This has been a truly challenging spring semester for the nation’s colleges and universities.
Many schools are struggling to cope with refund demands for unused room and board and tuition rebates for curricula that’s taught at a distance. Yet, their contractually obligated debt-service payments are expected to continue without interruption. There is also the matter of now-unaffordable administrative costs that were configured for a different time and, more troubling still, endowment funds that may no longer generate the returns needed to bridge budgetary gaps.
Clearly, this is no ordinary cyclical downturn. But that doesn’t mean there aren’t opportunities to be gained from the hard lessons we are learning.
The core business of colleges and universities is the delivery post-secondary education. Yet the fees that are derived from noncore activities and services—such as those that fall under the headings of hospitality (eg, room and board), sports and entertainment—have over time become indispensable sources of institutional revenue.
And perhaps, a leading cause of escalating indebtedness, too.
But if one of the reasons that parents send their children to college is to prepare them for successfully independent adulthood, providing all the comforts of home is at cross-purposes with that. Of course, this doesn’t mean that students shouldn’t live on or close to campus. Socialization is every bit as important for healthy emotional development. That’s evidenced by the toll that quarantined life is taking on us all. The real question is, should students have all their needs met instead of discovering how to source and secure many of these for themselves?
And what about remote instruction? The transformation of traditional delivery to distance learning affirms what some educators have to this point been reluctant to concede: Many courses can indeed be effectively taught remotely, others require in-person instruction, and still more reside someplace in between.
None of this bodes well for costly institutional infrastructure.
So consider how underutilized classrooms—indeed, the buildings in which these are housed—could be leased or sold for repurposing. How dormitories might be reconfigured into rentable efficiency apartments, and cafeterias into food courts and grocery stores; the proceeds from all these private sector transactions could be used to deleverage balance sheets and, consequentially, improve cash flow.
Then turn your attention to the massive redundancies that exist within the education sector.
In my home state alone, there are a half dozen comparably sized private colleges and universities. Each has its own president and provost, dozens of deans, legions of department chairs and faculty, and org charts brimming with staff responsible for procurement, tech, accounting and countless other administrative functions.
When viewed in this geographical context, the back end superfluity is obvious. The front end is perhaps less so because many schools possess market-differentiating programs. Wouldn’t it make sense for such institutions to merge with one another so duplicative operations can be rationalized and the subsequent collection of distinctive course offerings headlined?
As for the endowments, shouldn’t the fruits of institutional investment first be used to reduce the cost of tuition—much like affluent retirees who live off the interest and dividends from their later-stage conservative investments—while preserving principal to safeguard against the hundred-year flood?
Schools that require a continuous flow of investment income to offset operating shortfalls can be tempted into taking on greater investment risk in a reduced-rate environment, such as the one in which we were operating in just prior to the pandemic. But in a financial rout, such as the one we are experiencing, these high-stake gambles will likely compromise principal when the market for the underlying securities evaporates, and dividend and interest payments are furloughed.
So much for that flood insurance.
The point is, as dangerous and disruptive as this moment is, it also presents a unique opportunity for higher education to pause, pivot and return to its simpler and truer purpose.