The Nature of the Crisis in Higher Education

There is no question that enrollment and financial issues in higher education had reached crisis proportions prior to the emergence of COVID-19. This new public health and economic challenge has heightened the magnitude and significance of these issues. This blog will explore the pre- and post-COVID-19 issues facing higher education.

The Pre-COVID-19 Higher Education Crisis

Colleges and universities have been experiencing admissions and financial challenges for a number of years. As early as 2016, Ernst & Young found that small colleges with enrollments of less than 1,000 students faced serious financial challenges. The Chronicle of Higher Education reported that 129 private non-profit colleges closed between 2014 and 2018. When you parse out specialty institutions, the rate of closure of traditional colleges is approximately 15-20 per year. In the northeastern US, as the closures began to pile up including Burlington College, Dowling College, Mount Ida College, Newbury College, the College of New Rochelle, and Green Mountain College, the seriousness of the crisis became a topic of public discussion. Recently, the controversial book, The College Stress Test, assessed that 20 percent of colleges are in deep financial trouble with another 30 percent struggling.

There are a number of different elements that are driving this crisis:

1. Declining Demographics

College-age populations are declining. With the exception of a couple of sparsely populated regions of the nation, the number of college-bound students in the US is declining. Declines are greater than 20 percent in New England and the Mid-Atlantic states and in the high single digits in the remainder of the country. Furthermore, the steady bolstering of enrollments by international students (predominantly full-paying and non-discounted) has waned. Last year, the number of international undergraduates studying in the US declined by 2.5 percent and the decline since 2015 has been 10 percent.

2. Increasing Costs

The costs of providing university-level education have been steadily increasing in recent years driving tuitions up faster than inflation and beyond what parents find reasonable or can afford. The reasons are multitudinous—increased cost of technology; increasing requirements to meet unfunded state and federal mandates; the competition to be increasingly attractive to potential students and their parents (fancy dorms, high-end dining, resort-quality athletic facilities, and the like); and most dramatically, discounting of tuition (this year’s freshman class at private college and universities enjoyed a discount of over 50 percent). It is not surprising that there are reports that as many as 30 percent of small colleges are operating under deficit budgets.

3. Crisis in Credibility

In the midst of these pressures, colleges face a significant challenge to their credibility with the American public. Parents and students are questioning the value of a college degree. Stories in the press abound about high and escalating tuitions as well as the monumental debt of college graduates. It is not surprising that parents and students are asking if their money would be better spent at a lower-cost institution or pursuing a career that was not college dependent.

4. Academic Inertia

It is often argued that higher education is one of the few industries in the world where an individual from the 17th Century could walk into a workplace and not be surprised at what was taking place. Academe is very change-resistant. Institutions spend years debating changes in the common core—often resulting in no change at all. Majors outlive their practical value, and, even for majors that are still relevant, implementing changes in degree requirements to increase the value of the major is hard to accomplish. The result is that most institutions have numerous majors that need substantial changes or elimination. Periodic program review processes that were supposed to drive change more often result in the development of promotional documents replacing critical analysis with a perspective seen through rose-colored glasses or the development of a new major without eliminating the old one. Institutions tout on their Fact Pages the number of majors that they offer, failing to identify how many of these majors are truly viable—not characterized by low enrollments and poor career opportunities. Similarly, the cost of instruction and the costs of highly siloed and independent programs are seldom recognized.

These elements of the crisis will be magnified by COVID-19 and new elements will be added to the list:

1. Financial Freefall

Colleges and universities are experiencing a crisis unlike any in our history. College campuses are closed for the spring semester moving all instruction to online platforms. This entails significant increases in technology costs especially for institutions that were not already offering some online instruction. It is estimated that as many as 70 percent of faculty members had never taught an online course. Furthermore, colleges are having to refund spring semester room and board payments (this amounted to $70 million dollars for the University of Massachusetts system). Pressures are beginning to develop for institutions to refund tuition in response to courses being moved into an online format. How large an issue this will become is yet to be determined. Absorbing these increased costs and declines in revenue will be difficult for all institutions. Some marginal institutions may be pushed into insolvency.

2. Uncertainty for the Fall

At this point, no one really knows what COVID-19 will bring next for either the economy or higher education. This uncertainty is particularly problematic for higher education. The ebb and flow of the academic year has pronounced implications in higher education. The year begins in September with a fall semester. The majority of new students matriculate at that point. Despite increased flexibility of program offerings in recent years, it is difficult to begin programs at different times. At this point, however, we do not know if students will be able to return to campus in September. We do not know who will return—will significant numbers of students opt for campuses closer to home or at a lower cost? What freshmen will matriculate in September? It is easy to predict significant summer melt rates especially with many institutions choosing to waive deposits because of the crisis. Furthermore, families are certain to present different financial status now than they did when FAFSA forms were filed. How will colleges respond to this increased financial need? What will happen to discount rates? The answers to all of these questions could have a major negative impact on colleges.

3. Justifying Tuition Levels if the Fall Semester is Online

Schools scrambled effectively to transition spring semester classes to an online environment. For the most part, students and parents have been accepting of the roughness of that transition. The fall semester is almost half a year away, and student and parent expectations for the fall semester will be significantly higher than they are at present. Institutions, especially high priced private colleges, will have to develop virtual pedagogies that provide the value-add that brings students to their physical campuses. Otherwise, these students will pursue lower-cost options, at least in the short-run.

4. Uncertainty for the Intermediate Future

Even if students do return to campus for the fall semester, the COVID-19 crisis will certainly change higher education in ways that are irreversible. Some of these are:

a. Endowments have been significantly hurt by the stock market decline. While it is reasonable to expect that these declines will be recouped, this will take time. It took the market 4 years to recover from the drops of the Great Recession. It is also likely that endowment spending will be adjusted downward as boards attempt to build “rainy day funds” in anticipation of future crises. Institutions will unquestionably have less endowment money to spend for a considerable time.

b. There is the potential for loss of revenue from ancillary services and dorm rooms. If fewer students are enrolled on-campus, the services that support on-campus students will be hurt financially. Some of this impact will result in layoffs and the closing of cafeterias and offices. However, there will be an impact on institutional operating budgets. Most ancillary service contracts allow the institution to make money from the provision of these services—the outsourced bookstore and foodservice operation pay the institution a fee for right to provide these services generating funds which are then used to support academic activities that do not pay their own way. Possibly, the most significant ancillary service is dormitory rooms—at typically high occupancy rates, institutions make a considerable profit from dormitory rentals. If occupancy falls dramatically, dorm revenue may fall to a point where funds will need to be transferred from other parts of the institution to cover the cost of dormitory debt.

c. State colleges and universities have experienced significant declines in recent years in the level of state funding. As state budgets decline in the face of a COVID-19 induced recession, it is reasonable to expect that state appropriations to colleges and universities will decline. Institutions have typically responded to such cuts by raising tuition—that option may be off the table this time.

d. Institutions are going to have to adjust to new modes of pedagogy. While no one expects the demise of the residential college experience, many opinion leaders expect that this will be a watershed moment for online education. Be assured that what happened in the last month was not a shift from face-to-face to online instruction. The pedagogy of high-quality online education is sophisticated and has been developed over several decades by faculty members aided by instructional design specialists. What we have seen in the last month is the replacement of the traditional classroom by a Zoom meeting with a bit of emailing, texting, and discussion boards tossed in. This does not reflect “best practices” in online education. That said, it is likely that there will be greater acceptance of online learning strategies after this crisis is over. The integration of the most effective of online pedagogy with face-to-face instruction can yield an even more effective learning environment. It will come, however, at a significant cost. Making such a move will involve significant investments in technology and instructional design.

e. There are already pressures building for a reworking of the shared governance systems of institutions. We have heard many stories of administrators and faculty leaders working to accommodate the challenges of the COVID-19 crisis. Regional accreditation bodies have even fast-tracked changes for institutions who had previously not offered online courses. Acceleration of the pace of programmatic change has been long needed. The world economy is changing far too rapidly to accommodate governance processes that require two or three years for approval and the launch of a new program. It is also likely that some institutions will be forced to declare financial exigency in the upcoming months to allow them to make dramatic programmatic changes. Such actions will likely be quite contentious.

While this picture may seem very bleak, there is a silver lining. You cannot pick your crises, but you can pick how you respond to them. Planning is essential to deal with uncertainty. Faculty leadership and administrations must come together to model potential scenarios for the next several years and to develop strategies/contingencies to deal with both “best case” and “worst-case” situations. This is the time to ask what is at the core of your institution. What are the strengths that got you where you are? It is also a time to identify those elements of your institution that are not mission-critical. This could be the time to shed those activities and to reallocate funds to areas more aligned with your mission. This is not the time for “across the board” budget cuts. Such “convenience cuts” take money away from the areas that you need to grow and prop-up areas that need to be cut. They may seem to be an easy way out, but they will more likely make it more difficult for you to survive this crisis.

This is part of a series of blog posts meant to outline strategies for dealing with the mid-term and long-term implications of the Coronavirus crisis and our changing higher education environment. Let us know what questions and challenges you have about the future either by leaving a comment below or by contacting our principal consultants directly.

Our next blog will focus on explicit strategies for dealing with the crisis: