Moody’s Downgrades Higher Education from Stable to Negative

Not surprisingly, the higher education crisis continues to worsen under the burden of COVID 19. We are currently in the first of three stages: Acute Outbreak, Recovery, New Normal. Unlike the rest of the economy, however, higher ed as an industry was already in an extended, eight-year decline. Late last week Moody’s downgraded their rating from “stable” to “negative” based on continued disruption in enrollment (and revenue), declining state support, endowment income and philanthropy, and reduced research grants and private-sector contracts. Additionally, most institutions are incurring incremental costs for moving content online, implementing COVID 19 safety protocols, mothballing facilities, and other related activities. The cancellation of the Division I basketball tournament (March Madness) has cost schools in that NCAA division more than a billion dollars alone!

Multiple institutions across the country that still have them are tapping (and tapping out) credit lines and/or issuing bonds to bolster their cash positions. Many more, however, had already exhausted credit lines before the new crisis and at least a quarter of private, nonprofits were already operating in the red, with layoffs, deferred maintenance, delayed accounts payable, and other “tricks” to keep enough cash to make payroll. It is inevitable that the current crisis will exacerbate and accelerate mergers and closures. However, it also presents an opportunity, if not requirement, to engage in something that higher education has never been very good at: transformational change.

So, how should we think about all of this?

First and foremost: As truly difficult and overwhelming as this current crisis is, it will get better. We don’t know how bad it will get or how long it will last, but it will end.

Second: Out of the wreckage will come better practices, stronger organizations, and new opportunities. There will be “winners” in the third stage, new normal.

Third: This is the time to find our humanity because the greatest costs of the crisis, for both health and economically, will be borne by people. We are all in this together.

On one hand we must be painfully honest about the depth and breadth of this crisis. There is much we don’t know, but we already do know is that:

  • More schools will close than would have.
  • Many people (millions) will be laid off, both in higher education and across the entire economy.
  • Many individuals will suffer severe financial hardship and some material number of students who could afford to attend school before COVID 19, will not be able to going forward.
  • Many businesses will fail and both families and commercial enterprises will be insolvent in fairly short order without cash flow.
  • And tragically, some substantial number of people will fall ill and some of those will die.

This is a truly unprecedented crisis and the fall out will be brutal. In the entire history of the United States, we have never, in effect, “shut down” the economy as we are doing now, for an extended period of time.

One interesting perspective, however, is that even though the situation for higher education continues to worsen, the entire economy is now in decline, so higher ed as an industry is no longer alone. That actually matters because we are seeing policy level responses that will benefit higher education that would not have happened in the absence of a national and global recession. Examples include reductions in regulatory burdens and unprecedented flexibility for institutions as well as protections for students relative to financial aid. One proposal currently under consideration in the Senate via the “CARE” act would protect students and institutions from having to return any financial aid even if classes are not being held or students are forced to drop out. Similarly, the bill would not count Spring 2019 financial aid against student caps or timelines and would also defer payment obligations for those with loans. It is reasonable to assume that some amount of the projected $1 trillion plus in stimulus and direct aid will find its way into higher education.

It is also almost certain that higher education will look and operate differently after we get through the current crisis. Some likely examples include:

  • Far fewer meetings and conferences will take place in person.
  • Many courses that were moved online will stay online or partially online.
  • Some “social distancing” will continue.
  • Overall enrollment will decline further, ensuring a 9th year of continued reduction, but learning options for students will be much more flexible.
  • The shift from “higher education” to “post-secondary” education, with many non-degree models being offered outside of colleges and universities will accelerate, although the growth of industry developed and delivered education will almost certainly slow as businesses recover over time from what will be a very deep recession.

While it is not possible to know with certainty at a societal level what things will look like when the current round of the novel corona virus burns itself out—or even when that will happen—there are some things we can assume with fairly high confidence.

  • Unemployment will soar. Some estimates put job losses at 3,000,000 to as many as 7,500,000 unemployed by this summer.
  • The recession (we are already in one) will be much deeper than 2008
  • The previous “recovery” was already weak for a majority of the population
  • Many businesses will not survive
  • New models will replace old models for everything (telemedicine, telecommuting, communications, virtual meetings, online education, retail, etc. will look much different and many things will not go back to how they were)
  • Travel will be comparatively limited and may not return to previous levels for years, if at all
  • Supply chains will get shorter and less global

Some Personal Thoughts

The current situation is probably causing more stress and anxiety than any other period in my lifetime, as well as the lifetimes of most people reading this article. Previous recessions and crises were qualitatively different. Even something like the Cuban Missile Crisis, existential though it was, was short lived and did not take out the global economy. Same for 9/11. And, we were already dealing with climate change, mass shootings, and frightening political divisiveness.

Yes, we need to think about and plan for the future. We need to advocate for ourselves and our families by aggressively protecting or pursuing employment and stretching out fiscal resources as far as possible, but the most positive element of this current terrible crisis is that it is so big and so pervasive that we are literally all in this together. The one saving grace is that unlike “traditional” recessions or even depressions, no one is exempt from the effects of the current crisis. As terrifying as the reality is, tens of millions of Americans will not suddenly be on the streets when they can’t pay rent, because that is not logistically possible. There is no mechanism to evict that many people and no place for us to go anyway!

We cannot individually stop the virus or the recession, but we can contribute to the effort. It is a fact that many of us will experience greater financial duress in the near to mid-term future than at any time in our lives simply because despite the headlines about the economic recovery that is now over, it was never a strong recovery for most of the population to begin with. And some number of us, very unfortunately, will do battle with COVID 19 itself.

For those of us who suddenly have more time because we are out of work or our work has changed, this is an opportunity to give ourselves permission to engage in beneficial activities that we would not have otherwise.

  • Read articles and books you couldn’t get to previously
  • Write articles and books you couldn’t previously
  • Take walks
  • Get to know your family members
  • Grow a garden
  • Work on your mental and physical health
  • Start a gratitude journal
  • Take extended breaks from the news

We don’t know for sure where we are headed, but it would be a shame to squander the opportunity that many of us have to pursue edifying and beneficial activities. Love yourself, love your family, and love your neighbor.

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