The Making of a Financial Disaster for Higher Education

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.