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The Making of a Financial Disaster for Higher Education

The Making of a Financial Disaster for Higher Education

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Much has been written about the coronavirus pandemic and its impact on higher education. At this point in time, most, if not all, colleges and universities have shuttered their campuses and are attempting to continue the semester by teaching online. With the notices to parents (I have two daughters in college) that refunds will be forthcoming for a prorated portion of the semester for room, board, and fees for other services, I became curious about how issuing refunds to students would impact many colleges.

I didn’t have to wait too long. The Baltimore Business Journal published an article titled “Maryland colleges may owe students millions in refunds amid coronavirus, campus closures.” The BBJ estimates that the closures will result in an estimated $245 million in refunds and lost revenues for Maryland colleges.

Using data provided by the U.S. Department of Education, the BBJ reports that approximately $44 billion was paid to colleges and universities last year through “auxiliary enterprises,” the majority of which was housing and food services. The BBJ extracted auxiliary revenue data for Maryland colleges and universities from last year and estimated that 25 percent of that money will have to be refunded. This amount might be high since it assumes that colleges and universities only operate two semesters a year.

Nonetheless, it’s going to be another stretch for Maryland’s fiscally constrained small private colleges and will generate another funding request from the state for public institutions. The estimate provided for refunds from the University System of Maryland was $163 million. Applying the same 25 percent ratio to the national auxiliary enterprises revenue approximates the nationwide impact of $11 billion, a hefty price tag for an industry that has seen its share of fiscal distress.

The latest version of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a Senate bill, includes $30.75 billion for the Department of Education’s education stabilization fund for states, school districts, and institutions of higher education for costs related to the coronavirus pandemic. Of this funding, $14.25 billion will be available for higher education emergency relief to defray expenses for institutions of higher education. Those expenses include lost revenue, technology costs associated with a transition to distance education, and grants to students for food, housing, course materials, technology, health care, and child care.

Perhaps the CARES Act will cover all lost revenue. However, with campus closures making it impossible for this year’s high school seniors to visit a higher education institution’s campus before deciding to enroll, I believe it’s more than likely that we will see a decline in next fall’s campus enrollments. For some small schools on the edge financially, that decline could be a disaster.

Breaking New Update:

  • The New York Times reported that the $14 billion allocated in the emergency coronavirus Senate bill is not enough.
  • Even though this exceeds the $11 billion estimate by the BBJ, it’s less than the $50 billion that higher education leaders say they need.
  • A recent memo prepared by the American Council on Education, in partnership with practically every major higher education association, asks for $50 billion to fund operating losses, and $7.8 billion for technology needed to go online. The reason for the zero-interest loan request is to alleviate state budget pressures likely to occur because of the loss of tax revenue during the shutdown period. Without substantial detail, I find it difficult to believe that the Senate will approve a request of this size.

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Wally Boston Dr. Wallace E. Boston was appointed President and Chief Executive Officer of American Public University System (APUS) and its parent company, American Public Education, Inc. (APEI) in July 2004. He joined APUS as its Executive Vice President and Chief Financial Officer in 2002. In July 2016, he retired as APUS president and continued as CEO of APEI. In September 2017, he was reappointed APUS president after the resignation of Dr. Karan Powell. In September 2019, Angela Selden was named CEO of APEI, succeeding Dr. Boston who will remain APUS president until his planned retirement in June 2020. Dr. Boston guided APUS through its successful initial accreditation with the Higher Learning Commission of the North Central Association in 2006 and ten-year reaccreditation in 2011. In November 2007, he led APEI to an initial public offering on the NASDAQ Exchange. During his tenure, APUS grew to over 100,000 students, 200 degree and certificate programs, and approximately 90,000 alumni. In addition to his service as a board member of APUS and APEI, Dr. Boston is a member of the Board of Advisors of the National Institute for Learning Outcomes Assessment (NILOA), a member of the Board of Overseers of the University of Pennsylvania’s Graduate School of Education, a board member of the Presidents’ Forum, and a board member of Hondros College of Nursing and Fidelis, Inc. He has authored and co-authored papers on the topic of online post-secondary student retention, and is a frequent speaker on the impact of technology on higher education. Dr. Boston is a past Treasurer of the Board of Trustees of the McDonogh School, a private K-12 school in Baltimore. In his career prior to APEI and APUS, Dr. Boston served as either CFO, COO, or CEO of Meridian Healthcare, Manor Healthcare, Neighborcare Pharmacies, and Sun Healthcare Group. Dr. Boston is a Certified Public Accountant, Certified Management Accountant, and Chartered Global Management Accountant. He earned an A.B. degree in History from Duke University, an MBA in Marketing and Accounting from Tulane University’s Freeman School of Business Administration, and a Doctorate in Higher Education Management from the University of Pennsylvania’s Graduate School of Education. In 2008, the Board of Trustees of APUS awarded him a Doctorate in Business Administration, honoris causa, and, in April 2017, also bestowed him with the title President Emeritus. Dr. Boston lives in Owings Mills, MD with his wife Sharon and their two daughters.

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