Title

Advice for University Leaders…

… in the post-coronavirus world.

April 1, 2020
 
 

You’ve sent your students home for the rest of the semester, moved heaven and earth to shift your classes online, moved your workforce to telework, and scheduled a virtual commencement. What’s next for university leaders as the COVID-19 crisis deepens across America?

The most important task this week for presidents, provosts, CFOs and board members is to begin to pivot from short-term emergency response to long-term strategic adjustment. Coronavirus is going to bring market disruption and financial dislocation to thousands of our campuses. It threatens a very large number of our institutions with financial collapse. You need to begin to take steps to adjust to this new context today.

Financial Challenges and Response

The biggest short-term challenge at most institutions will be a significant drop in revenue. Consider the facts. The stock market has plummeted, which will result in lower endowment draws for the next three or four years. Every university that sent their students home must now refund a portion of their housing revenue, blowing a hole in their current budget. Income from on-campus food services and bookstores has evaporated, and some students are beginning to demand refunds of student fees, on the ground that promised campus services are no longer available. In-residence summer programs, a revenue staple at many colleges, are all going to be canceled. In short, many of the income streams on which institutions rely have been terminated or reduced.

This cash crunch will accelerate as we head toward fall. Put simply, we have no idea what will happen come September. Millions of families will be cash poor, due to rising unemployment and the stock market decline, making tuition even harder to afford. International enrollments will probably fall precipitously and may even be prohibited. Our current massive nationwide experience with online education may incentivize many students to look for cheap online alternatives to traditional enrollment. Many students may decide to stay closer to home for college, particularly given uncertainty about the prospects for in-residence education come August. And millions of people will be in shock, incapable of making long-term commitments. In these circumstances, planning for the fall semester will be vastly more complicated, as the actual size of the freshman class may be very hard to predict.

Add this all up and the result is clear: colleges and universities are likely to face major revenue hits over the next 12 months. For wealthy colleges and universities, this will be a tough but manageable challenge. But for the vast majority of institutions, particularly already frail private liberal arts colleges, the impact will potentially be fatal.

Right now, universities need to adopt a 12- to 18-month emergency finance plan to face this harsh new world. This plan will differ from place to place, depending on each institution’s unique financial situation, but five elements will be universal.

  • First, every Board of Trustees needs to form an emergency financial planning committee. Under normal circumstances, the president would take the lead on financial planning efforts, but presidents are stretched too thin right now, dealing with immediate and pressing issues on campus, and they simply don’t have the necessary bandwidth. They need their boards to step up and help.
  • Second, you have to begin modeling the potential impact of the crisis. How much cash do you have on hand? How much of a drop in revenue can you weather? What access to credit markets are available to you? What expenses can you cut? These questions have to be asked and answered rapidly, so that leadership can develop a shared sense of the seriousness of the impending crisis.
  • Third, the emergency financial planning committee must immediately plan for emergency draws on their endowment. Normally, colleges and universities draw between 4 percent and 6 percent from their endowment annually. Can you afford to take more right now? Or will that reduce the already hammered endowment too steeply? Only the Board of Trustees, acting through an emergency financial planning committee, can answer that question.
  • Fourth, institutions need to limit, to the extent possible, all future cash outlays. This means a hiring freeze, a reduction in strength as people retire or leave, and identification of potential cuts to any discretionary spending for next fall. Things are going to be so tight, given revenue declines, that even traditional sacred cows must be reviewed and potentially slashed. Can you eliminate expensive sports programs? Can you double student-faculty ratios? Can you outsource health and counseling services? No one wants to face these questions, but if you don’t, you run the risk of running short of cash next year.
  • Finally, each institution needs a political strategy. For public universities and university systems, outreach needs to begin immediately to the governor and legislative leadership to discuss the need for additional budget support in the coming year. For private institutions, conversations with trade associations and local political leaders must begin to explore the potential parameters of short-term public support needed to preserve higher education-sector jobs.

Changes to the Market

The long-term challenge is even more daunting. It is possible, of course, that COVID-19 will not be a major long-term disruptive force in higher education. It is possible that when we have recovered from this tragedy, things will go back to “normal.” That is not impossible. The traditional pattern of higher education has very deep cultural roots, and such well-established traditions may lead, very quickly, to a return to pre-COVID-19 practices. But I wouldn’t bet on it.

How might things change? For one, market demand may be very different when we emerge from the coronavirus crisis come fall. Online education will be destigmatized to a significant degree, and this will lead millions of potential students to consider distance and nonresidential education more seriously than they have ever done in the past.

There will also be many more powerful players active in the online education market. Up to now, elite institutions have largely stayed away from online education in their core areas of market strength out of fear of undercutting their brand, but that is likely to change. Every major institution has moved online in the last month. Now that they have overcome the barrier costs to entry -- both IT costs but, more importantly, faculty resistance to online models -- they may decide not to go back. This means that many brand-name national universities will be offering and marketing online education programs more aggressively than ever before.

These two trends -- potentially radical change in market demand and entry of major new players as online education providers -- are likely to permanently alter higher education markets.

So what should colleges and universities do now to begin to adjust to this new market context? The key step is for college and university leaders to create an advisory group of faculty, staff and trustees to begin to think about market positioning in the post-coronavirus world. What is your unique market niche? What are your comparative advantages over competitors? Who are your students, and how will they want to learn? What changes, if any, to the academic program are necessary to meet this market demand? What marketing and IT investments have to be made now in order to capitalize on this opportunity? These fundamental answers have to be asked and answered on campus honestly and explicitly, because the answers institutions might have given to these questions prior to COVID-19 may no longer be relevant.

The next 12 months will be trying times for the nation and for the higher education community. Planning only goes so far. We must all be prepared to face the unexpected. But planning for the future now will pay immense dividends. It will help create a slightly larger margin for maneuver as we face massive uncertainty, and it will give campus stakeholders -- our students, staff, faculty and trustees -- a process by which they can face their worst professional fears and begin to work collectively to address them. In times like these, nothing matters more than leadership.

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