CAMBRIDGE, MASSACHUSETTS – MARCH 12: Harvard Sophomore Jordan Di Verniero, 19, sits with her belongings in front of Eliot House before returning home to Ormond Beach, Florida, for the rest of the semester on March 12, 2020 in Cambridge, Massachusetts. Students have been asked to move out of their dorms by March 15 due to the Coronavirus (COVID-19) risk. All classes will be moved online for the rest of the spring semester. (Photo by Maddie Meyer/Getty Images)
Prediction: 20% of colleges and universities will close or merge by the end of 2022.
There’s little doubt that one of the most dramatically impacted industries from the Coronavirus will be America’s colleges and universities. Even today – a full two months into the crisis – colleges have given little guidance to existing and incoming students as to if or how the doors will be open come this fall.
College was in trouble before the Coronavirus – and to some extent – has been long overdue for a ‘culling of the herd.’ But this crisis will hasten natural selection at an alarming pace.
Following are 8 reasons to support this dire prediction.
Inflated Enrollment: For nearly a generation, enrollments numbers at America’s colleges and universities have been artificially inflated. It has held remarkably steady at roughly 2 million new students per year – even though the echo-boomer population has been in decline at a much more significant rate.
There are a number of reasons for this, but among the two most significant are the easy access to (government) money in the form of loans; and the devaluation of trades as a viable pathway for high school graduates (due in part to the removal of shop/home economics curriculum in high school).
Family Economics: The average cost of 4-years at a state college is already close to $100,000 – and has become increasingly out-of-reach for many Americans. But now – with 401ks and 529’s taking a beating – along with eggshell thin job security in many industries – it has completely crossed the threshold of affordability for many families.
While nobody has firm numbers yet – consensus opinions point to 20% lower enrollment figures come this fall – costing college and universities nearly $30 billion in tuition revenue with little opportunity for cost offsets.
Refunds: College have already refunded huge chunks tuition revenue to 2019-2020 students who effectively missed all of their second semester.
Summer Revenue: At best, colleges are hoping to open in the fall. But having refunded much of their second semester tuition, they will have virtually no tuition revenue from summer classes and programs.
Athletic Revenue: Cancellation of the NCAA Final Four basketball tournament (as well as most conference tournaments) coupled with no income from spring sports, and dubious prospects for the upcoming college football season – colleges are going without one of their biggest revenue generators, putting even more pressure on their finances.
Federal and State Subsidies: Colleges rely on Federal – and in the case of state schools – State subsidies, both of which are likely to be significantly reduced. This money makes up a substantial portion of the operating income for many institutions.
Endowments: Much of the scholarship money as well as need-based financial aid given out by colleges are funded from earning on their endowment funds – most of which – like the rest of us – have taken a huge hit over the last two months.
Less financial aid means even higher college costs for returning and new incoming students – who are already feeling the financial squeeze.
Foreign Full Pays: Many colleges have cleverly used full-pay foreign students to subsidize the cost of college for financially needy American students.
Purdue University for example, has boasted no tuition increases for 9 years under the leadership of former Indiana Governor Mitch Daniels. While laudable, it is unclear whether universities will be able to continue attracting those students.
And with any of those students hailing from China, it remains to be seen if students and parents will perceive an increased risk from exposure to those from the Coronavirus point of origin.
Considering a Coronavirus-induced reduction in ‘demand’ (enrollment) and sharp decreased in both revenues and available financial resources, we believe that up to a quarter of of America’s roughly 4,000 institutions of higher education could meet their demise over the next two years. Time will tell – but the glory days are over for sure.
So what are the practical implications for families of college bound, and college aged kids? Here are a few pieces of advice.
- The colleges that will have the toughest time surviving are the small private colleges. While these can also be some of the absolute best options out there – it may be prudent to talk with admissions officials and others to develop a sense of their longer-term financial viability.
- It’s probably time for a rather uncomfortable conversation at home to determine if your student is really a college candidate. The college “experience” has become a luxury for many – and we’re advising families to have their students explain how they intend to get a return on their investment in a college education.
- Before Coronavirus, on-time (4-year) graduation rates has plummeted to an alarming 41% – meaning 59% of families were destined to pay for a fifth year, a sixth year, or more. There are many reasons for that (see paragraph above), but now more than ever, there is a huge premium on selecting a college that is ideally suited toward your student so they have the best possible odds graduating on time.
For our part, we’re making our online CAP (College Admissions Profile) tool available to families nationwide for the asking. Using 25-year tested algorithms, it is an incredibly accurate predictor of 1) Admission, 2) On-Time Graduation, and 3) the specific amount of financial aid a family can expect to receive from any given college).
To learn more, click here. If you want a free subscription to the CAP Application, email: BookMyCAPMeeting@gmail.com
