It is dangerous forecasting the future when underlying assumptions are uncertain and changing importantly daily. That said, I feel fairly confident that we are going to see more colleges and universities close in the next couple of years or so than at any other time in American history. Why?
Even before the Covid-19 pandemic, a large number of universities were in fair to poor financial shape, partly the result of a roughly 11% enrollment decline in U.S. higher education over the last decade (enrollment has fallen at an even greater pace at the lower reputation schools), and partly because of declining public support. Three types of schools especially were in trouble: non-selective private colleges with modest endowments, usually with a liberal arts emphasis; the bottom and middle tier state schools, especially in states, mostly in the East and Midwest, with stagnant population growth; and the community colleges. An analysis last fall by Forbess Matt Schifrin and Carter Coudriet gave 177 of 933 rated private schools (19%) a D grade for financial health, up sharply from 2013 when the number was 110. As Schifrin and Coudriet noted, a significant number....are nearly insolvent. The modal grade of C (earned by 498) represents institutions with modest reserves in some cases probably unable to withstand an unanticipated fiscal tsunami. All told, an extraordinary 72% of schools had a C grade or worse. And indications are that state universities are in similar shape.
Covid-19 brought two big and several smaller budgetary hits to schools. Schools on average earn roughly 10% of their income from auxiliary operations, including food and lodging. When kids were sent home a few weeks ago, the schools still owed them the right to use rooms (which they had been forced to leave) and be provided food for the remainder of the term. Refunds are in order that are in many cases probably approach 2% of annual school revenues. Second, most people are predicting declining enrollments in the fallthe only issue is how much, possibly double digit in some cases. To be sure, in recessionary periods, enrollments usually rise, and that could happen eventually, but probably not immediately, especially if the health threat continues. Most schools today are very tuition-dependent, getting minimally 30-40% and often more of their revenue from that source. And some schools have had other, smaller hits, such as well over 100 schools that will lose on average seven digit amounts from the cancellation of the NCAA mens basketball tournament.
What about the federal stimulus package or state aid? Not as much help there as you might think. Roughly $14 billion in federal money was allocated for higher ed, about $750 or so per college student. But the use of the money is severely restrictedover a billion dollars goes to politically favored schools, especially historically black colleges and universities serving a tiny portion of students. And a large part of the rest is allocated for assistance to low income students. I suspect most schools will not see truly discretionary assistance that amounts to more than one percent of annual spending. State governments are getting additional federal aid which might lead to some additional relief.
Hence, the following seems highly likely. Dozens (maybe more) of schools may well declare financial exigency, opening the door to radical steps to reduce expenses, even in some cases dismissing tenured faculty. Hopefully, a much needed paring of administrative staffs will actually happen, as well as real efforts for heretofore spineless university presidents to cut expenses for college sports. Online instruction might get a modest boost as well.
Seniors graduating this year are now in trouble with respect to jobssome may end up in graduate school this fall. Student internships are being deferred or shortened by cash strapped corporations. PhD programs training professors should see huge new enrollment hits. State governments facing large revenue shortfalls may increase collegiate oversight and put restrictions on use of subsidy money.
Will lasting real innovation and change result? Hopefully. I would say now there is a 30-40% possibility of that. Ideas worth discussing: three-year bachelors degrees, non-degree certification of vocational competency including educational exit exams, getting universities out of the food and lodging business, moving to more Income Share Agreement financing arrangements. Necessity is the mother of invention.