Despite the unknowns, we’re getting slightly improving visibility into what the mid-term COVID-19 implications might be for higher education.
The Big Picture
According to a recent article in the Chronicle of Higher Education, “The coronavirus crisis has the potential to change higher education more than any recession in the past, including the Great Recession, which dealt a tremendous blow to our economy and to higher education.” It is not alarmist to believe that the ultimate effect on the economy could be closer to the Great Depression, with dramatic declines in GDP and historic levels of unemployment. There will also likely be enduring behavioral changes even after we are through the health emergency. Regardless, the impact, broadly and within higher education, will be severe and long lasting with as many as 20% of institutions failing to reopen over the summer or coming fall. On the other hand, this crisis may be the kind of “dislodging event” that finally moves a material number of colleges and universities to embrace truly transformative change and that is probably the most productive way to think about the current crisis.
Specifics
First, we know that enrollment will decrease again in the fall, taking us into the 9th consecutive year of decline. We just don’t know how much. A recent survey suggests that close to a fifth of all incoming freshman for Fall, 2020 are already reconsidering their decision to enroll in bachelor’s programs. We also know that some material number of already enrolled students will not return to school after this term because of negative changes in their own or their family’s financial health. Both new and existing international enrollment will also decline. Relatedly, based on data from the 2008 recession, we can expect a 25% or more decrease in operating revenue for typical institutions.
For nonprofit institutions, both new donations and existing endowments will decline precipitously (they already have). For public institutions, they can also expect material decreases in already anemic appropriations because tax receipts are cratering as most of the U.S. economy is shut down (New Jersey has already cut half of the funding destined for public colleges for the remainder of this year). For profit institutions will likely be hurt and benefit from opposite sides of the same coin. They have never had the benefit of endowments or state appropriations. On the other hand, because their financial model is more tuition-dependent than traditional institutions, they operate much more leanly with lower overhead and fewer extraneous expenses. They also tend to offer shorter programs with very specific paths to work, which may be more attractive to a growing number of students. Moreover, while proprietary institutions are not, in reality, more innovative than other sectors of higher ed, for a variety of reasons, they are able to make changes much more quickly, which is favorable under the circumstances.
The Opportunity
So, the 64 thousand (billion) dollar question is whether or not COVID-19 will finally push traditional higher education institutions into the 21st century. One of the fascinating things about the eight-year decline that was already a reality before COVID-19 is that very few institutions actually engaged in the necessary planning and transformative change necessary to address the foundational challenges facing the industry. What we’ve actually seen is a bifurcation which includes one camp that has made cautious, incremental changes in an attempt to forestall failure such as layoffs, delayed maintenance, increased institutional debt, a shift away from tenured faculty, etc., and another camp (about 1300 institutions) which has already failed, then merged with others institution or closed outright. Only a handful of the 5,000 plus Title IV eligible colleges and universities in the U.S. have meaningfully innovated for today’s reality, even before the COVID-19 crisis. The operative word for any efforts undertaken within higher ed now is sustainability. Every initiative, commitment, and decision should be vetted for its likely impact on sustainability, which includes both basic issues like academic efficiency and transformative ones like what business you’re in.
Robert Zemsky of the University of Pennsylvania suggests that the current crisis could be the kind of dislodging event noted above that finally catalyzes transformational change in higher education, but only if approached collectively. Specifically, he notes, “such an event might promote reform because the various parts of our higher-education system, despite their distinct missions and organizational arrangements, are linked to one another.” Although he further notes that when organizations panic, they circle the wagons and do dumb things, and and we are at severe risk of that now.
So, what should colleges and universities be doing now?
- Determine what values you really, truly believe in, and let those values guide everything else you do. Your actions in the midst of this crisis could define your institution for years to come.
- Be purposeful about supporting and strengthening your community. You will need it.
- Identify what operations, programs, and commitments are mission critical and what is discretionary. Much of what is discretionary might have to go based on your specific situation.
- Prepare for lower fall enrollment now—estimate reductions of at least 20%.
- Prepare for reductions in Fall 2020 revenue of at least 25%. If that turns out to be overstating the problem, then you’ll be in a stronger position.
- Preserve liquidity—prioritize accounts payable and restructure any debt possible. Access credit lines now and open new ones if at all possible.
- Identify any partnerships that will grow revenue, share expense, increase flexibility, etc.
- Determine what new things you are doing now as a result of COVID-19 that you will continue to do in the fall because they are more efficient, flexible, sustainable, etc.
- Revisit mission, vision, and strategy. Do they still apply?
- Begin an intense dialog about what opportunities the current crisis provides for transformational change and sustainability—nothing is sacred or off the table.
And, the number one single most important thing any college or university can do is to make being a student as close to frictionless as possible. This is the time to eliminate all bureaucracy and the typical “run around” that students experience in most institutions. From application to graduation, it should be more easy to be a student than it ever has been in the history of higher education.
This is the time for leaders to find courage and creativity. Despite the stress, it is probably also the best opportunity for regenerative change you will ever have. An article from McKinsey provides a framework for how to think about the new normal from a financial perspective.
A Final Note
Transformative change will not be possible without the liberation to innovate from the entire regulatory triad of state, Education Department, and accreditors. The entities that oversee institutions of higher education MUST free those institutions to experiment and innovate without penalty—even as this relates to the most entrenched and highly controlled aspects of college operations. A good example is the recent Education Department blanket approval to put content online. In fact, if colleges and universities are to engage in the kind of transformative change that is necessary to meet the existential nature of the current crisis, then the regulatory and accreditation regime must not only facilitate that effort, but be an active partner in encouraging paradigm busting thinking related to program structure and delivery, partnerships, how credit is allocated, learning outcomes, credentials, and alternative ways of accomplishing virtually anything related to the delivery of education.
Regardless of when things get back to “normal,” they will not be the same. Those who can effectively navigate the new reality, preserving what still exists and makes sense, while embracing completely the changes and new ways of doing things, will not only “survive,” they will play a leadership role in finally moving higher education from its centuries old paradigms to something that not only works in the new normal, but that puts students at the center of the enterprise, while creating deeper value for all stakeholders.