On May 11, administrators at Northwestern University, a 169 year old institution, ranked #9 National University according to US News & World Report with a $10.8 Billion endowment fund, announced expense reductions, including: furloughing 250 staff, halting hiring, suspending contributions to pensions, as well as cutting salaries for university administrators. For the second year in a row, Northwestern administrators are contending with a projected $90+ billion fiscal deficit, compounding the $94 billion deficit from last school year in 2018-19.
Other universities around the US report similar fiscal troubles from declining revenues, as well as the unexpected expenses of transitioning an entire university to an online format this past spring. In previous posts, we’ve discussed public university reductions here, here and here, as well as general higher ed fiscal troubles on April 21, 2020.
On April 15, the University of California (UC) President Janet Napolitano sent a letter to California Governor Gavin Newsom appealing for state assistance, as the UC incurred a $558 million loss in just the month of March 2020 alone. On Friday, April 17, American University President Sylvia M. Burwell announced a $27 million budget deficit in an email to parents. Also, on April 17, University of California Berkeley (Cal) Chancellor Carol Christ revised Cal’s growing budget deficit to an estimated $200 million.
CMC’s Fiscal Reckoning Dead Ahead, April 21, 2020
If centuries-old universities with multi-billion dollar endowments are experiencing fiscal deficits that will likely impact the quality of education, what is the state of fiscal health for smaller, lesser-known institutions, serving regional populations throughout the US?
Small institutions’ endowments typically contain a greater percentage of restricted funds [funds designated for a specific purpose or scholarship and cannot be used outside of that purpose] than endowments at larger, more prestigious colleges, [Jim] Hundrieser [NACUBO’s vice president for consulting services] said. Small institutions also tend to rely less on endowment returns to support their operating budgets and more on student tuition and fees.
Inside Higher Ed, May 22, 2020
Without the backstop of an endowment, universities, like small colleges, dependent on tuition revenues, will continue experiencing financial difficulties into the 2020-21 school year and beyond, likely impacting the quality of students’ education. Organizations, like Edmit using data from the federal government’s Integrated Postsecondary Education Data System, predict:
…estimated COVID-19 will decrease colleges’ tuition revenue by 10 percent in a first year and 20 percent in a second year, cut investment returns by 20 percent, and cause institutions to lower their salary expenses by 10 percent.
Inside Higher Ed, May 8, 2020
Thus, many question, “Will universities close?” Edmit forecasted:
…345 institutions are at high risk of closure within six years, 110 more than in the pre-pandemic projection.
Inside Higher Ed, May 8, 2020
Edmit defines “high risk” as:
Institutions deemed at high risk were found to be in danger of depleting their net assets within six years, a period that lines up with the time it takes many students to graduate with bachelor’s degrees.
Inside Higher Ed, May 8, 2020
345 colleges equates to roughly 10% of all two-year and four-year colleges and universities in the United States, and if closed, will displace thousands of students, staff and faculty. While not diminishing the adversity of such circumstances, university administrators also have opportunity to ask more pointed questions about each expenditure, as they determine how to “do more with less”, so they can continue providing the highest quality education for their students.
Since universities have a greater fiscal incentive to both recruit and maintain students long-term, so they can stabilize their tuition revenues, college applicants with the leverage as “paying customers”, can be more discriminating in their college choices. By investigating different universities, based on a detailed understanding of why a student wants to attend college, students and parents can invest wisely to most likely gain the value they seek in a college education.
