Colleges and universities were hit hard by the COVID crisis. The American Council on Education (ACE) estimated a total impact of $120 billion in a recent letter to legislators. That number reflects both direct expenses and lost revenues. It is easy to identify the direct expenses associated with testing, cleaning, PPE, remote learning technology and improved ventilation systems. But the lost revenues, while harder to measure, were just as impactful.
The National Student Clearinghouse Research Center reports a 22% drop in students going directly from high school to college. With an estimated 30 million people out of work, part-time enrollments and lower-priced community colleges were affected sharply. Four-year institutions may have experienced smaller overall enrollment drops than the community colleges, but the combination of fewer students in residence halls and significantly higher costs associated with those students who did choose to live on campus, had a dramatic negative impact on auxiliary revenues.
Given the gloomy financial realities of both 2019 and 2020 it may be somewhat surprising how few colleges permanently closed their doors as a result. It might be tempting to believe the worst of the financial woes for higher education will soon be over once the vaccine brings an end to the pandemic, but that sigh of relief would be premature.
The federal relief provided to higher education was ultimately less than a third of what the ACE was requesting. Many states augmented that aid further with state-allocated CARES funding, but there remains a financial gap that institutions have to address in other ways. Many of the approaches used to cover that gap will have lasting impact and make the future for many colleges more challenging than it already was.
Tapping into reserves or endowments, furloughs and layoffs, increases in deferred maintenance, salary cuts and freezes, and other short-term fixes may have helped institutions manage through the crisis but they will have to be made up for at some point. It may turn out that COVID has a delayed impact on the survivability of many institutions that relied on these short-term measures as opposed to addressing more substantially those structural costs that better support long-term sustainability in the face of continuing demographic declines and intensifying competition.
Higher education was already in the midst of challenging times and COVID’s biggest impact may be how it accelerates the need for structural change and the rethinking of the student experience. The long-term demographic picture, as forecast by Nathan Grawe among others, shows many years of declining enrollments ahead, capped off at the end of the 2020s by, what Grawe himself described in a January 2018 interview with Inside Higher Ed, as a “free fall.” For those of us in the Northeast, the predicted loss in four-year college going students is approximately 4,000 per year for the next decade.
Institutions that thought they could weather the predicted 1% to 2% annual demographic decline as they incrementally rethought and restructured over the course of several years may no longer have the luxury of time. In fact, those institutions that solely focused on the short-term challenge of COVID may have weakened their ability to respond to the long-term threats. The loss (or disenfranchising) of key talent, the spending of strategic reserves, and the increased backlog of deferred maintenance will all make it much more challenging to make the bold strategic changes and investments it will take to compete in a post-COVID environment.
It may be many years before families fully recover economically, and it is highly likely that states will have fewer funds available for higher education going forward, at least without federal level support. These financial constraints will make it highly unlikely that institutions will be able to make up for the COVID impacts by raising tuition or advocating for higher levels of state support. In fact, the discounting wars can be expected to accelerate, rather than cease, as institutions compete more heavily over a smaller pool students simultaneously facing deeper financial challenges.
Some leaders may find comfort in the fact that many of their peer institutions will be in the same situation and that some shakeout may help address the supply side of the equation, but that is not likely to provide any immediate post-COVID relief. It might also be tempting to believe that the massive migration to remote learning that was necessitated by the pandemic has now jumpstarted a new revenue stream that will carry institutions into the future. The reality is that very few institutions that served a residential population with remote technology have attracted a truly online audience, and they are not likely to, without substantial investment in marketing, extended-hour support services and instructional design. The “Field of Dreams” approach no longer works in a saturated online market and it will take more than streaming lectures or putting classes on the latest LMS to be competitive in online markets.
While higher education may be facing precarious times, the value and need for it has never been greater, and surely, there will be institutions that thrive post-COVID. According to Grawe’s demographic analysis, we can expect highly selective institutions to continue to attract students, and even experience higher demand. I don’t believe the COVID crisis has any particular impact on this prediction. For small and regional institutions, however, I believe the COVID crisis has brought an imminent shakeout closer to the forefront for all the reasons identified above. Nonetheless, post-COVID will also be a period of opportunity for those institutions that have either incorporated long-term plans into their COVID decisions or are prepared to move beyond incremental change and move rapidly towards a rethink of both costs and the student experience.
Short-term cutting vs long-term investment
In an ideal situation, institutions would have already begun planning for long-term cost restructuring prior to the pandemic and, therefore, have simply accelerated those plans, rather than needing to take short-term cost-cutting measures that hinder long-term investment and success. However, for those institutions that had not begun addressing their cost structures, the urgency to do so should be strategic and immediate. Not all the competitors that emerge from the pandemic are going to be in the same place, and those that address their actual cost structure will have the ability to further lower price or, just as importantly, redirect dollars to initiatives that will have an impact on retention and enrollment.
Cost restructuring is only one part of the equation: Rethinking the student experience should also be a post-pandemic priority. Based on a variety of surveys, it seems clear that residential students may not have been entirely happy with their remote experiences. But might they still value the flexibility of one or two online classes that free up an early morning or a Friday? Can we better leverage physical classroom time if that classroom time can be augmented with more remote content? Will students who have become accustomed to remote advising and telehealth want to return to lines, or running across campus for a 15-minute appointment? Colleges that are planning to return to where they left off will miss the opportunity to become more “student-centered.” They will also be in danger of disenfranchising their students, not to mention faculty and staff who have also become accustomed to doing more remotely.
There are other ways to leverage the process and technology enhancements that were made to cope with COVID to also improve the student experience going forward, and ultimately provide some competitive advantage. These may include expanding student options through cross-institution collaborations and course sharing. While some institutions will not be prepared to survive post-COVID, for others, this is going to be a period of change and improvement. The difference will come down to the ability and willingness to go beyond incremental, not only in terms of cost reductions but also in terms of advancing the student experience and addressing changes in the market, all while remaining true to the core ethos of the institution. Simply renegotiating a few vendor contracts or migrating an additional program or two to online will not be enough to compete in a post-COVID era for most institutions.
Todd J. Leach is chancellor emeritus of the University System of New Hampshire and former chair of NEBHE.
Great article, Todd. I am pleased you should position this post-pandemic financial crisis as an opportunity for innovation. Regardless, we do face an ongoing crisis for the years ahead. I hope institutions figure out how to survive. I didn’t realize you were now “emeritus” … I’ve enjoyed my post-administration career (now as a still-engaged emeritus) and hope you do as well.