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Press The Pause Button

Many colleges and universities were facing financial challenges before the pandemic. Now what?

Federal financial relief in the form of the CARES Act, HEERF, HBCU debt relief, and even FEMA disaster relief during the pandemic resulted in a large infusion of revenue, or an offset to existing operating costs, that for many schools may have exceeded the hard costs of the pandemic. Many college students received checks as part of the redistribution of these funds even if there was no specific need. In addition, “emergency” payments provided students with money to replace lost or reduced wages or helped offset the impact of unemployment or underemployment of a parent. These funds did address real issues, but some of these issues existed pre-pandemic such as housing or food insecurity.

Forbes annually releases the Forbes Financial Grades report which reviews the financial condition of many colleges and universities nationally (in 2022, 905 of them) and provides a report card-like score based on financial metrics. This is the opening line in the article presenting this year’s data. “Even before the pandemic shocked the nation’s higher education landscape, colleges were troubled. Nearly three in four colleges saw their financial health weaken in fiscal 2020, which ended in June the year the pandemic shut down college campuses.”

What is important to understand is that the core underlying financial fundamentals of most colleges did not change during the pandemic. In fact, with the national trend toward decreasing enrollments conditions may have been made worse in the long term as a result of Covid-19. According to an August 2022 Best Colleges article by Lyss Welding, there were two notable data points:

· From spring 2011 to spring 2022, colleges lost about 3.3 million students, or 17% of enrollment.

· The college enrollment decline has accelerated during the pandemic, resulting in a loss of nearly 1.3 million students, or 7% of enrollment, between spring 2020 and spring 2022.

Tuition is one factor behind lower enrollments. As a result, Colby-Sawyer College, Vermont State University, and Lasell University have recently joined the trend toward lowering the cost of tuition to attract and retain students. In the case of Colby-Sawyer tuition will be reduced by 45% for 2023-2024. In order to make up for the lost revenue, these schools will either need to reduce institutional financial aid to students and/or reduce their cost of operations. Tuition is not the only factor in the enrollment story. As I noted in my blog post All I Want Is To Be Different, employers have identified a gap between what college students learn in college and what is applicable in the workplace. This leads to decreased retention and long-term enrollment declines. Although the declines in enrollment have not impacted every college equally it is a widespread problem.

But enrollments are in no way the entire story. Inflation and a weak economy are making colleges more expensive to operate. The rising interest rates will negatively impact the investment colleges will make in infrastructure or some larger maintenance projects. During the past decade, colleges have been migrating from an education-based strategy for recruitment to a model of differentiation. Part of that differentiation strategy is based on having new sports venues, new labs, esports facilities, etc. and there will be simply not enough money to complete all the projects in an institution’s capital master plan.

That said, colleges continue to find ways to work strategically, even collaboratively, to deal with their financial stresses. The recent New York Times article, At the Edge of a Cliff, Some Colleges Are Teaming Up to Survive, provides insight into one creative model known as course sharing. Students attend one school, often smaller liberal arts colleges, but can take online courses taught by professors at another school “often in consultation with subject-matter experts from universities including Rutgers, Harvard, Michigan, Duke and Yale.”

In another model, colleges have strategically outsourced services like student physical health or student mental health services to a local provider. The common model is to bill students’ insurance for these services. The thinking is the student would be billed if they received treatment near home. The result is a significantly reduced or eliminated cost to the college to provide these services. During the transition from in-house to outsourced, the existing staff will be encouraged to stay with the new provider to make the transition easier.

From a college financial viability perspective, the pandemic resulted in a temporary pause for some schools. Those schools should not assume this is the new normal. They must find ways to maintain or increase enrollments and manage costs in order to survive.

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