Coronavirus pandemic brings staggering losses to colleges and universities

Some already under financial pressure may be forced to close.

April 28, 2020, 5:14 AM

Financial blows raining down on the nation’s colleges and universities amidst the coronavirus pandemic will severely challenge many and even force some out of business.

The numbers are staggering. The University of Michigan anticipates losses of $400 million to $1 billion this year across its three campuses. California’s university system suffered $558 million in unanticipated costs in March alone. By itself, the Boulder campus of the University of Colorado will lose at least $67 million through the summer.

Numbers for smaller schools may not be as eye-popping but the impact in many cases is greater. MacMurray College, a 174-year-old institution in Illinois, has announced it will close, in part because the pandemic complicated its effort to raise needed funds. Vermont may shutter three of its state college campuses in the wake of the crisis.

Robert Zemsky, a professor at the University of Pennsylvania, is the co-author of a new book, "The College Stress Test," which estimates that 10 percent of the nation’s colleges – smaller schools with poor retention rates – were already at risk of closing. Now, he tells ABC News, “we think another 10 percent is at risk because of the virus.”

PHOTO: RJ Barrett of the Duke Blue Devils arrives at Capital One Arena prior to their game against the Michigan State Spartans during the 2019 NCAA Men's Basketball Tournament East Regional Final, March 31, 2019 in Washington.
RJ Barrett of the Duke Blue Devils arrives at Capital One Arena prior to their game against the Michigan State Spartans during the 2019 NCAA Men's Basketball Tournament East Regional Final, March 31, 2019 in Washington.
Lance King/Getty Images, FILE

The American Council on Education identified the “long term financial viability” of their schools as “the most pressing issue” for a majority of college and university presidents it recently surveyed.

Refunds for unused housing and dining plans account for the bulk of losses so far. For example, in a letter to Gov. Gavin Newsom, University of California President Janet Napolitano wrote, “UC has already lost hundreds of millions in housing and dining revenue from students choosing to leave campuses, and anticipates losing more revenue by the end of the spring term.”

The sudden cutoff of income from athletic events such as the national mens’ basketball tournament, March Madness, is also significant. Its cancellation prompted a $375 million loss of funds distributed to schools by the National Collegiate Athletic Association.

Other cancellations at schools around the country add to the hurt. The University of Colorado Boulder will not hold its annual Shakespeare festival, which would have meant temporary employment for 400 people and, according to spokesperson Candace Smith, “We had to cancel the Dead and Company concerts. They rented out the football stadium for [two shows in] the summer. That is a loss of revenue for us.”

While colleges and universities are adding up current losses, they are anticipating more in the future that are hard to estimate. Declines in enrollment and accompanying loss of tuition money, for instance, is a huge question mark. With schools uncertain about whether they will offer on-campus or online learning in the fall, many prospective students are considering putting off college. A survey by the Art and Science Group found that 17% of high school seniors may take a gap year.

The number could be far greater, with significant impacts on tuition revenue. Mike Keane of Maguire Associates, a consulting firm that works with several colleges, points out, “I don’t think any of us have a sense of whether it’s going to be 20 percent or 50 percent.” Those deferrals will drop tuition income and so might force cuts in what schools can charge for tuition. “There is anticipation that there will be significant pressure from students of families to offer online instruction at a lower net cost," says Keane.

But reducing tuition will not be easy. “The vast majority of institutions operate on very thin margins and have a lot of fixed costs such that it’s not necessarily easy to scale up or scale down if they are not able to bring in the revenue that they hoped for,” says Keane.

Schools with a significant number of international students, who often pay full tuition, will be particularly stressed if they don’t or cannot come to the U.S. In some states, international enrollment is as high as 15%, according to a recent Brookings Institution study, which adds that “nationwide, the amount of tuition plus required fees from international students tops $2.5 billion.”

Without foreign students, the study found that California is at risk of losing as much as $400 million, New York over $300 million and Massachusetts over $200 million. Taking one school as an example, the University of Connecticut estimates a loss of $70 million next year if it loses international enrollment.

The financial drain will be felt through the summer too since summer programs, cancelled at many schools throughout the country, normally account for as much as 10% of annual budgets, according to a report in the Chronicle of Higher Education.

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Two other important factors have darkened the financial landscape for the nation’s colleges and universities: State budgets on which many rely for a significant portion of their funding have also been hit hard by the unanticipated costs of the pandemic, and the value of their endowments has nose-dived with the downturn in the economy.

How are schools confronting these current and anticipated financial shockwaves? Many have imposed furloughs, hiring freezes, salary caps and spending reductions, and halted construction plans. In St. Louis, Washington University will suffer a $175 million setback this year; it's already furloughed 1,300 employees. Its executives, from the chancellor on down, are taking pay reductions, as are those at the University of Colorado, the University of Michigan and several other institutions.

In addition, the federal $2 trillion rescue package includes $14 billion for higher education, a number that sounds large but amounts to only 2% of the $700 billion in revenue that U.S. colleges and universities operate on.

Will all of these measures be enough to close the financial gap created by the coronavirus pandemic? It seems unlikely. Peter McDonough, vice president and general counsel of the American Council on Education, tells ABC News the money allocated by Congress is “woefully inadequate”.

He points out that colleges and universities are important economic engines throughout the country. “You can’t go anywhere in this country without bumping into a college or university. They are so embedded in the community.” To get them though this crisis, “we need something closer to $50 billion more.”

This report was featured in the Tuesday, April 28, 2020, episode of “Start Here,” ABC News’ daily news podcast.

"Start Here" offers a straightforward look at the day's top stories in 20 minutes. Listen for free every weekday on Apple Podcasts, Google Podcasts, Spotify, the ABC News app or wherever you get your podcasts.