Uncertainty around colleges’ Financial futures may be at an all-time high. The one certain thing is that the weakest institutions are most likely to struggle. How hard is the new coronavirus outbreak hitting College and university student finance?
Coronavirus Upends Colleges’ Financial State – Student Finance
It’s not the most urgent question at the moment for many college leaders who have been scrambling with clearing out campuses, mass migrations to online or remote learning delivery, and various other steps that need to be taken to minimize harm from the spread of COVID-19. They’re doing what they have to do in a crisis, and they’ll tally up the bill later. This article is brought to you by Car Loans of America.
But the question still looms over everything colleges are doing. The U.S. higher education system had already been showing signs of stress, including relatively flat net tuition revenue at many institutions, a lack of growth projected among the high school graduates that make up the bulk of students and anemic growth in lucrative international enrollments in recent years. Now add to the mix the sudden operational jolts and likely global recession being prompted by the pandemic.
Education leaders and financial experts
Colleges and universities will be paying a set of short-term costs, according to higher education leaders and financial experts interviewed both on the record and a condition of background. Those experts are divided over the significance of those costs, however. Some predict an uptick in closures or major cost-cutting, while others expect a difficult few months in which those who lend money to colleges are going to be more accommodating than usual.
Longer-term financial impacts are even less clear. With plunging markets and travel uncertainty around the globe, it’s possible students start staying closer to home at the exact moment college and universities have fewer endowment assets to cushion major financial shocks like changes in enrollment patterns.
One thing is certain: it’s going to be a bumpy few weeks.
“There’s a lot of situational uncertainty,” said Barbara K. Mistick, president of the National Association of Independent Colleges and Universities and former president of Wilson College. “It’s all over the ballpark.”
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Liquidity in the Short Term
In the immediate future, a slew of relatively small expenses will accumulate, college leaders say. Some colleges are planning to continue paying student employees who have been sent home as if they were still working to provide a form of financial support, show good faith and hopefully improve retention. Dormitories and other campus facilities need to be cleaned and sterilized — especially in cases where some students or employees are remaining on campus.
Vendors will need to be paid as learning shifts to remote and online delivery. Even in cases where colleges can limp along using a suite of free options, they may have to pay for students, faculty, and staff who don’t have adequate technology at home to acquire it. And then there are refunds. Many colleges are working to refund room and board on a prorated basis, giving students back fees they paid for the weeks in which they won’t be allowed to live on campus. Whether or not those incremental expenses combine to cause a crisis at any institution depends on when the bills come due, how much cash is on hand and how much lenders are willing to provide.
“Right now it’s all about liquidity, liquidity, liquidity,” said one capital markets analyst speaking on a condition of background.
Commencement costs
It’s not the worst time for these additional expenses to be adding up. Many colleges have already collected the bulk of the money they’ll receive for the 2019-20 fiscal year as students paid tuition and fees. And the campus closures come early enough that expenses can be cut if need be. And the spring is packed with costly events at many colleges and universities. Commencement costs money to stage. So do alumni reunions and parties for seniors. The smaller an institution, the higher the relative cost may be. If you are looking to buy a car but your credit score is letting you down, we offer car loans with bad credit too.
Many colleges have announced in recent days that they are postponing or canceling commencement and other gatherings. Health considerations may be driving those decisions, but the financial savings could be real. The savings could also be coming at a good time. “My experience as a college president is that the most difficult cash-flow period is usually summers,” Mistick said.
Declaration of financial exigency
But colleges and universities can’t escape some costs. Many colleges have contracts with food service vendors or physical plant managers that can’t be exited on short notice, for example. It’s hard for institutions to reduce their cost of labor. Yes, staff members and some faculty members might be able to be laid off or furloughed. But that’s impossible in some cases without a declaration of financial exigency. And in a high-touch industry like higher education, it can also erode an institution’s ability to deliver quality education for its students. Especially with mass migration to remote learning underway.
That’s one of the reasons refunds are so critical. With costs relatively fixed, it can be even more damaging when an institution is forced to give back revenue. Room and board is a relatively small percentage of overall revenue. S&P Global Ratings rates about 400 colleges and universities. At the median public institution in its portfolio, auxiliaries like room and board make up about 9 percent of revenue. At the median private institution, auxiliaries are 11 percent of revenue, said Jessica Wood, a senior director at S&P Global, during a Thursday webcast. Learn more about Car Loans at https://www.talentedladiesclub.com/articles/need-an-auto-loan-heres-what-you-need-to-know/.
Refunding
Estimates of how much room and board refunds will cost are hard to come by if they even exist at this point. Partially refunding tuition would be a bigger hit, but institutions have thus far dismissed that idea. For example, Tufts University is among those issuing prorated housing fee refunds. “The University will not be issuing refunds for tuition as classes and instruction will continue through the end of the Spring 2020 semester, and credits and grades will be assigned normally,” a Tufts spokesman said in an email. Smith College is another institution offering room and board refunds.
“Smith College will issue prorated refunds for room and board to students who do not remain on campus. There are no plans to issue tuition refunds,” a spokeswoman said in an email. It all means that the colleges and universities that were already stressed are going to find themselves under even more strain shortly. “Many weaker and more regional institutions have already been experiencing operating pressures, and this pandemic sort of exacerbates these pressures,” Wood said.
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