Moody’s: $14B stimulus funding unlikely to cover colleges’ coronavirus expenses

Dive Brief: 

  • The $2.2 trillion economic stimulus package enacted last week could help colleges weather the financial fallout from the coronavirus pandemic, but only somewhat, according to analysts from Moody’s Investors Service. 
  • The roughly $14 billion earmarked for higher education institutions could help the sector retain financially at-risk students and blunt the “immediate budgetary impact” from the crisis, they wrote to investors this week. 
  • However, colleges will likely face a cascade of financial challenges in the 2021 fiscal year, including potential tuition revenue losses, decreased state support, and lower income from their endowments and gifts. 

Dive Insight: 

Although the stimulus package is “mildly credit positive” for the higher ed sector, the analysts note the amount it allocates directly to colleges for their own use is equal to just 1% of total university expenditures. The revenue losses and added expenses colleges will face due to the pandemic will “likely be in excess of that amount,” they write. 

Colleges must spend half the funds they get through the legislation on emergency aid to students.

The coronavirus has upended most of the sector. Confirmed cases of COVID-19, the respiratory illness the virus causes, topped 1 million worldwide and 236,000 in the U.S. by Thursday afternoon, according to data tracked by Johns Hopkins University. 

Colleges have asked students to vacate campus and are teaching most or all of their classes remotely for the rest of the semester to help prevent the virus from spreading. 

However, the new legislation may not reimburse institutions that use online program managers (OPMs) to transition their classes online because it bars them from using the funding on payments to third parties for “pre-enrollment recruitment activities,” Nancy Anderson and Paul Thompson, higher ed lawyers at law firm Cooley, wrote in a blog post

That’s because OPMs, which often receive a share of tuition revenue in exchange for their services, do not, in those cases, “distinguish payments made for recruiting activities from payments for other eligible services” covered by the package, they explain. 

Colleges are also refunding students for room and board expenses, though some may not be able to do so because they rely on that income to balance their budgets. Small liberal arts colleges, some which are already financially struggling due to enrollment declines, may especially feel the crunch, observers told Education Dive. 

To help private colleges, the National Association of Independent Colleges and Universities led nearly four dozen associations in urging the Ed Department this month to waive its financial responsibility standards for three years. 

“Many private nonprofit colleges and universities are expending significant resources and do not have the institutional reserves necessary to weather the current economic storm without a significant impact to their institutional composite score,” they wrote. 

Failure to meet the standards triggers restrictions on colleges’ access to federal financial aid, and it could jeopardize their ability to participate in a key interstate agreement that lets them offer distance education in other states. 

The Ed Department will dole out the funds using a formula that favors institutions with high shares of full-time, Pell-eligible students. About $1 billion will go to historically black colleges and universities and other minority-serving institutions, and another $350 million is reserved for schools heavily impacted by the coronavirus. 

Moody’s analysis echoes the concerns of some higher ed leaders, who say the funding falls far short of what colleges will need to survive the crisis. Several colleges have already laid off staff or cut employees’ pay. At least one public institution, Central Washington University, has declared financial exigency, which allows it to more quickly make drastic moves, such as laying off tenured faculty members.

The funds allocated for student aid could help some college students stay on track, observers say, especially if they or other members of their household have been laid off or had their work hours reduced because of the pandemic. 

The package gives another $3 billion to states, which they can direct to either K-12 schools or postsecondary institutions, so long as they maintain their existing funding levels. But keeping existing dollars flowing “may be difficult,” the Moody’s analysts write, “as states face their own coronavirus-related budget constraints.”

Source Article