COVID-19 is placing extraordinary strain on American higher education at a time when many colleges and universities are already struggling financially. State appropriation dollars that had only just started reaching pre-2008 levels are set to crash. Surveys also suggest that up to one in six high school seniors may choose to take a gap year rather than enroll in remote-learning courses, threatening the financial viability of thousands of small, private, not-for-profit colleges.
The immediate problem that the pandemic creates for higher education is financial, but it is not clear that the solution is. An immediate influx of federal or state stimulus funding may help slow the leak, but colleges’ budgets have been straining for years under enormous fixed-cost investments, such as new campus buildings and a growing number of faculty positions, that are anything but short-term. For many institutions, the prediction that they would receive more revenues from more students willing to pay higher prices has yet to, and may never, materialize.
For many colleges and universities, the revenue shortfall looks to be a long-term phenomenon. The work of economist Nathan Grawe of Carleton College suggests that the number of college students will drop by 15 percent between 2025 and 2029, in part because the financial crisis of 2008 appears to have reduced fertility, resulting in a drop in the number of kids born between 2008 and 2011. And Grawe’s prediction was made before the pandemic hamstrung the 2020–21 academic cohort.
This smaller pool of fee-paying students, coupled with consumer concerns about college affordability and the rise of cheaper, faster-to-complete alternative education options are converging in a perfect storm that threatens the ability of traditional institutions of higher education to financially sustain themselves.
To survive, colleges will need to weather the immediate enrollment crisis, but also the coming hypercompetition for students and their tuition dollars. Success will require strategies that reduce costs, improve affordability, and reduce prospective students’ uncertainty about the return on their investment.
How can institutions go about doing this? Here are three recommendations:
First, reduce costs by better leveraging the remote learning necessitated by the current pandemic. Introductory survey courses (think those courses held in large lecture halls) are already designed to be delivered asynchronously. Gradually transitioning these classes to a partially or fully online format means little or no degradation of instructional quality while realizing economies of scale that free up resources for the more advanced undergraduate and graduate courses that do benefit from face-to-face interaction.
Second, improve affordability by giving students and families tools to more readily find and obtain nonloan aid. Up to several billion dollars in scholarship aid go unclaimed every year. Even when students do secure third-party funding, if they also happen to have a “last dollar” state grant, their reward for finding and securing additional money is to have their state grant reduced by the amount of this third-party funding.
Adopting tools that harness institutions’ student information systems so that they can more seamlessly identify and prequalify students for scholarships gives colleges more flexibility to charge prices in line with costs, while still keeping the price students pay affordable. Adopting institutional policies of partially, or even fully, offsetting any last-dollar grant “penalty” would give universities the flexibility to leverage students’ self-interest in maximizing their own aid while indirectly generating additional institutional revenue.
Third, reduce prospective students’ and families’ uncertainty about their educational investment by providing incoming students with an up-front, all-in price for the degree they are looking to pursue. An annual financial aid process is bureaucratically unnecessary for the low-income students that stand to gain the most from college training, and it often results in students missing a deadline or filing a form incorrectly, and thereby jeopardizing their aid. A binding price cap not only makes budgeting for a college degree easier, but it greatly helps consumers answer the question, “Is college worth it?” by simplifying the cost side of the cost/benefit analysis.
This kind of pricing would still allow schools to charge different rates for different programs or different cohorts, a practice that helps balance tuition revenue increases against future increases in the cost of the educational services being provided. For consumers, it turns the financing aspect of paying for college into something more familiar and understandable – like the purchase of a home or an automobile.
The pandemic is currently disrupting American higher education, but the demand challenges it is highlighting are deeper and more structural and potentially more damaging to the nation’s long-term workforce needs. Reducing course delivery costs by the selective use of online learning, making it easier for students to find and obtain additional grant aid, and establishing all-in, up-front pricing are the kinds of solutions colleges and universities can use to help manage both the current crisis and the economic uncertainty that still lies ahead.
Carlo Salerno is Vice President for Research at CampusLogic. His writing has been published in Forbes and Inside Higher Ed, among other places.
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