medicine. While many online programs are indeed high quality, that quality is the result of careful design and planning, all of which takes time and resources. Research has shown that one of the most important elements for quality, either for online or in-person programs, is the capability of the professor, and we know many of them teaching our students at this very moment need more instructional support.
So how will universities make up for such potential significant losses of resources? Aside from the federal stimulus funds, which will be critically important to maintaining employment of the approximately four million people who work at colleges and universities, higher-education leaders have two options to pursue.
First, they could increase revenues through increasing enrollments and research grants or spending more of their endowments, which 27 percent of the presidents plan to do. The other option is to cut expenses — both administrative and academic. While this strategy is uncomfortable to pursue, this crisis provides the impetus to push past institutional inertia that has delayed what many believe are overdue changes to our fiscal and academic models. Research on the 46 members of the ABC Insights consortium, for example, shows that 61 percent of the employees and 38 percent of labor spending are dedicated to administration, which has grown at a faster rate than academic personnel at many universities.
While most of the leaders in the survey mentioned the strong desire to protect the health and well-being of their students and employees first and foremost, the presidents believe it is time to make changes to personnel levels, since labor represents up to 70 percent of higher education’s costs.
Eighty-three percent plan to immediately implement hiring freezes for the next fiscal year, while 55 percent anticipate layoffs and 57 percent expect to do furloughs. Thirty percent expect to hire more part-time faculty members. Only 21 percent are looking to find ways to cut benefits such as health care, release time, or leave. An amazing 96 percent are planning to re-engineer processes and look for efficiencies related to the higher-education operational model. That likely includes a great expansion of virtual education — for nontraditional as well as traditional students.
The magnitude of anticipated change varies by type of institution. Over all, administrative costs will be a priority as 86 percent expect “some” cutting, and 13 percent are leaning toward “significant” cutting. Perhaps predictably, academic cost-cutting may be coming as well but at a lower rate, with only 48 percent expecting “some” cutting, and 2 percent expecting “significant” cuts here.
Richard Staisloff, founder of the education-consulting firm rpk Group, is concerned that we may miss an opportunity to truly address inefficiencies, especially in academic spending: “Higher education has been reluctant to take a hard, strategic look at its spending,” he says. “For institutions to move toward a more sustainable model, they’ll have to better match academic-program portfolios to their unique mission and market demand.”
My biggest concern, given drops in enrollments and financial resources, is whether or not we will even be able to open again in the fall.
As we look to the future, the presidents in our survey are recognizing the severity of the situation facing higher education; however, they are optimistic their institutions will not only survive but also thrive. Certainly, some college leaders realize that the risk of closure is real, but others commented that if they make the right decisions, they will be better off.
Lynn Pasquerella, president of the AAC&U, states it well as she thinks of her recent conversations with many university and college presidents across the country: “We are likely to see a new world order of higher education — more global, more online, more focus on return on investment, and over all more student-focused.”
I agree with Pasquerella and feel that if we focus on becoming more efficient in terms of operational processes and more effective with student and employee outcomes, the new normal could be even better than the old normal. But perhaps a paradigm of transformation rather than cutting would serve the four million employees in higher education better. By increasing productivity, we could grow our capacity to serve more students of all types and means and improve humankind.
