The Coronavirus Impact on College Financial Health

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Higher education has been one of the most severely impacted sectors by the coronavirus. College-bound students and their families are wondering what they’ll be paying for: whether college campuses will (or should) reopen in the fall or remain online. Increasingly, as the depth of this crisis becomes more clear and stories hit the headlines about college layoffs and closures, students and their families are questioning whether their college will open at all.

 

Last fall Edmit conducted research to develop a model for college financial health with the goal of making this research open source and welcoming contributions to improve on our initial work. However, some colleges chose to prevent the public conversation from happening, by writing a cease and desist letter to our planned publisher, Inside Higher Ed, who covered the story in detail.

 

In an accompanying opinion, we posited, “Students are obligated to pay a college even if they don’t graduate. So why shouldn’t a college be obligated to stay in business until a student graduates? If so, it would require colleges to maintain a certain amount of cash to teach-out the current class.”

 

The financial health of institutions is no longer merely an academic exercise and consumers need to be aware of the risks of abrupt college closures. The last two national institutions to close, MacMurray College and Urbana University, each had less than six years' estimated financial health in our prior model. Declines in endowment returns, declines in tuition revenue and auxiliary revenue, partial refunds, and increased discounting are putting increasing pressure on already strained college budgets. Most colleges will be able to find ways to help students and survive this crisis, but others will need to make incredibly difficult decisions to seek mergers or close.

 

Today we are releasing information for families to provide them with financial data on the private colleges they are considering. While no one can predict the future, we’re trying to make this data easy to find and understand. Our data is based on a model described in more detail here and includes information provided by colleges to the U.S. Department of Education and Internal Revenue Service.

 

1. College Financial Health

Even before COVID-19, 30% of colleges tracked by rating agency Moody’s were running deficits, and Fitch and Standard & Poor’s rating agencies reported negative outlooks for the higher education sector. Moody’s had issued a stable rating late last year, but has since revised it to negative after COVID-19. The American Council on Education, led by former U.S. Department of Education Undersecretary of Higher Education Ted Mitchell, believes revenues in higher education will decline by $23 billion over the next academic year.

 

In addition to assessments of college financial health (see our methodology here), we are publishing data on endowment size and historical state support for public institutions.

 

2.Experience with Distance Education

It isn’t just that 90% of parents are not comfortable with their children returning to the existing state of learning experience if college remains online in the fall, according to a recent survey by Tyton Partners, but many students also need additional counseling, tutoring, and mental-health support, which many colleges are struggling to provide virtually. In addition to the education and student services provided by colleges, one of the primary reasons students attend college is for better career prospects. With two-thirds of college internships cancelled, online career support is also increasingly necessary. Families should look at colleges that have prior experience with distance learning, as they might be better able to adapt to changing circumstances. We are publishing data on the percentage of students served partially or exclusively online by each institution in recent years.

 

3. Reliance on International Students

In addition to the challenges colleges are facing in a sudden shift to providing courses online, they also are needing to fill seats potentially left vacant by international students. Schools with stronger domestic enrollment and large nearby domestic populations will likely fare better in the fall whereas schools that have relied heavily on international students will need to find new ways to attract domestic students. We are publishing data on the number of international students as a percentage of a college’s first-year undergraduate population.

 

No one wants their customers to see their weaknesses, and colleges are no different. Higher education industry groups are pushing to suspend the government’s oversight into their finances for the next three years. However, at Edmit we believe that students need maximum transparency from colleges, especially in this confusing and challenging time.

 

Students are trying to make high stakes decisions about their future amidst the uncertainty of how long this will last, how much college will cost, how much they’ll be able to earn, and, for dependent students, their parents’ ability to support them if they’ve lost a job, lost their savings, or become sick. We recommend that families request the most current financial information from the college or university they are considering so that they will have the most complete and current information available while evaluating the financial health of the institution and to inform their decision making process. We hope others will join us to increase transparency in these areas so that students and their families are better off after college.

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