Coronavirus Pushes Colleges to the Breaking Point, Forcing ‘Hard Choices’ About Education

MacMurray College survived the Civil War, the Great Depression and two world wars, but not the coronavirus pandemic. The private liberal-arts school in central Illinois announced recently it will shut its doors for good in May, after 174 years.

Like many small schools, it faced declining enrollment and financial shortfalls. To lure prospective students, it was using steep discounts to its $30,000 listed tuition. Then the global health crisis brought unexpected costs for shifting classes online and partially reimbursing room and board for students forced to finish out the spring term at home. The loss of a $3-million-plus bridge loan was the final straw.

The pandemic “squeezed out the last rays of hope,” said President Beverly Rodgers.

From schools already on the brink to the loftiest institutions, the pandemic is changing higher education in America with stunning speed.

Schools sent students home when the coronavirus began to spread, and no one knows if they will be back on campus come fall. Some colleges say large lecture classes and shared living and dining spaces may not return. Athletics are suspended, and there is no sense of when, or if, packed stadiums, and their lucrative revenue streams, will return.

Every source of funding is in doubt. Schools face tuition shortfalls because of unpredictable enrollment and market-driven endowment losses. Public institutions are digesting steep budget cuts, while families are questioning whether it’s worth paying for a private school if students will have to take classes online, from home.

To brace for the pain, colleges and universities are cutting spending, freezing staff salaries and halting plans for campus building.

“The world order has changed,” said Sundar Kumarasamy, vice president for enrollment management at Northeastern University, where 18% of students are international and may not be able or willing to travel to the U.S. come fall. “When we build models, we don’t have a variable called virus.”

For many schools, the pandemic is exposing flaws in their own business models. Even before the virus hit, many colleges and universities were running on razor-thin margins, with 30% of those rated by Moody’s Investors Service showing operating deficits.

Published tuition rates had skyrocketed, but few students actually paid full price. That left schools fighting over a limited pool of wealthy prospects. Some schools had turned to international students to bolster revenue—a strategy that may now prove to be a liability.

Schools also spent lavishly on science labs, high-end dorms and recreation centers to appeal to discerning students. The high fixed costs, including for faculty and staff, mean substantial expense-cutting opportunities are limited. Yet raising tuition could scare off families.

This spring, Northeastern added more candidates than ever before to its admissions wait list, as it and other institutions expect to see prospective students waffle over their decisions.

“It could have the makings of a perfect storm,” said David Wippman, president of Hamilton College in Clinton, N.Y. The length and severity of the pandemic and resulting economic slowdown will determine the hit to the liberal-arts school, whose endowment before the market turmoil in March was about $1 billion.

Expecting revenue to decline, Hamilton has largely frozen hiring and tamped down spending. Mr. Wippman and his team have discussed drawing down a $50 million line of credit to pay the school’s bills if the economic downturn is sustained.

Before the pandemic, about 100 of the nation’s 1,000 private, liberal-arts colleges were likely to close over the next five years, predicted Robert Zemsky, a professor at the University of Pennsylvania’s graduate school of education, in “The College Stress Test,” a book published in February. He now says 200 of those schools could close in the next year.

Schools should expect a 15% decline in enrollment next fall and a $45 billion decline in revenue from tuition, room and board and other services, according to the American Council on Education, the nation’s largest advocacy group for colleges and universities. Some administrators say those projections are too rosy.

Princeton University, one of the wealthiest in the country, with an endowment valued at $26 billion last year, announced a salary and hiring freeze. It is cutting back on all nonessential spending and won’t renew employment deals with some contract workers.

“Economic conditions have been fundamentally altered in a matter of weeks, and universities across the country are having to reassess every aspect of their operations,” Princeton Provost Debbie Prentice wrote to students, staff and others at the school. ”We will have to make some hard choices in the weeks and months ahead.”

Johns Hopkins University went from projecting a $72 million surplus this fiscal year to expecting a net loss of more than $100 million. Without austerity measures and a return to normal operations, President Ronald Daniels wrote to the school community, it could see a $375 million loss in fiscal 2021.

One major factor: Revenues have plummeted as the Johns Hopkins Health System abandoned most elective procedures in response to the pandemic, illustrating a particular vulnerability for universities with major medical centers.

Mr. Daniels has detailed plans to cut salaries and suspend retirement contributions and capital projects.

To continue reading, please visit: