COVID-19's Impact on Higher Education's Finances

03/14/20

There's a lot to say about the economic dislocation from the coronavirus and the economic policy response. But I want to focus for a moment about its impact on higher education.  Lots of schools have gone to virtual classrooms either temporarily or for the rest of the semester. It's not ideal pedagogically (and it really unsuitable for certain types of classes), but it works as a stop gap measure, especially for courses which have already been going for several weeks, in which some rapport has developed between faculty and students.  

But there's no reason to think that this disruption will be over by the end of the semester. What happens with summer courses? And most importantly, what happens in the fall? Will schools be able to enroll new cohorts of students? I suppose it's possible to teach 2Ls and 3Ls virtually all the time. But can that be done for 1Ls? Or for college freshmen? And even if it is possible to do generally, what about enrolling foreign students? To be sure, University of Phoenix and other on-line schools do this all the time, but they offer a very different kind of educational experience. Will students seek to defer for a year or simply not enroll?

This matters hugely for universities as businesses.

Tuition revenue is a critical source of operational funds for many schools. It's hard to see a scenario in which it doesn't take a huge hit. And endowments are going to be way down at the same time. 

At the same time, schools have a lot of fixed expenses (tenured faculty salaries, e.g.) that they cannot readily change. (I fear that many schools, including my own, did not learn the lesson of 2008, which is that it is unwise to load up on large fixed expenses, be it by expanding faculty or hiring more administrators.)  And schools can't use Chapter 11 to restructure because they'll lose title IV funding eligibility. 

All of which is to say, I think a lot of higher education institutions are going to be facing some difficult financial times in the next year or so. Any institutions that were financially marginal before this crisis are going to be in real trouble. 

At the same time, I am also very concerned about the student impact of all of this. What will happen to students' summer employment offers? Will law firms be on-boarding new associates in the fall? What happens to on-campus recruiting? The 2008 crisis resulted in a sort of "lost class," particularly those students set to graduate in 2010 (and were looking for jobs in 2009), as law firms pulled back on employment offers. We could very well be facing a repeat, as there's going to be a real contraction in deal work. (On the plus side, things are looking up for bankruptcy practices....)  

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