How an 'immediate cash flow crisis' could transform higher ed

In the face of staggering revenue losses and safety concerns, colleges and university are trying to figure out the post-coronavirus landscape. Private and public institutions are “trying to plan in an environment that almost defies planning,” said one official.

First Look

Campuses have become ghost towns. Graduation ceremonies have been canceled. School administrators watch as the pandemic ravages budgets, costing billions of dollars in refunded room and board. Some students are seeking partial repayment of their tuition. Hiring freezes have been imposed at some schools, and laid-off professors face difficult job prospects.

The dramatic and widespread fallout from the COVID-19 virus has thrown the U.S. higher education system into a state of turmoil with fears that it could transform into an existential moment for the time-honored American tradition of high school graduates heading off to college.

“What every college and university is facing is an immediate cash flow crisis,” says Terry Hartle, senior vice president of the American Council on Education. ”We’re dealing with something completely unprecedented in modern history. There is just so much ambiguity how this will continue to evolve.”

School budgets will inevitably be slashed, with painful ripples. The University of Arizona, which could lose more than $250 million, recently announced plans for furloughs and pay cuts for almost all its 15,000 employees to save $93 million from mid-May through June 2021.

Endowments have crashed in value with the stock market, and there are worries fall enrollment could plummet. Predictions abound that smaller universities already on the financial brink could permanently close. Even larger universities considered financially healthy worry about potential state budget cuts and don’t know when they will be able to reopen campuses to new and returning students.

Boston University recently warned that students might not return to campus until January and many colleges – including Harvard University and the University of California, Berkeley – have already moved summer courses online. Purdue University, meanwhile, hopes to reopen on campus this fall; the Indiana school has a task force exploring possible strategies, including pre-testing students before they arrive and spreading out classes over times and days to reduce their size.

Writing in The New York Times, Brown University President Christina Paxson said reopening campuses this fall “should be a national priority.” She noted that higher education employs about 3 million people and the 2017-18 school year poured more than $600 billion into the national gross domestic product.

Schools already are facing staggering losses. They’ll have to refund $7.8 billion in room and board for the current school year, according to Mr. Hartle’s group, which made its estimate based on Department Education statistics. For the University of Wisconsin, which has 11 campuses, he says that will mean returning $78 million.

That doesn’t include losses that can be easily overlooked. One giant urban university, Mr. Hartle says, routinely collects $4 million a month in parking lot revenues.

How the schools rebound is about more than money. Before they reopen, administrators must be confident students will be safe in dormitories, close-quarter settings that Mr. Hartle likens to “land-locked cruise ships.” Timing is critical.

And with millions out of work, parents who have lost jobs or seen savings evaporate may reduce the number of families who can afford college at all.

The San Francisco Art Institute, the oldest art college west of the Mississippi, announced in March it won’t accept students for the fall and encouraged students not graduating this year to transfer. Merger talks with other institutions hit an impasse “in no small measure due to the unanticipated hardships and uncertainty” from COVID-19, President Gordon Knox said.

These developments happened shortly after Moody’s Investor’s Service downgraded its outlook for higher education from stable to negative. It said the financial chaos from the outbreak “could drive states to reallocate funding to other high-need impacted areas, such as health care, reducing available support for public higher education.”

States are “trying to plan in an environment that almost defies planning,” says Joni Finney, director of the University of Pennsylvania’s Institute for Research on Higher Education.

After the Great Recession ended in 2009, colleges and universities shifted more costs to students and their families. Public higher education in 27 states gets more revenue from tuition than from state funding, according to a 2019 report from the State Higher Education Executive Officers Association. “My concern is we do it in a way that doesn’t multiply the hurt on low- and middle-income families as we’ve already been doing since 2008,” Ms. Finney says.

Robert Zemksy, a professor of education at the University of Pennsylvania, says schools will be working on a tight deadline as critical decisions have to be made by August.

Colleges at greatest risk for closure, he says, tend to be small, rural schools in the Midwest, Great Plains, and the Northeast with enrollments of less than 1,000. They represent about 10 percent of schools but just about 2 percent of enrollment nationwide.

The colleges that might fare best and even increase enrollment if classes resume, he says, are state schools such as the University of Illinois and Michigan State University. “People,” Mr. Zemsky said, “will be looking for security.”

This story was reported by The Associated Press. Mr. Clendenning reported from Phoenix. AP writer Justin Myers in Chicago, contributed to this report.

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