Higher Education Finance and the Fall Semester

Over the last few weeks, colleges have taken three different tracks regarding their plans for fall operations. According to a helpful tracker from The Chronicle of Higher Education, the most popular plan is to have as many classes as possible in person in the fall. Another group of colleges, including the California State University system and a number of leading community colleges, have announced plans to mainly operate online in the fall. The final group is either waiting to make any announcement or they have said that updates will come in the next few weeks.

I made my expectations regarding the fall clear last week in a Chronicle essay, as I have a very hard time seeing more than the most essential classes operating in person in the fall due to public health and logistical concerns. But since colleges (including my own employer) are determined at this point to operate in person, I am taking a look at the landscape of higher education finance across a range of scenarios in this post.

Revenues

Colleges typically rely on a combination of four revenue sources to fund most of their operations. Some colleges also rely on research funding (which probably will be stable next year) and hospital revenues (a major concern for a small group of universities), but I am focusing on the most common sources here.

Tuition revenue: Basically all colleges have cancelled tuition increases for next year and are budgeting for providing additional scholarships for students to induce them to attend. But I’m more optimistic than many people about enrollment for the fall semester even if classes are online. When the economy is terrible, what else will students do? I do expect students to take fewer courses if classes are primarily online and shift to established online providers or local colleges, but tuition revenue may be less affected than other categories. International student enrollment—a key source of tuition dollars for large research universities like Purdue—will be disproportionately affected if colleges stay online.

Auxiliary revenue: This includes categories such as room and board, athletics, and facilities rentals. Going fully online for the fall brings this category down to zero, and even on-campus models with reduced residence hall capacity could cut auxiliary revenue in half. Big-time athletics programs may find a way to play football with no fans to salvage some revenue, but smaller colleges that rely on athletics to drive enrollment are in trouble.

State funding: A number of states, such as Missouri and New Jersey, announced cuts to the current fiscal year’s budget—which are especially painful near the end of the fiscal year. The magnitude of state budget cuts will depend on how much support the federal government provides to states, but cuts are likely to be painful nonetheless. It is also possible that some states levy additional cuts to colleges that remain online in the fall, as political pressure to reopen the campus is driving some of the current announcements.

Endowment and donations: So far, the stock market has stayed relatively strong, which is good news for endowments. But predicting endowment values six months from now is a fool’s errand with uncertainty about the future of the coronavirus as well as an impending presidential election (remember that?). Donations are likely to be driven by the economy, and I wouldn’t be surprised if some donors shy away from giving if their alma mater stays online in the fall.

All of the key revenue categories that colleges rely upon will almost certainly take a substantial hit. Four-year colleges are likely to be affected the most by the loss of housing and dining revenue, while community colleges will take the biggest hit from state funding. Keep these revenue categories in mind when reading colleges’ preliminary plans for fall, as they are likely driving the announcements.

Expenses

And at the same time, expenses will increase in some key areas. Here are four main categories to consider.

Technology: Get ready to hear a lot about the hyflex course model, folks. This is a synchronous course model that allows some students to attend in person and some to attend online in a synchronous manner. It’s not necessarily a new model (I have used it in my classes on an as-needed basis for years), but the technological needs are greater when only a portion of the class is allowed to attend in person on any given day. Classrooms need cameras, perfect Internet connections, and microphones everywhere. Colleges will also need to provide home studio equipment for faculty who are quarantined or at high risk of serious harm from the virus, and those costs will add up. Computer viruses are also a major concern since technology has to work perfectly to keep students and faculty happy.

Cleaning costs and facilities changes: In-person classes will require a lot of face masks, Plexiglas, masking tape, hand sanitizer, and disinfectants. Housing and dining facilities, classrooms, libraries, and other campus spaces will require significant modifications this summer and regular cleaning. (What happens to bathrooms in residence halls?) I assume that colleges will be able to get all of the supplies that they need, but those are costs to budget for.

Testing and tracing: In a thoughtful essay in today’s Inside Higher Ed, Sen. Lamar Alexander expressed his optimism in getting 70 million K-12 and higher ed students back to school in the fall. Part of that optimism is driven by the expectation of 40 million to 50 million coronavirus tests being available every month come September. But this is not enough for frequent tests of everyone on campuses. Something like ten million students could potentially be attending classes in person in the fall, and let’s say that there are three million employees (don’t forget about adjunct faculty and cleaning staff). If colleges follow UC-San Diego’s plans to test everyone on campus once a month, that is about 13 million tests. Can higher ed get one-third to one-fourth of America’s test capacity when getting K-12 students back to the classroom is arguably more important? And can they afford to buy and administer this many tests along with contact tracing? How can colleges make time to test everyone in a rapid manner? These will be extremely difficult challenges to overcome.

Legal liability: Colleges have been hit with plenty of lawsuits from students who are unhappy about paying regular tuition rates for online courses. These lawsuits have been a nuisance at this point, but colleges are deathly afraid of lawsuits against them if someone catches the virus and becomes sick on campus. College leaders across the country have been asking for liability protection from state legislators and Washington, and it’s hard to see many colleges reopening campuses without this protection.

Colleges are in a very tough spot right now, as they have to do their best to secure their own financial health while also keeping their students, employees, and local community reasonably safe. College administrators across the country are weighing the costs of benefits of various operating scenarios under various levels of the virus. The worst-case scenario for colleges is to reopen in person in August and then have to close in September or October due to a local outbreak, but some colleges may take the chance if staying online in the fall would result in permanent closure.

Ultimately, I’m still not convinced that many colleges will be able to crack the testing nut in time to allow large numbers of students and employees on campus. I would love to be wrong, but the sheer costs of following safety procedures amid hesitance from many students and employees to return will result in most courses being online in the fall while trying to get a limited number of classes on campus that cannot be done as well online.

Author: Robert

I am an associate professor of higher education at Seton Hall University who studies higher education finance, accountability policies and practices, and student financial aid. All opinions expressed here are my own.

4 thoughts on “Higher Education Finance and the Fall Semester”

  1. Good analysis points, generally — but I was expecting concluding quantifications of these as weighted factors for the different classifications. I guess that’s asking for too much.

    But I was disturbed by this observation:
    “Keep these revenue categories in mind when reading colleges’ preliminary plans for fall, as they are likely driving the announcements.” If this is true, the lack of moral obligation here points to a yawning abyss abyss across the sector. If anyone believes in karma, this is worse than walking under a ladder. The last thing the public needs to see is the sacrifice of youth in numbers like those in a war zone. Wasn’t it Iran’s Ayatollah Khomeini that sent children out into minefields to detonate live landmines? This statement is the moral equivalent.

    Tressie McMillan Cottom has twittered: “It is better for institutions to die than for people to die and it is unconscionable that anyone in a position of authority should suggest otherwise.”
    Tressie needs to be reminded that it’s schools that are dying, not institutions — at least, not yet. When it gets to that, we need to be rethinking societal relations across the broad.

  2. I wanted to add the HE financial timeline sketched out by Matt Reed at IHE (3-23-2020).
    Besides the weighted factors that I’m looking for, we need the temporal dimension as well. From:
    https://insidehighered.com/blogs/confessions-community-college-dean/want-save-colleges-save-states

    March: The economy comes to a screeching halt, with total shutdowns of most local retail and the attendant loss of jobs.

    April: States see tremendous drops in sales tax revenue from the sales that weren’t made, coming simultaneously with large unbudgeted expenditures for health care.

    May-June: States enact massive cuts to everything discretionary, with public higher education taking its usual disproportionate share of the cuts (remember that states can’t run deficits).

    June-August: Brutal financial triage on campuses, declarations of financial exigency, mass layoffs, some campus closures.

    September: Smaller entering classes at many campuses make bad budgets worse.

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