Please join The Chronicle‘s virtual forum on Wednesday, June 3, at 2 p.m. Eastern time, to hear a discussion about key success factors for making positive, long-lasting, and sustainable change in higher education. The forum will be hosted by Scott Carlson, a senior writer at The Chronicle, and Paul N. Friga, a clinical associate professor and co-founder of ABC Insights. They will be joined by guests Gordon Gee, president of West Virginia University, and Rick Staisloff, founder and principal, rpk Group.
In the drive to reopen campuses — in the fall? in the spring? — college leaders have to consider a dizzying array of challenges: how often to test, how to rejigger classrooms and residences, what technology to acquire for hybrid courses, and what kinds of protective gear professors and staff members need, among many others.
These challenges — all of which are moving targets — carry big implications for revenues and expenses. Money, said Elizabeth A. Hardin, vice chancellor for business affairs at the University of North Carolina at Charlotte, is the “binding constraint,” the major limiting factor on the feasibility of opening. To plan a budget for 2020-21 is an exercise in improvisation, not usually the place where chief finance officers — who deal in hard numbers — like to be.
Just consider the financial calculations concerning Covid-19 testing: Mecklenburg County, home of the university, can conduct 700 to 900 tests a day and is hoping to increase that to 1,800 a day. Last fall the university had 25,000 undergraduates on campus, so it has to be extremely intentional about who gets tested and when. The cost of the test is one thing. But what is the cost of processing the test? Of setting up the area where people take the test, or the salaries of the people who administer it? Of delivering the results in a timely manner? Of the database used to store information? Of the space, utilities, and staffing where all this testing takes place?
You can see, Hardin noted, that this gets complicated quickly — and that’s just testing. Now apply that thinking to the puzzles surrounding enrollment, academic programs, distance education, dining, athletics, and so on. Then layer in the effects of the recession, which will strain state coffers and family incomes, and further pummel college and university budgets. And it’s imperative to figure out all of this soon, given that nearly every institution will have to line up agreements with faculty members and service providers over the summer to cover the year.
Perhaps the only certainty about budgets for the coming year is this: They’re going to have to be malleable enough to adapt to a wider range of scenarios than anyone can remember. “It is entirely possible that the biggest risk for institutions financially is to come back in the fall and then have to send people home again,” Hardin said.
If You Open, Will They Come?
The enrollment picture for fall is perhaps the most important and confounding factor for a September opening — a factor that will dictate everything else for tuition-driven institutions. A majority of the more than 800 colleges tracked by The Chronicle have declared that they will reopen their campuses in the fall — and many presidents have noted that deposits toward fall enrollment have held up pretty well, given the extraordinary circumstances. Some presidents — like Mitch Daniels, of Purdue University — have been downright insistent about the imperative to open, despite numerous editorials questioning how realistic that position is.
A student may plop down a few hundred bucks to hold a place at a college, but that doesn’t mean the student will then spend tens of thousands of dollars if the college experience seems to be diminished. Robert Kelchen, who recently published an opinion essay in The Chronicle Review questioning the feasibility of a fall opening, notes that predicting enrollment is not nearly as important as determining the net revenue from that enrollment. It’s unclear how much colleges will have to discount tuition to draw students. (Perhaps a tougher problem: how much colleges will have to discount tuition if fall ends up entirely online.)
In his essay, Kelchen, an associate professor of higher education at Seton Hall University, suggested that colleges might be bluffing about their plans this fall, to keep students enrolled or to appease local policy makers. But Rick Staisloff, a former small-college financial officer who advises colleges, wonders if signaling a fall opening is more likely an avoidance strategy.
“I never think of people in higher ed as poker players,” he said. “I think it has more to do with their reluctance to wrestle with some hard questions.”
Traditionally, faculty members chafe at analyses of which academic programs generate revenue and which do not. As a result, many colleges struggle to truly understand how they make a living. The coronavirus only complicates that question further. Typically, institutions get infusions of cash in the fall and spring — and perhaps a smaller financial boost in the summer — and they balance those against the costs of their academic programs. Since the 2008 recession, more colleges have given attention to understanding the costs of their academic programs and administrative departments.
“But candidly, most colleges probably don’t really know what drives their business model,” said Staisloff.
Having that data will be essential to successfully opening in the fall. Colleges cannot be in the position to offer all the programs they had before Covid-19, Staisloff said, given that enrollment could decline drastically over the coming year.
“You want to know what are the things that you might focus on that help to drive an overall sustainable model,” he said. Knowing the financial details of programs — what drives revenue and expenses, and how those factors might be tweaked to maximize net revenue, will be a key step toward a fall opening.
Colleges that haven’t done an accounting of their academic programs could try a back-of-the-envelope assessment, but a simplistic approach could lead to false results. Small academic programs often actually make a little money despite the widespread perception that such programs are money losers; meanwhile, some large and popular programs have higher costs than revenues. Getting to the bottom line can take time.
“You’re starting way behind the curve,” said Staisloff — but that’s not a reason not to start. “You’re going to need to know that anyway.”
Overoptimism that enrollment will hold up, or that business as usual will return, is counterproductive. “I worry because institutions are waiting, waiting, waiting,” he said. “Institutions will be better off putting some stakes in the ground that they can plan toward sooner.’
A Range of Other Factors
Colleges are planning now for the infrastructure they will need in the fall, but typically reliable areas of profit and loss might quickly become complicated.
Student residences and dining stand out among them. Auxiliary revenue can be a major source of income for colleges during a normal academic year. As one small-college president, speaking on background, put it to The Chronicle recently: “We make money on the residence halls, break even on dining, and lose money on everything else.”
In the coronavirus era, student residences could instead become a major liability. Many dorms will have excess capacity, as students spread out. Perhaps colleges will have to pay more to have bathrooms cleaned more frequently. But who knows if students will want to live in dorms anyway, if they can’t engage in the free and open socializing that they would normally?
“It’ll be a challenge to get more than half capacity back,” said Kelchen. “Would students even be willing to pay for an entire semester of housing and room and board upfront? Or is it you pay by the month, just in case things get interrupted? Colleges are going to push for the money upfront, but they have to hold a lot of it back in reserve, in case they have to do refunds later.”
Classrooms, in maintaining six-foot distances, could lose more than half their capacity, requiring administrators to commandeer new and unusual spaces across campus. Technology could help, but it is also a big potential expense. Plymouth State University, in New Hampshire, is outfitting half of its classrooms with $1.7 million in technology to transmit in-person teaching, in case students can’t attend. (However, moves like that could also be seen as an investment that will expand an institution’s reach and give it an ability to scale up its offerings after Covid-19 subsides.)
If sports teams can’t come back to play, or if crowds can’t gather in stadiums, institutions both large and small will be affected. Many colleges rely on enrollments from student-athletes, and the biggest sports programs draw money from live games and TV contracts.
For a smaller set of institutions, hospitals are another major risk factor. Hospitals have been losing millions of dollars a day since the coronavirus took off. Many major medical institutions have been acquiring smaller hospitals in their regions, expanding their exposure to risk. The Johns Hopkins University has an extensive network of hospitals and clinics, making it the biggest employer not just in Baltimore but in the state of Maryland. The university will have to cut costs by $475 million.
Small institutions, without those major infrastructure burdens, have challenges of their own in trying to navigate a fall opening. Mary Marcy, president of Dominican University of California, said it has planned and budgeted for a series of scenarios for the fall.
“We’re building backstops against the budget,” she said, noting that the university is as well positioned as it could be: It recently went through a review of programs, cutting some that were outdated or too expensive to maintain, and raising the student-to-faculty ratio from 9:1 to a more sustainable 11:1 last year, toward an eventual goal of 14:1.
Marcy and six other other members of the administrative team have taken voluntary pay cuts totaling $100,000 (coordinated by the vice president for advancement, to ensure discretion and remove concerns about being judged on the level of sacrifice). The money saved, which is to be used to support students affected by Covid-19, has been matched by gifts from the governing board, she said. Dominican hasn’t yet tapped its line of credit, which could provide a ballast of cash in the months to come.
Deposits are holding up well, Marcy noted, and the university has strong graduate programs that could get a countercyclical boost in the looming recession.
“My assumption is that if we’re not in-person in the fall, I don’t think we can justify the same level of tuition, certainly,” she said. “We’re making all the reductions that we feel like we can and that are strategic — that don’t cut the entire heart out of the institution, because we have to be viable at the other end.”
The Deep-Freeze Scenario
The question of what it would take, financially, to open in September comes with a thought experiment: If health concerns or anemic enrollment makes reopening financially untenable, would it make more sense to simply not open? In interviews over the past couple of months, some higher-ed leaders pondered whether it might be possible for their institutions to go into a kind of deep freeze — to shut down for a year and hope for a Covid-19 vaccine in time for the fall of 2021.
History offers a guide. John Thelin, a historian of higher education, noted in a recent interview with The Chronicle that colleges during the Great Depression went into a kind of “semi-hibernation” and “barter economy,” during which people sometimes didn’t get paid, but many colleges survived.
For most institutions today, that is more fantasy than reality. Many colleges have an extensive built environment, carrying with it substantial debt payments and service contracts with third-party vendors. But employees represent the primary expense: Payroll eats two-thirds to three-quarters of an institutional budget. So stopping everything would mean either dipping substantially into the endowment to ensure that the college could continue to pay those people during the closed year, or furloughing or laying off nearly everyone.
Even if faculty and staff members accepted broad furloughs as a way to save the institution — and even if no one picketed on campus or in town — the move could damage such a college in the long run: Talented faculty and staff members could leave for institutions that had found ways to stay open. And who knows if current and prospective students would stick around?
Hibernation “would make perfect sense if you had a long-term sustainable model, and you just had to ride out the storm to get back to doing what you were doing, the way you were doing it,” said Staisloff. “The truth is, across most higher ed, you don’t have a sustainable model.”
Crises present opportunities, as the saying goes. The hibernation strategy is a form of “hunker down,” and it would not lead to the essential transformations necessary for higher ed , Staisloff said.
To be sure, by September many colleges might be facing some of the toughest choices they have ever had to make — and will face them under duress. To Staisloff, the question is this: “Why not make the hard choices now that let you drive to a more sustainable future?”
