Colleges With Empty Campuses Face an Uncertain Financial Future

The coronavirus pandemic threatens to remake U.S. higher education, speeding the closure of small, financially weak colleges and forcing others to make tough decisions about what they can afford. Even state schools may no longer be immune as tax revenue falls.

The most immediate challenge is one that could soon spiral into a crisis: It’s hard to sign up this fall’s freshman class when families can’t travel to visit campuses and many international students are shut out of the U.S. The longer lockdowns continue, the more uncertain schools are about the size of their classes, how much aid they’ll need to offer to fill seats, and the tuition revenue they can count on. “Everybody’s worried,” says Kevin Cavanagh, vice president for enrollment management at Bloomfield College outside Newark, N.J., which draws about 1,700 students, mostly black and Hispanic. “You don’t know what the variables will be.”

Even the richest schools, with immense demand and strong brands, face challenges. Their endowments, which had recently been at record-high values, are in jeopardy as markets go into free fall. Since most endowments don’t report annual returns until autumn, it’s unclear how steep those losses will be. In the wake of the 2008 financial crisis—the nearest parallel to the current moment—both the Harvard and Yale endowments lost around 25% over 12 months. Colleges are giving refunds for room and board, since their students were told to leave campuses. Fundraising is another concern as reunions, crucial for tapping alumni, are being scrapped.

Moody’s Investors Service last month downgraded the credit outlook for the higher education sector to negative. Along with disruptions in enrollment and philanthropy, schools may also see a drop-off in research grants and contracts. And then there’s falling demand from foreign students, who often pay higher tuition. They account for about 5% of total college and university enrollment, according to Moody’s.

Bloomfield is confident it will stay open—Cavanagh points to the last recession, which pulled many students into college when job opportunities were scarce. Some high school seniors may also have to rethink whether they’re able to go away for college, perhaps finding themselves considering schools such as Bloomfield, where most students commute to campus. Even so, Cavanagh says, “we don’t know where the bottom is and how it will ultimately affect the decision-making process of students.”

To encourage this fall’s potential freshmen to sign up, Bloomfield is reducing the deposit fee for students planning to live on campus and scrapping it for commuters. It’s also waiving application fees. The school, which has a $14 million endowment, says it needs about 400 to 450 freshmen in the next class.

Most colleges are already assuming that if they open in September, they’ll have fewer students, says Richard Ekman, president of the Council of Independent Colleges, a trade group for small schools. If they don’t open in the fall and classes remain online, they could lose a lot of their edge—with no prospect of Frisbee on a grassy quad and limited one-to-one interaction with professors and peers, many students may prefer online classes at less expensive public or community colleges, or wait a year. “We don’t know how much of the campus experience is related to the classroom,” Ekman says.

Before the pandemic, Ekman’s group estimated that 2% of its roughly 650 members—about a dozen schools—were struggling financially. It’s not clear how the increased pressure of the coronavirus will change that. Ekman spells it out this way: Imagine if a college of 1,000 or 2,000 students had to return room and board, or give students a credit for it for next year, to the tune of $4 million to $5 million. Add to this fewer—and sometimes late—tuition payments, plus the loss of revenue from summer school and renting out campus space for programs such as band camps. “For some colleges that have very meager reserves, that could be the end,” he says.

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