The Coronavirus Will Be The Death Knell For Some Colleges

My Comments: I have lived my entire adult life in what can be described as a major college town, located in a relatively rural area in north central Florida. The university is the economic engine that drives the economic success of this community. Yes, we have the usual ups and downs, but the downs are muted given the presence of the university payroll.

It also means that any community infrastructure beyond the bounds of the university depend heavily, if not wholly, on taxes paid by those who live here. The university pays no direct taxes to either the county or the city. It’s one reason there’s a lot of complaints locally about property taxes.

A higher education has been part of the American dream for decades. But the cost of that education is reflected in reduced college enrollments across the country. The negative effect of high and sometimes overwhelming student loans is encouraging many high school graduates to find employment that doesn’t require a college degree. Since life never moves in a straight line, the Covid19 pandemic is going to further influence how money flows toward higher education going forward. Some ‘producers’ are not going to survive, just like the internet kills shopping malls and TV killed drive-in theaters.

by Lucie Lapovsky \ 3 APR 2020 \ https://tinyurl.com/u84qqo8

Many schools are very fragile financially and on the precipice of going out of business; the virus will push some of them over the cliff. Moody’s latest report on higher education said that “universities face unprecedented enrollment uncertainty, risks to multiple revenue streams, and potential material erosion in their balance sheet.” Bob Zemsky, Professor at the University of Pennsylvania and co-author of The College Stress Test, concluded in this recently published book that 10 percent of the nation’s colleges face severe market risk and in a recent interview with the Chronicle of Higher Education he increased that number to 20 percent of all colleges.

Last fall, according to the Chronicle, six in ten colleges missed their fall enrollment goals and 30% of public and private colleges have been operating at a deficit. Enrollment in higher education has decreased in each of the last eight years and the number of high school graduates has been and is projected to continue declining especially in the East and Midwest exacerbating enrollment challenges. A new student poll by Arts and Sciences done between March 17 and 20 showed that one in six students who were intending to go to a four-year college next fall are giving up on attending a four-year school and two-thirds of high school seniors are thinking about changing their first choice school.

The poll indicated that many students are thinking about taking a gap year, attending part-time and/or going to a school close to home. Several other surveys as reported in Inside Higher Education have come up with similar results in terms of the changes in the way that high school seniors are thinking about college for next year. After the experience high school and college students are having with doing all of their work on-line, fifty percent are now more interested in considering on-line programs than before the virus. In addition, colleges and universities which traditionally have multiple activities on campus for newly admitted students to persuade them to attend the institution, are having to do these activities virtually or not at all.

This is introducing great uncertainty into how many new and returning students will arrive on college campuses next fall assuming that our schools have reopened. The situation will be further exacerbated if they are still operating via distance learning in the fall. If campuses are still closed in the fall, schools will have a very difficult time differentiating themselves to new students and schools with high tuitions will be challenged to persuade their returning students that they are worth paying the high tuition when they are not getting the experiences they originally expected.

The changes schools are experiencing because of the virus are likely to alter the geographic composition of the student body at many institutions, leading more students to attend college closer to home. To further exacerbate the enrollment angst of those colleges and universities with significant international populations is great uncertainty as to when the world will reopen and when people will feel safe to travel and to go far from home. For the many schools which are highly dependent on student revenues, the picture is grim as they are dealing with refunding room and board money from the spring term along with significant uncertainty about enrollment next fall. One independent institution, MacMurray College in Illinois has announced it is closing and two private institutions in San Francisco, Notre Dame de Nemur and the San Francisco Institute of Art, have announced that they will not admit any new students for next fall; two of the three colleges explicitly stated that COVID-19 was a contributing factor in their decision.

Beyond enrollment uncertainties, the economic fall-out from the virus will have a five-fold negative effect on colleges and universities.

First, there are schools whose balance sheets and reserves are not robust enough to weather the expense increases and revenue losses that many are experiencing this spring and the potential revenue loss this summer.

Second, the demand for financial aid is likely to increase both from current as well as potential students as many students whose families have been financially affected by the virus will need more financial aid when they return to college and they may perceive that their financial situation has changed so significantly that they will decide that they need to sit out a year or two, attend part-time or attend a less expensive institution.

Third, given the economic uncertainty that is prevailing, this will be a difficult environment for colleges to fund raise.

Fourth, depending on what happens to the stock market, it is likely that many institutions will experience a reduction in their endowments.

Finally, state and local budgets are already strained this year and very likely to be strained next year given the additional expenditures that they have had to make to deal with the virus as well as reductions in tax revenues which are likely to lead to reduced support for higher education as it is one of the few areas of discretionary expenditure that state and local governments have.  Already, several states have frozen their contributions to colleges in this fiscal year and one public university, Central Washington University, has already declared fiscal exigency.

Balance sheet strength will be the great differentiator between those institutions that can survive the crisis and those that will fold in the short-run.  For the long-term, those that will emerge stronger from this experience will be the institutions who take this crisis as an opportunity to rethink both their academic and business models. Among the survivors that continue to do business as they were before the virus, many will continue to struggle and will be in a weaker position than they were before this year.