Moody’s: Higher ed’s recovery from coronavirus impact partly depends on government response

Dive Brief: 

  • How state and federal governments respond to the coronavirus pandemic could make it harder for U.S. universities to recover from the economic fallout of the crisis, according to new research from Moody’s Investors Service. 
  • If the U.S. does not quickly stem the outbreak, international students will likely be wary of coming here for their education, the analysts write. The nation’s public universities are also at a higher risk of declining government support than are foreign institutions. 
  • The report is yet another dire prediction that the pandemic will cause the U.S. higher education sector to struggle in the 2021 fiscal year and beyond. 

Dive Insight: 

The outbreak’s duration will determine the size of its impact on colleges and universities. If campuses can reopen before the next academic year, “the effects on demand and budgets will be more manageable,” Jeanne Harrison, vice president at Moody’s, said in a statement. 

The pandemic is forcing colleges to cancel campus tours for prospective students and visits to high schools. Some institutions are hosting virtual tours and delaying admissions deadlines to salvage their recruiting season. 

It’s also harming U.S. colleges’ ability to recruit international students, who generally pay full price and subsidize tuition for their domestic peers. 

If China continues to restrict travel to and from the country, it could dampen U.S. institutions’ enrollment of Chinese students, who account for one-third of their international enrollment. 

Likewise, international students could lose confidence in the U.S. as a destination for higher education if it fails to contain the virus  leading to a longer outbreak in the country than in others  and instead flock to colleges in Australia, Canada and the United Kingdom, the analysts note. 

“Over the next year, international student demand will be even more affected by national reputations,” the analysts wrote.

The U.S. had more than 400,000 confirmed cases of COVID-19, the respiratory illness the virus causes, as of Wednesday afternoon, according to data tracked by Johns Hopkins University. That makes it the epicenter of the pandemic, though there are concerns countries are underreporting their cases in official counts. 

Endowments are suffering as well, the analysts note. Investment income makes up 9% of revenue at private universities and 2.5% at public institutions. Moreover, The Hechinger Report noted last month that roughly 75% of the $630 billion of endowment funds at U.S. institutions are invested in stocks, whose value has plunged since the pandemic’s onset. 

Congress allocated roughly $14 billion to higher education institutions in its $2.2 trillion stimulus package passed late last month. The formula used to distribute the funds will prioritize colleges with high shares of low-income students attending school full time. 

Although analysts expect the stimulus package to help, it likely won’t offset the revenue loss and increased expenses that colleges will face. 

Larger, well-resourced colleges should be able to cover budget gaps through at least the end of the 2020 fiscal year, according to analysts from Fitch Ratings in a note emailed to Education Dive. But smaller, residential colleges and other institutions with less liquidity or big deficits will likely feel the crunch. 

Institutions are already weighing drastic measures to steady their budgets. In a recent survey of more than 142 top college and university leaders, three-quarters said the coronavirus may force them to lay off staff, and half said it could lead them to cut budgets across the board. 

For example, Bradley University, in Illinois, is considering trimming $40 million from its budget after refunding room and board fees. Central Washington University declared financial exigency, which allows it to quickly lay off tenured facultyAnd Quinnipiac University, in Connecticut, is cutting faculty and staff pay. 

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