Why Doomsday Hasn’t Happened

As Covid-19 surged across the country last spring, leaders at Wofford College considered five possible scenarios for the institution’s finances in the fall of 2020. At one end of the spectrum, the small private liberal-arts college in South Carolina would welcome close to its typical number of students back to campus and suffer minimal disruption. At the other end lay a 15-percent plunge in enrollment and tuition revenue. It was, says Christopher L. Gardner, chief financial officer, “what we tongue-in-cheek called the doomsday scenario.” If it were to come to pass, he “would have really had to think hard about ‘How do we continue to operate the institution that our students have come to expect?’”

Last spring many college leaders, pundits, and observers — including me and others at The Chronicle — expected most colleges to start last fall much closer to the doomsday scenario than the minimal-disruption one. A wave of room-and-board refunds and PPE, Plexiglas, and webcam purchases left institutions gushing red ink. Some states were projecting double-digit declines in tax revenues, boding ill for support of public colleges. Surveys indicated that many college-bound seniors were second-guessing their plans to attend four-year institutions that might, or might not, hold in-person classes. Some analysts forecast waves of heavy revenue losses and college closures.

But the sky didn’t fall, at least not for everyone. As in broader society, the pandemic disproportionately affected lower-income and minority people. Community colleges, which often serve those populations, saw enrollments drop steeply. But many four-year institutions lost relatively few students. State tax bases proved more resilient than expected. While the pandemic has had a significant and quite likely lasting impact on colleges, it hasn’t proved to be the financial disaster widely anticipated a year ago.

Wofford College, for example, ended up very close to its minimal-disruption scenario. Its fall enrollment was slightly up from the fall of 2019. Its leaders tightened spending but didn’t lay off or furlough employees. The college is within 1 percent of its budget projection for the 2021 fiscal year — a projection it originally made in February 2020, a month before Covid-19 swept across the country. Next year’s budget reinstates raises that were frozen last year. “We’re not ever going to be the institution we were before the pandemic,” Gardner says, “but from a financial perspective, we’re in very strong condition.”

How did higher education elude disaster? How are college leaders trying to navigate further uncertainty next year? And why were the prophets of doom wrong?

Billions in Federal Relief

Maybe the prophecies weren’t entirely off target. Paul N. Friga, clinical associate professor of strategy and entrepreneurship at the Kenan-Flager Business School at the University of North Carolina at Chapel Hill, was one of many finance experts who saw trouble ahead for colleges, suggesting that the pandemic could cause them to lose up to 25 percent of their revenue. Instead, what many institutions suffered hewed closer to his base prediction of an average 14-percent hit to revenues. “It was bad,” he says.

Robert Kelchen, an associate professor of higher education at Seton Hall University, worried last summer that the financial strains of the pandemic could cause dozens of institutions to shut down. But that wave never materialized. Eight to 14 nonprofit colleges have closed each year since 2014, Kelchen says, and only 11 shut down in 2020: “I’m thrilled it didn’t happen.”

The doom was avoided in large part because of two drastic measures, leaders and experts say. The federal government handed colleges billions in relief funds. Colleges have also slashed expenses, a process that some see as long overdue but which has also cost hundreds of thousands of jobs.

The signature of President Donald Trump in March of 2020 initiated what may have done the most good to keep colleges off the rocks during the pandemic: the Coronavirus Aid, Relief, and Economic Security Act, known as Cares. The first Cares Act, a supplemental follow-up in late 2020, and the American Rescue Plan Act that President Biden signed on March 11 funneled a total of $77 billion to colleges, half of which was earmarked for students, but half of which colleges could use to cover their financial losses or, in later iterations, improve their operations. “The Cares Act and the Recovery Act dollars were huge for many, many institutions,” says Jim Hundrieser, vice president for consulting and business development at the National Association of College and University Business Officers, known as Nacubo. “That is part of what is saving them, or giving them a little bit more of the breathing room for next year.”

Meanwhile, state support was cratering. According to an analysis by the State Higher Education Executive Officers Association, state support declined nationwide by $1.7 billion between the fiscal years 2020 and 2021, but the Cares Act dollars essentially negated those cuts.

“The first tranche of Cares funding came pretty quickly,” says Olivia Padilla-Jackson, vice president for finance and operations at Central New Mexico Community College. “It gave everybody a real sense of relief, that that was going to help us to make it through the really hard times.”

The federal bailout made a big difference, but so did the fact that state revenues ultimately showed unexpected strength. When the country shut down in mid-March, it put millions out of work, but many white-collar workers simply booted up their laptops and kept on working, kept ordering takeout and grocery deliveries, and the economy kept trudging along. “High-wage workers seem to have done pretty well during the pandemic,” Kelchen says, and that has buoyed states who rely on progressive income taxes. “Even though low-wage workers got hit very hard, they’re not a large part of state income-tax revenue.”

Even the state revenue streams considered most at risk ended up not causing much damage. In New Mexico, higher-education leaders say that state support is effectively pegged to the price of a barrel of oil, because of its influence on state revenues. If it’s around $50 or above, public colleges can expect good times. If it falls below $50, they can expect cuts. At the start of the pandemic, the price of oil sat at around $42 a barrel and quickly plunged toward negative numbers. “You can only imagine the fear of every higher-ed institution in the state” Padilla-Jackson says. Last spring, as the state was projecting as much as a 30-percent decline in revenue during the 2021 fiscal year, Central New Mexico was asked to absorb a 12-percent cut to its state support, with more reductions possible.

But the energy business rallied — oil is about $65 a barrel at press time — and by the end of 2020, the dire predictions had been revised. Thanks to Cares money, some economizing, and some strategic reserves, Central New Mexico was able to weather the worst without layoffs or pay cuts. “We’re not completely out of the woods,” Padilla-Jackson says, “but I will say they pretty much restored our funding to pre-Covid levels during this past [legislative] session.”

There were other strokes of luck. Like many other community colleges, Central New Mexico receives a portion of local property taxes — those funds account for about 40 percent of the Albuquerque-based college’s annual operating revenues. The housing market has boomed during the pandemic, and “we started to realize that that was not going to take the hit we thought it could,” Padilla-Jackson says. She is currently projecting those revenues will grow by as much as 3 percent next year.

Layoffs and Pay Cuts

Colleges weathered Covid-19 by cutting expenses aggressively — though they made very different choices about where to do so. Some cuts were unavoidable. The lockdown meant no travel expenses and no expenditures associated with events like commencement or athletic programs. Having no students on campus led many colleges to lay off food-service workers and other student-facing hourly employees.

Laying off those hourly workers marked the beginning of higher education shedding about 13 percent of its work force over the past year and a half, according to a Chronicle analysis. That percentage doesn’t count the jobs lost among people employed by third-party vendors who handle dining or custodial services on some campuses, Kelchen says: “It’s wiping out more than a decade of employment growth.” Most of the cuts were concentrated among lower-wage workers, lower-level administrators, and nontenured faculty.

Some institutions needed to find ways to cut deeper. Furman University, a private institution in Greenville, S.C., was hit with a combination of refunds for room-and-board, additional expenses for adapting to Covid-19, and the loss of auxiliary revenues. Susan A. Maddux, vice president for finance and administration, met with the head of every division and academic department on campus to go over the losses and explain the need for cuts. Every employee on campus felt some kind of impact, whether it was furloughs or pay reductions, but otherwise leaders cut with an eye toward protecting the university’s mission and strategic initiatives. “We didn’t do anything across the board,” she says.

For example, Furman cut two athletic programs — men’s lacrosse and baseball. Athletics is “absolutely core to what we do,” Maddux says. But Furman is the third-smallest college in the Southern Conference league in terms of enrollment, and yet, before the cuts, it had the highest number of athletic teams at 20. “From that standpoint,” she says, “we felt like we were overinvesting compared to others in our conference.”

Many colleges were able to squeak by without cutting jobs or programs through a combination of Cares dollars, spending and hiring freezes, and furloughs or pay cuts. At the College of Wooster, a private liberal-arts institution in Ohio, for example, Sarah T. Bolton, the president, took a 20-percent salary cut, and other top administrators also had their pay reduced. California State University-Dominguez Hills couldn’t furlough employees — only the system office can do that — so it offered early-retirement buyouts and economized in other ways.

Other colleges garnered temporary savings by halting any building or maintenance projects in the works. Putting such activities on hold may have provided room to maneuver at a critical time, says Hundrieser of Nacubo, but it may have financial ramifications for institutions when they return to those projects. The pandemic has driven up the price of some construction materials close to 200 percent, and inflation can add cost to projects that are delayed.

Some colleges are cutting academic programs. Ithaca College, for example, announced in the fall of 2020 that it planned to eliminate more than 100 of its 547 full-time faculty positions due to declining enrollment. (A spokesperson for the college declined to comment for this story.) But such drastic measures are rarely driven by the pandemic alone. Many of the institutions currently re-evaluating programs and considering cuts have been under financial pressure for years, and the re-evaluation process may have begun before Covid-19 began its spread. “The pandemic has made that process easier, because it helps faculty and staff understand that these institutions are under a lot of pressure,” Kelchen says. “And although there’s still a lot of pushback, it’s probably not as much as it would be in a normal year.”

Risks and Rewards

Federal dollars and expense cuts made a more direct difference on the balance sheet, but perhaps nothing made a bigger difference in some colleges’ financial fates than their choices to bring students back to campuses this past fall.

Wofford College’s enrollment rose slightly last fall compared with the fall of 2019, and Gardner, the chief financial officer (and no relation to the author), doesn’t think that would have been the case had the college begun the semester online. “The ability to have students on campus was a major factor in determining the magnitude of financial impact associated with the pandemic,” he wrote in an email. “We believed pretty strongly that remote instruction in the fall would have had an adverse effect on both first-year student enrollment and upperclassmen retention rates.” The two worst-case financial scenarios of the five Gardner presented to the college’s Board of Trustees that spring hinged on remote instruction.

Bringing students back to campus, and avoiding another year of online learning, helped some colleges recover financially, but it also brought risks — to students’ health and to that of surrounding communities.

For some colleges, remote study helped salvage another key student demographic — international students. Since students from overseas typically pay full tuition, many colleges depend heavily on the revenue they bring in, but border closings and restrictions on international travel left their attendance up in the air. Around 350 of the College of Wooster’s roughly 2,000 students are international, but outreach and the ability to continue classes remotely allowed the college to enroll an incoming international class of 75 students, as opposed to a more typical 90. Even though its campus was officially closed, the college also allowed many of its international students to stay at Wooster last summer rather than return home and risk not being able to return for the fall.

Full remote instruction didn’t depress enrollment at some colleges. Cal State-Dominguez Hills, like the rest of the system, relied almost completely on distance education this past year. Yet Dominguez Hills’ enrollment increased, from 17,027 in the fall of 2019 to 17,763 in the fall of 2020.

Not all colleges fared as well. Community colleges, as a sector, experienced a nearly 10-percent drop in enrollment in the fall, compared with about a 4-percent decline among all colleges, according to data compiled by the National Student Clearinghouse Research Center. Leaders at Central New Mexico, as at many community colleges, had wondered if the bad economy might lead to an enrollment boom, as it did after the 2008-9 recession. But with state funding still in flux, Central New Mexico budgeted cautiously, for a 7.5-percent decline in student credit hours. Enrollment fell from 23,096 students in the fall of 2019 to 21,398 in 2020, a decrease of 7.4 percent. “We actually got pretty lucky,” Padilla-Jackson says.

‘A Buyer’s Market for Students’

For all the troubles colleges faced over the past year, many college leaders are sanguine about the one to come. “Hopeful optimists are emerging all over the place,” Hundrieser says. With more Americans vaccinated every day and restrictions being lifted in many states, most institutions are planning on something like a normal fall semester, with in-person classes, events, and athletics. Financially, fall may resemble something like business-as-usual for some institutions. Applications are up 30 percent this year at Furman, for example, and the budget for the 2022 fiscal year restores all the salary reductions levied last year.

But more turbulence may lie ahead. Unpredictability has been the hallmark of the pandemic, and even though conditions seem likely to improve over the next year or so, the country could be thrown an epidemiological curveball, or some quirk could cause further upset down the road. And it’s not as if higher education didn’t have plenty of challenges before a new coronavirus came along.

Colleges that had trouble mustering enough net tuition revenue before the pandemic may find it even tougher to do so in its wake. The economic downturn made it more difficult for families to afford tuition, and colleges often scrambled to compete for students in hopes that they would show up, which led many to dispense more institutional aid. “They give more money out to students to try to get them to come, but it gets to a point where can they get the revenue they need from students?” Kelchen says. “It’s a buyer’s market for students right now.”

Public colleges may be breathing a bit easier for now, but their budgets could still be squeezed. The pandemic had devastating effects on elementary and secondary education. Higher education and public schools are two of the largest chunks of discretionary spending in any state’s budget, “and states are going to be placing such a priority on K-12 education over the next few years, to make up for the last year of schooling,” Kelchen says. That could mean flat or declining budgets for higher ed, especially if the economy dips again, or state lawmakers impose tuition freezes.

Colleges face their own internal budget challenges regarding how to proceed from here. Take study abroad. At Wofford, the number of students who enter the program during an ordinary year fluctuates by as much as 20 percent, which means that the revenues from the program do, too. The pandemic canceled the program entirely this past year. A few months ago when Gardner, the chief financial officer, was presenting a proposal for next year’s budget to the Board of Trustees, he had to acknowledge he didn’t know what to expect. “I can envision a scenario,” he told the board at the time, “still sitting here in February, where there are issues with the vaccine rollout, and, again, fall study abroad is disrupted,” he says. “And then I can also equally envision the scenario where all the students who hope to go abroad this year want to go abroad next year, and we set records for the number of students we send abroad.”

While revenues have rebounded somewhat at Furman, the university faces another summer without much of the income from its summer programs. Its fall class looks promising, but the slightly smaller-than-hoped Class of 2024 will contribute a slightly smaller-than-hoped amount of tuition revenue for the next four years. “It’s definitely not a return of all the revenue where we were prior to the pandemic,” Maddux says. “That’s going to take time to get back to that place.”

And college leaders should tread carefully in getting back to business as usual, says Friga, of the University of North Carolina, and a practice area leader for strategic transformation of higher education at the Association of Governing Boards of Universities and Colleges. “I have an overarching fear that universities are trying to move back to normal as soon as possible in an unwarranted way,” he says. “They should be careful for at least another year.”

Leaders shouldn’t take the federal dollars coming in, or the revenues refilling their coffers, and spread it around like peanut butter “where you’re just filling in the gaps,” Friga says. “It’s so easy to say, ‘Okay, everybody, all my units, we cut you 5 percent, here’s 5 percent back.’ It’s so easy to do that, and so wrong.” Colleges should keep budgets tight and invest strategically in increasing student success and access, he says, and in new programs to help them grow and tools to help them streamline their operations.

Cal State-Dominguez Hills is using some of the federal dollars it received to improve Wi-Fi connectivity. Rewiring the campus “is a very large investment, because there’s trenching and things that go along with putting those lines down,” says Deborah Wallace, vice president for finance and administration.

One thing the pandemic has done effectively is distract college leaders from other looming challenges. The year and a half that they’ve devoted to grappling with Covid-19 is another year and half the country’s inched closer to 2025, the date the traditional college-age population is supposed to begin its tumble off the demographic cliff everyone’s been talking about the past few years. The stiff competition for students will only intensify. While many in higher education see hope in President Biden’s administration, his proposal to make community college free could make the competition for students even tougher. Will students go into debt to attend small private colleges or public comprehensive universities, many of which already struggle to recruit students, when they can take classes for free?

And of course, Covid-19 itself remains a wildcard. Maddux, of Furman, says testing may remain a significant expense in the fall, but it’s hard to know right now. “There are contingencies that I have in the budget for those types of things,” she says. “If it’s not this, it’s going to be something else.”

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