Coronavirus may stress colleges’ finances, rating agency predicts

Table of Contents

Dive Brief:

  • U.S. colleges and universities could face new pressures on their operations as the novel coronavirus spreads throughout the country, according to Fitch Ratings. 
  • The virus and the respiratory disease it causes, COVID-19, could lead to shifts in enrollment of domestic and international students, and campus closures, the credit ratings agency wrote in a commentary Thursday.
  • Fitch’s analysis comes as many institutions have taken instruction online in an attempt to mitigate the pandemic. 

Dive Insight:

More than 200 institutions are forcing students to take their classes and final exams remotely, with some also vacating campus residences, in light of the new coronavirus, according to a crowdsourced list created by Georgetown University scholar Bryan Alexander.

Many colleges have asked students to stay home after spring break concludes. These are all attempts to practice social distancing as a way to help stem the growth of COVID-19. U.S. officials have confirmed 1,875 cases of the disease and 41 related deaths, according to The New York Times.

Campus closures are a particular risk to institutional operations, according to Fitch. While shuttering a campus for a few weeks should not affect colleges’ bottom lines, “revenue and operating pressures will build the longer campuses are shut down,” the agency wrote. 

Colleges with limited liquidity and that rely more on endowments and tuition are more vulnerable, Fitch notes, while institutions with greater operating margins and cash flow flexibility are in a better position to weather unexpected changes. 

Institutions also may need to account for not taking in revenue from certain fees.

Income from auxiliary services such as dining, housing and parking have become more important to colleges, according to Fitch. A decline in this revenue could affect margins if these issues last into the fall 2020 semester. Colleges typically do not refund these fees but may choose to do so if the services aren’t being provided to students.

Some colleges have said they will offer prorated refunds on room and board, such as Pomona College, in California, and Brown University, in Rhode Island.

The coronavirus pandemic could also affect enrollment.. Colleges with significant international student populations may grapple with reduced enrollment and its effect on budgets. As Fitch points out, international students typically pay full tuition rates, and therefore “disproportionately” contribute more in net tuition revenue. After years of middling state support, colleges have sought out international students to fill the gap in their budget. 

But the coronavirus’s effects may also lead students in the U.S. to change their college decisions and remain close to home, Fitch wrote. 

The agency expects colleges this year will keep a close eye on summer melt — the phenomenon of students who have been admitted to an institution not going on to enroll in classes — as tighter budgets could further stress their operations. More selective institutions, with a wider applicant pool, will likely fare better, the analysts explain

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