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.

Some Thoughts on the Coronavirus Crisis and Higher Education

Today marks my 41st day of social distancing, and I have settled into a new normal of lots of phone and video meetings with students and colleagues, teaching via Zoom, and taking questions from a whole bunch of people about what the coronavirus crisis means for higher education. (Finishing this paragraph got put on hold to respond to some questions, but that’s the way things go right now. It’s an important part of my job!)

In my last blog post five weeks ago, I tossed out the idea of suspending federal student loan payments for a period of time. Since then, the CARES Act gave most federal borrowers a reprieve on their payments through September 30 along with providing emergency aid to students and colleges. The formula heavily favors full-time students and the Department of Education’s follow-up guidance excludes international students and makes it hard for students who did not file the FAFSA to get funds right now, but it at least helps many students and colleges in the short run.

Here are some of my thoughts about what the coronavirus crisis means for higher education, based in part by some of the frequently asked questions that I receive.

(1) When will higher ed reopen? I’m not that kind of doctor. Most colleges are planning for summer classes to be held online, and a number of colleges have started to announce plans for the fall semester. But behind all of the public announcements, colleges are preparing for situations ranging from business as usual in September to a fully remote 2020-21 academic year. Colleges will not be able to operate in person without the approval of public health officials and/or governors, but I expect colleges to be cautious in their actions. It’s easy to say they will operate in person now, but the first college to announce firm fall 2020 plans will face additional scrutiny.

(2) What does this mean for institutional finances? As I told NPR earlier this week, “the math is not pretty.” Colleges rely on four main buckets of revenue: tuition revenue, state funding (public colleges), auxiliary enterprises such as food service and facilities rentals, and gifts/endowment disbursements (which are small at most colleges). Each of these buckets is at significant risk, and colleges are planning for reductions in revenue of at least 10% and potentially as much as 50% for the next academic year. Colleges have already brought hiring to a near-halt and many are implementing pay freezes and furloughs. I think that all employees should be bracing for a 10%-15% pay cut for the next two years, and colleges are thinking about how to maintain financial liquidity during these difficult times.

(3) Will students attend college? This is the big question right now. There is a lot of conversation about students taking ‘gap years’ to do something other than attend college online, but I’m skeptical that most students will follow through. Think about what the alternative is to attending college—it’s trying to get a job without having a college credential in a lousy labor market. This may be a popular thing to talk about in the New York Times, but the lack of better alternatives will lead many people to decide to attend college.

(4) What types of colleges deserve more attention right now? Not Harvard or anyone else with a multi-billion dollar endowment, please. It’s nice that they decided to give back their CARES Act allotment along with some other super-wealthy colleges, but let’s focus on where most students actually attend. Community colleges and online-focused institutions are probably best positioned to enroll more students, especially returning adult students that don’t even get mentioned in media coverage. I worry the most about expensive private colleges in rural areas and historically black colleges, as they face the double whammy of price-sensitive students and concerns about traveling far away from home. Public universities that rely heavily on out-of-state and international students also face a financial reckoning (the University of Michigan system anticipates a loss of up to one billion dollars), but they will end up surviving.

Finally, let’s not forget about certificate-granting institutions right now. Inside Higher Ed ran a piece today on beauty schools and barber colleges today, and based on reader comments, it seems like some people just learned that these are actual postsecondary institutions that can receive federal financial aid. (While I’m grateful for my wife giving me an acceptable quaran-cut, I miss my barber!) I have also had the pleasure of visiting certificate programs in fields such as culinary arts and truck repair, and these programs will be important to upskill people in a short period of time. Earnings from some of these programs are not great, but they are likely better than the alternative during a deep recession.

It’s Time to Suspend Federal Student Loan Payments

It is hard to believe that higher education was essentially functioning normally just two weeks ago. Then the novel coronavirus started to make itself known, with travel being suspended, in-person classes being suspended and then moved completely online, and now all on-campus operations are quickly grinding to a complete halt. Much of the American economy is also grinding to a halt thanks to social distancing practices and restrictions on certain sectors of the economy.

This sudden recession (depression?) has placed higher education under an incredible amount of strain, although our industry is far better off in the short term than many other service industries. This has also resulted in a number of proposed economic stimulus packages and other ideas to keep the economy moving. President Trump’s current higher education-related proposal is to unilaterally waive interest on student loan payments. But since this does not actually reduce payments (instead just allowing people to pay down more principal), the economic benefits of the proposal are likely to be zero if this plan survives potential legal challenges.

If the federal government wants to provide economic relief for millions of Americans who will likely be struggling with their student loan payments (or getting into income-driven repayment) over the next several months, my recommendation is relatively straightforward. Congress should seriously consider passing legislation to suspend all federal student loan payments for a period of six to twelve months. Just like the coronavirus is freezing the economy, freezing student loan payments would give Americans a chance to recover before either resuming normal payments or going onto income-driven repayment plans. A six-month halt would also give people time to navigate the complicated income-driven repayment system, which is likely to be overwhelmed in the short term.

To explain how this would work, consider a student with $15,000 in debt and six years of payments remaining. In the case of a six-month pause, the student would still have $15,000 in debt and six years of payments six months from now. Since this plan would not directly forgive any student loans, the taxpayer burden would be relatively small in the long term. The only cost would be that more struggling borrowers would enroll in income-driven repayment plans. I also would not count this six-month pause toward the required number of payments for Public Service Loan Forgiveness, as no payments would be made.

Hitting the pause button on student loans could be a good way to get more money in the hands of Americans in the short term while not resulting in a massive forgiveness of student debt. It is an idea worth serious consideration at this point.

A Few Thoughts after Teaching Online

On a typical Sunday evening in the middle of March, I am putting the finishing touches on my annual Net Price Madness bracket based on the NCAA men’s basketball tournament. Needless to say, that went out the window last week after the tournament was cancelled due to the ongoing coronavirus crisis. The virus has had a major impact on higher education, with seemingly most colleges suspending in-person operations on short notice. I’m also increasingly concerned about the financial implications of these closures for colleges, students, and employees alike.

As a department chair for this academic year, the resulting chaos in helping to make sure all classes can continue to operate while also taking care of a regular schedule of meetings and dissertation defenses made this the craziest week in my seven years as a faculty member. I also had to take my own seminar on dissertation writing online on both Saturday and Sunday on short notice. I have taught a few days of class online in the past, usually if there is bad weather or I am out of town for a meeting. But taking two full days of a class online in a synchronous format is something that I had not done before, so here are a few thoughts after teaching.

(1) I am glad that I bought a Zoom license. While my university provides two free options for video courses (Microsoft Teams and Blackboard Collaborate), they simply don’t match the ease of use of Zoom. We were able to easily share screens throughout the weekend, and nobody had any problems with connectivity. It felt more like a coherent experience as a result, which is important given that I had not had any of the students in a previous class.

(2) Lecture notes become an even more important resource. I always put copies of my lecture notes on Blackboard before I teach, but that was crucial for a class held live via video. This way, I could share the notes on the screen and students could follow along easily. It also saved them from having to see my oversized face for most of the weekend, which is an enormous benefit.

(3) Flexibility is crucial. I taught a class of K-12 school and district leaders over a weekend, so I did not have to worry about anyone not having access to a computer with a webcam. (That puts me in a privileged position.) But my students kept getting calls from their districts about contingency plans while I was also getting communication from my university about next steps. Attendance policies should be out the window at this point as we do whatever we can to help students learn. I ended up changing the timing and delivery mode of the final presentation to better meet students’ needs.

(4) There will be trial and error in teaching online. I think this weekend went pretty well given everything else that went on, but I’m still pondering what types of changes to make when I teach my next eight-hour class in two weeks. If you have any recommendations on what to do, I’m all ears at this point.

(5) Take care of yourself. I know that I can’t keep up this week’s pace of work for too many weeks, as this was legitimately a 75-hour work week. So as soon as I could after classes ended, I went out for a long run (a social distance run?) on my local trails—keeping far away from any other people. I am able to mostly—if not entirely—work from home over the next few weeks, so that should help me sleep well, eat well, and be outside while maintaining plenty of social distancing.