At this writing no one knows the precise financial damage that the COVID-19 pandemic will inflict on American colleges and universities, and how much governments at the federal, state and local level will come to their aid (those governments themselves are seriously stressed from reduced tax collections and rising public assistance and costs).
One thing is likely: higher education is in for severe belt-tightening. Enrollments are likely going to declinemaybe a little, possibly a lot. State subsidy monies will likely decline given the financial blow governments are suffering. Private gifts will decline, as will, in time, endowment income (in the short run, schools will probably raid their endowments some to assist with cash flow shortfalls).
Cutting costs is difficult for colleges, partly because some costs are fixed by long term obligations, most importantly tenure for faculty and often large interest payments on bonds occurred during a building spree over recent decades. Falling revenues but less rapidly falling costs mean schools will be facing huge budget deficits.
Faculty tenure became a part of American universities in the early and mid 20th centuries when enrollments were growing robustly and the demand for college professors was substantial. In the golden years when I went onto the job market (in the 1960s), the demand for professors was growing faster than the supply of new ones, so young untried assistant professors like me got double digit annual salary increases and achieved tenure quicklyfor me at 28.
Compare that with the 21st century academic environment. Higher education is a mature industry. Enrollments are stagnant or declining. Exuberant late 20th century growth of Ph.D. programs by schools seeking prestige and research grant monies led to an oversupply of scholars with newly minted doctoral degrees. A favorite undergraduate student of mine is just finishing his Ph.D. at Duke and, pre-COVID-19, signed a contract at Penn (Wharton School) to be an assistant professor this fall. If he is granted tenure in a few years, Penn will be making a commitment with a lifetime present value of several million dollarsa huge unfunded liability. Few schools can afford to do this anymore.
A tenured professor in a decent quality school probably typically teaches perhaps six classes a year and annually costs more than $100,000, counting fringe benefits, or about $17,000 a course (and sometimes twice that much). An adjunct professor with a doctorate might cost $4,000 a course. As schools suddenly are incurring huge budget deficits because of COVID-19, there will be a virtual freeze on hiring expensive tenured professors, and indeed incentive programs are being developed to bribe them to retire early. In some cases, schools are likely to declare financial exigency, allowing them to break the contractual tie and ease out tenured faculty. Hiring cheap adjuncts to preserve expensive tenured faculty makes little economic sense.
Tenure has been in relative, and probably now, absolute, decline for decades. Fewer than one-fourth of the faculty in 1970 taught part-time; now it is about one-half. This has led to the development of two classes of teachers: the academic aristocrats, well paid tenured professors with relatively light teaching loads; and the academic underclass, the contingent faculty with very high teaching loads and modest pay.
There are two traditionally good arguments for tenure. First, it is a major fringe benefit, a guarantee of job security, valuable to risk-averse academics. This lowers the salary that must be paid to attract professorsthey receive deferred compensation by trading off some salary now for reduced risk of unemployment in the future. Second, tenure allows professors to speak unpopular thoughtsit enhances the diversity of viewpoints on campus, making colleges truly vibrant marketplaces of ideas.
The rise in political correctness has been accompanied by a decline in tolerance of alternative points of viewthe First Amendment is not revered on campuses as it once was, which probably makes tenure more important than ever for promoting intellectual diversity.
The financial reality is this: colleges are going to have to change, for example by shedding massive administrative bloat or by having some classes taught online very cheaply by foreign academics working for a fraction of American academic pay. COVID-19 may hasten the demise of a distinctive academic institution, tenure.