Graphics by Lydia Qu
The BRB Bottomline: Universities are getting sick of the pandemic. With the coronavirus drying up funding and increasing costs, universities are struggling to transition to online education and to create a safe learning environment for students. This all begs the question: “how will universities survive the fall semester, and how will the coronavirus change the future of higher education?”
Higher education is a lucrative industry. Millions of students funnel billions of dollars into universities to not only attain an undergraduate degree but to also live the so-called “college experience.” But just like every other industry, it has been hit hard by the coronavirus, and students are rethinking whether the virtual, online college experience is worth the high price tag.
What Happened to the Money?
On the federal and state level, funding is drying up for public institutions. The University of California System alone faced a 10% cut in state funding for the 2020-2021 school year. That is on top of the lost housing and dining fees and the extra $310 million expenditure to create the infrastructure for online education. Universities have lost even more revenue sources from summer programs for high schoolers and summer classes for college students to the tune of $248 million. Since states are already funneling hundreds of millions of dollars into coronavirus relief to pay for PPE, unemployment benefits, and coronavirus testing, little money is left over for universities. To add to their difficulties, states are also facing tax shortfalls, meaning that they are spending more when they can’t recuperate their losses in tax revenues. States cannot afford to help alleviate the pain of these cuts because 46 states and the District of Columbia have constitutional or statutory requirements to balance their budgets.
Federal funding could cover some of the lost state appropriations, but with President Trump threatening to pull universities’ tax-exemption status, help from the White House is unlikely forthcoming. While Congress’s passage of the CARES ACT provides $14 billion for colleges and universities, that relief is spread very thin. Almost half of that money is directly given to students, leaving the rest to be divided among over 1,500 public universities. The formula to calculate how much money each school receives is based on how many full-time Pell grant-eligible students and their full time enrollment. Some people have also expressed concerns over how Congress allocates the relief. Community colleges educate 40% of postsecondary students yet only received 27% of CARES Act funding, while many wealthy universities received money that should have been allocated elsewhere.
Last year, 60% of universities were unable to reach their enrollment figures, so concerns about losing tuition money are not new. Now, universities are hesitant to increase tuition figures since even fewer people can afford a college education and many cannot justify the price tag for what is essentially an online education. Some universities like Princeton have even decided to cut their tuition because they recognize the quality of education has changed dramatically in the pandemic. All this could push incoming freshmen to cheaper avenues like community colleges.
Liberal Art Colleges’ Fight for Survival
Though large public universities are facing severe cutbacks, many smaller private institutions are facing an existential threat. These universities are heavily dependent on tuition, and their main selling point is that students have more opportunities to be face-to-face with professors compared to large state schools. Since many small liberal arts schools only enroll around 1,500 students, a loss of even 50 students will dramatically affect their balance sheets. They don’t have waitlists they can draw from to make up for lost tuition numbers like Harvard, Stanford, and Berkeley can, meaning that they are in a more dire position. About 100 of the 1,000 small liberal arts universities were expected to close within the next five years. Now, because of the coronavirus, that number has doubled.
Even before the coronavirus struck, these institutions were already facing a reckoning. Steep tuition costs drive potential students to community college or in-state public universities, and with the unemployment rate at 11.4%, parents and students will not be able to justify spending that tens of thousands of dollars extra for these smaller liberal arts colleges. Already, a little over 5% of these universities have 90 days or more of cash to cover short-term losses. Further losses in tuition and auxiliary sources of funding will lead many liberal arts colleges to merge with larger institutions or close their doors altogether.
A Home Away from Home No Longer
Beyond losses in government funding and tuition, universities are also losing money from auxiliary sources of income like athletic events and room and board. When universities quickly shut down campuses in March, many refunded their students for their housing and meal plans. Room and board constitute about 10% of a university’s revenue, and refunding students carved out millions from their budgets.
Certainly, not all universities chose to refund their students, forcing some students to try to settle the matter in court. The Arizona Board of Regents currently has two class-action lawsuits pending against them because they refused to refund students for housing and tuition at their three universities: Arizona State University, Northern Arizona University, and the University of Arizona. Arizona’s public institutions are not the only ones facing litigation; students at over 25 universities are suing for refunds on housing and tuition, hoping to get refunds.
Universities can expect far fewer students on campus for the fall semester. Since many universities will be offering at least a hybrid schedule if not one that is fully online, many students will choose to remain at home as shelling out another ten to twenty thousand dollars for room and board seems ridiculous. Universities are also unable to assure the safety of students, many of whom might ignore social distancing guidelines to party. Thus, families are often choosing to keep their students at home.
International students, who contribute up to three times the tuition for public universities and are often full-paying students at private universities, are even more inclined to stay home. Because the United States has the most confirmed coronavirus cases out of any country in the world, many will feel safer in their home country. This, coupled with the fact that the Trump administration has shown little love to foreign students by threatening to deport those who are not taking in-person classes, means that universities will also be missing out on the revenue that international students provide.
Delaying Game Day
Beyond room and board, universities are losing millions of dollars in lost revenues from their athletic departments. More specifically, they are losing billions from college football. Football is a high contact sport, meaning that players would be in close proximity to each other where they would cough, sweat, and breathe on each other. With 22 players on a field at a time and countless substitutions throughout the game, players would be at a very high risk of contracting the coronavirus and spreading it to other students.
However, college football brings in billions of dollars to universities through contracts with TV stations and networks. The 65 Power 5 schools stand to lose $4 billion, with a quarter of that being from lost ticket revenues. The athletic departments of public Power 5 schools make half of their operating revenue through football. Less than half of Division 1 schools have enough reserve money to sustain themselves during this crisis. For universities as a whole, many get money indirectly through their football teams through sponsorships and big donations. As such, the PAC-12 and Big 10 are postponing their football seasons to the spring if all goes well so that they can eventually make up for their losses while the Ivy League canceled their season entirely. Thus far, 77 of the 130 FBS teams (Football Bowl Subdivision) are set to play on time this year.
In the meantime, athletic departments are operating on their reserves. This has forced many universities to cut other varsity teams. Many of these sports like golf, tennis, and rowing attract few spectators and have predominantly white and wealthy team members. Universities were already feeling the pressure to cut teams that cater to affluent college applicants after students posed as top athletes in niche sports to have an edge in admissions. The added problem of the coronavirus further justifies many universities’ decisions to drop these sports entirely.
The facilities for these sports are often very expensive. For instance, Dartmouth College will be cutting golf since they lose over $1 million annually on their golf club. Stanford is also making drastic cuts to its athletic department since they project a budget deficit of $21 million for 2021; out of its 36 varsity sports teams, Stanford is slashing 11 sports teams.
Keeping Students Safe
Amidst losses in funding, tuition, housing, and athletics, universities are also expected to invest in safety measures to limit the spread of coronavirus on campus. For the many universities who plan to resume in-person classes, they have to completely redesign the college experience. Universities are purchasing plexiglass, face masks, and hand sanitizer stations in droves. The costs of PPE and cleaning supplies are running into the millions for universities. When the costs of renovations for dorms and school buildings with more advanced ventilation and motion-sensor doors are added in, universities will be footing a massive bill to draw students back to campus.
The University of Central Florida offers a perfect example of high spending on new equipment. They purchased one reusable and washable face mask for each student and staff member as well as an extra 250,000 disposable masks for visitors. The bill: $309,000. They spent another $451,000 on hand sanitizer stations, disinfecting wipe dispensers, and refills. Not to mention that they spent half a million on upgraded ventilation, over half a million more for motion-sensor doors, and thousands more to install plexiglass throughout the university. Similarly, Chapman University will be paying $8.3 million for extra safety measures and Purdue University will be paying $50 million.
Universities are not just feeling cuts in the budget from having to pay for more supplies. They also have to pay employees to conduct daily temperature checks, administer COVID-19 testing regularly, and wipe doorknobs hourly. The University of Central Florida has designated an additional $3 million for labor costs.
To accommodate for the losses in revenue and extra costs to keep students safe, universities have enforced hiring freezes, cut the pay for senior-admin, and paused capital projects. Even colleges like Princeton University, which has an endowment of $25 billion, will be cutting all non-essential spending. John Hopkins University, the premier medical school, has changed its projections from a $72 million surplus to a $100 million deficit. Much of this reversal can be attributed to the fact that John Hopkins is performing fewer elective surgeries and are instead focusing on coronavirus treatment, another problem that plagues other university hospitals throughout the nation.
Universities also have to ensure they have enough coronavirus and antibody tests to administer to students. Currently, the US is having trouble with testing. Sometimes it can take well over a week for patients to receive test results, not to mention that some patients have to wait in line for hours to be tested. While many universities have their own labs to conduct the testing, they still need to purchase the supplies necessary and ensure that they can give student results in a timely manner. If universities cannot return results quickly, then containment measures like contact tracing and isolation will also become more difficult and cause potential hotspots.
Different universities are taking different approaches. Some like UCSD plan to test students monthly while schools like Emory University plan to test once they move in. While some universities might try methods like batch testing to reduce costs and get results back faster, they will still have to spend millions to cover all of the costs.
The Future of Higher Education
No one can predict when the coronavirus will end. While new breakthroughs and treatments are being discovered rapidly, even if the coronavirus can be eradicated within the next six months, universities will feel the ramifications for years to come. On the more likely chance that the coronavirus can be managed within the next year or two, many universities will face an existential crisis: will they be able to survive the financial implications of the virus?
Certainly small, private colleges will be in a worse position, but public universities will not be able to rely on state funding as much, and private universities with large endowments will face their own troubles. Students are increasingly realizing that the college experience will not return back to normal anytime soon. Given that tuition costs have increased 260% over the past 40 years and the cost of a four-year degree at a public university is around $100,000, universities are no longer affordable or logical for many low-income and middle-class students.
The coronavirus has the potential to fundamentally change the college experience. Before coronavirus, the most that universities were willing to explore online education was offering the occasional class online. Now, universities might recognize the potential of online education after having to massively overhaul their infrastructure and offer courses online.
While many students are dissatisfied receiving instruction that was meant to be in-person over Zoom, universities could integrate truly fascinating technology into their curriculum to make an enjoyable and more affordable online experience. Georgia Tech already offers a masters in computer science online for $7,000, and students can receive an MBA from the University of Illinois for $22,000. Though some might be concerned that offering courses online for cheaper could cut into revenues, these universities have yet to experience any dramatic decreases in profits while providing parallel degree options. Since tuition prices have increased by 260% over the past 40 years, an online diploma would make education far more accessible.
Other universities have taken unique approaches to incorporate technology into education and the arts. NYU’s Tisch School of the Arts taught performing arts through virtual reality, and musicians at Stanford have learned how to perform together online. With the proliferation of personal computers and groundbreaking technology, why should universities ignore the potential of offering an online education?
Students are not the only ones strapped for cash. Universities are facing a severe reckoning due to the coronavirus, and with decreased funding and revenues and increased costs, higher education institutions can expect a difficult road ahead. However, it is often said that “necessity is the motherhood of invention.” Higher education might change dramatically in the years to come, offering students a truly transformative and unique college experience.
Katherine is a sophomore in the Global Management Program and intends to minor in History. Her interests in international business and markets inspired her to join BRB’s economics column to explore more about economics around the world. Beyond international relations, she also enjoys understanding how the political landscape affects markets and is excited to pursue these passions in BRB. As a San Diego native, she loves nice, sunny days and can be caught reading in the park; otherwise, you’ll find her binging some movies or shows.