Admissions

COVID-19 Creates Stark Consequences for Colleges

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As we approach the last week of May, colleges are working feverishly on their plans for the fall semester. While many colleges are anticipating in-person classes this fall, others are waiting to commit. It appears that July 1 has been somewhat arbitrarily designated as the default date for schools to announce their firm plans. That's because, for those campuses that will welcome students back in full force, so many actions have to take place before the first student trods the sod.


Other schools may need an earlier date. The University of Notre Dame, for example, has committed to bringing all students back to campus for Fall 2020 the week of August 10. That's more like Summer 2020. Obviously, this means that ND's campus is currently a beehive of activity, establishing safety protocols for students. No doubt, other schools are watching what is happening there to see what The Irish do, right or wrong.

Colleges May Be at Financial Risk

It's far from business as usual for higher education now. The reality of COVID-19 has dragged colleges into an unwelcome brave new world that threatens ominous outcomes for the ill-prepared. In researching what some of those consequences might be, I came across an essay by Charles Fain Lehman that spells out multiple stark realities. In American Colleges Are Headed for a Meltdown, Lehman predicts that "The coronavirus crisis could sink many schools — and leave a windfall for the survivors."

That's a scary statement, and at first glance, you may think it's exaggerated for effect and overly sensational. Unfortunately, Lehman is correct. Here's some supporting evidence. In an article less than two weeks ago, Fred Thys advises that One Third Of Private 4-Year Colleges Are At High Risk Financially, Model Predicts. Why such a precise evaluation?

A model developed by Boston startup Edmit finds that more than a third of private four-year colleges in the United States are at a high risk financially.

"Many colleges will be able to help students find ways to survive this crisis, but others will need to make the incredibly difficult decision to seek a merger or close in the next few years," co-founder Nick Ducoff said.

The survey analyzed 17 years of revenue from tuition, return on investments, expenses and the size of tuition discounts that 937 colleges offer students. Of those, 345 are at high risk, meaning that if present financial trends continue they would be able to survive six years, at most

That survey-analysis was run without the novel coronavirus effect factored in. Try to imagine the magnified negative impact those imperiled schools — the ones that would be able to survive six years, at most — will have to absorb in the coming year or two. It's not an optimistic scenario, even if COVID-19 is taken out of the equation for these schools:

The model assumes that colleges will lose 10% of their tuition revenue this coming academic year because fewer students will enroll and because they'll have to offer more discounts on tuition to entice students, and 20% the following year. It also assumes that revenue from investments declines 20% this next academic year

The stock market bubble deflated as much as 30 percent earlier this year, and the financial stability of college endowments has taken a blow. The financial stability of the United States Government is also in question with the national debt growing out of control; perhaps beyond control would be better put. This certainly isn't helping any financially fragile institution's future at all.

Could a Meltdown Be on the Horizon?

What about Lehman's college "meltdown" prediction? He sets the stage with some dark drama:

They've been through riots, protests, and natural disasters — but America's colleges have never seen anything like the financial meltdown the coronavirus is about to bring to their campuses.

The rising wave of health fears, added costs, and vanishing tuition payments could crush small colleges, many of which were already hanging by a financial thread. Those that can weather the crisis — including big-name universities with billions in their bank accounts — in turn stand to gain big from the fallout.

The emptying out of schools and the mass transition to distance learning has already been "the largest all-sector hit that we've ever seen," Jim Hundrieser, a vice president with the National Association of College and University Business Officers (NACUBO), told the Washington Free Beacon. But the challenges of this spring pale in comparison to the shock many colleges are expecting in the fall, when social distancing measures and a possible second wave could create the most surreal semester ever

China is currently experiencing a second wave of COVID-19 in its Jilin province, threatening 108 million people. If a second wave happens here in the US, as predicted by numerous experts (see Forbes' Experts Predict Second Wave For Coronavirus: Will College Campuses Really Reopen In The Fall?), financially challenged colleges that were able to survive the first wave this spring will likely succumb to the second.

Even major "elite" schools have been hit hard, as Forbes' Chris Westfall explains:

The University of Michigan anticipates losses of $400 million to $1 billion this year across its three campuses. California's university system suffered $558 million in unanticipated costs in March alone. The main campus of the University of Colorado will lose at least $67 million through the summer, ABCNEWS reports. Forbes has already documented the financial challenges facing smaller schools - now, 174-year-old MacMurray College in Illinois joins ranks with three state institutions in Vermont in shutting its doors forever

US Students Changing Educational Plans

Thirty-four percent of American adults (ages 18 to 64) have canceled or changed their education plans. Adding to the revenue loss due to dropping enrollments is the additional cash crunch caused by rigging for safety on campus. I addressed this in my previous article, Colleges Continue to Change Course for Fall 2020. Lehman agrees [with my bold emphasis]:

Added safety measures mean more expenses, Brown education professor Susanna Loeb told the Free Beacon. Colleges will need to pay fixed costs, like staff salaries and facilities maintenance, while simultaneously spending more on cleaning, testing and added space for socially distanced classes and living. At the same time, money will stop flowing in; Robert Kelchen, a professor of higher education at Seton Hall University, said that colleges are expecting a 20 to 30 percent drop in revenue next year

Kelchen makes a staggering assessment. While students may, in fact, be able to return to campus this fall under intensified, in-person strictures — "party hearty" days are over, at least for the near future — there may be some conspicuous extracurricular absences, mainly sports. This is where it really gets messy. The NCAA has stated that all students must be on campus in order for a college's sports teams to play. The biggest revenue maker for the Division I schools is, naturally, football. Can football revenue fever override student safety concerns and cause too-early openings? Let's hope not.

Penn State University takes in $110 million every season in football ticket revenue, media broadcast rights and associated sales. According to school officials, this income supports all other university sports programs, a similar revenue-sharing setup employed by other DI schools. Take football out of the equation and a college's entire sports program could collapse in domino fashion until things return to "normal," if, indeed, they ever will.

Accordingly, keep your eye on the relationship between returning college students this fall and their schools' gridiron goings-on. I predict that at some schools, even with students back on campus, football this fall may not happen. Why? I'll save an analysis of that for another day, but if you're curious, check out what it takes to prep a college football team for its first game. Regardless, the trickle-down from no football this year would also be worth following, if that does happen at big schools.

Endowments Matter

While the full list of COVID-19 consequences has yet to be completed, you may be wondering which schools are most likely to survive the pandemic. A major clue can be found in endowments. Check this list for the Top 100 richest universities. The Top 10 (as of Fall 2019) are:

1. Harvard University

2. The University of Texas System

3. Yale University

4. Stanford University

5. Princeton University

6. Massachusetts Institute of Technology (MIT)

7. University of Pennsylvania

8. Texas A&M University System

9. University of Michigan

10. Northwestern University

Endowment levels as of today have yet to be calculated, but you can be sure that the stock market dive, along with associated pandemic-related expenses, have put a large dent in all of these. Imagine the effect on schools with much smaller reserves.

Summing up for now, Lehman makes an excellent point, one which we should keep in mind as the coming months' drama unfolds:

Higher education resembles many other industries facing the coronavirus crisis. The small players look set to be decimated by the coming storm, while the ones that are big and wealthy enough to survive will wield even more power on the other side.

It's going to be an extremely interesting 2020 on many fronts. Higher education is among the top fronts I'll be watching. Buckle up!

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