Higher education: COVID-19 and the associated economic crisis - EY-Parthenon Education practice
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Higher education: COVID-19 and the associated economic crisis EY-Parthenon Education practice
Challenging times
for higher education
The COVID-19 pandemic and associated economic
disruptions come at a challenging time for the US higher
education sector. Flat enrollments, intense competition
over students, increasing tuition discounting, rising costs
and shifting demand preferences were among the myriad
challenges US institutions were already managing. In
addition, approximately one in five private institutions
was facing substantial financial risk before the onset of the
global pandemic.1
“
Since the outbreak of COVID-19 in the
US, institutions have been consumed
with operational triage. They canceled
With the most
study-abroad programs, cut athletic
seasons short and requested students immediate triage
leave campus for an indeterminate period,
completed, it is time to
among numerous other decisions. Within
a week, almost all classroom learning ask, “What should we
shifted to a remote delivery model, often expect?” and, ultimately,
using commercially available collaboration
tools as the foundation. This makeshift “What actions should
remote learning solution should not we consider?”
be confused with best-in-class online
courseware, delivery infrastructure and
supporting services, as high-quality
online delivery is often the purview of
scale institutions with sophisticated
operations honed over years.
Higher education: COVID-19 and the associated economic crisis | 1
What
to expect?
In an unprecedented confluence of From a planning perspective, it is prudent to assume that:
events, discerning what comes next
• Ancillary revenues derived from • Student retention rates for many
requires some speculation. Typically,
summer programs will likely disappear. institutions may decline due to one or
higher education enrollments are
more of the following reasons:
counter-cyclical, but it is unclear how • Institutions may face other financial
that will evolve in this crisis. Historically, challenges due to refunds associated • The emotional hold on remote
at the height of the Great Recession, with housing and dining and online students is weaker.
despondency seeped into the psyche of learning, lost revenue from canceled
• Many of those students will
prospective students, and enrollments university programs and events, and
experience subpar remote learning.
flattened instead of accelerating as they increased operating costs (e.g., switching
had in previous years.2 Today, many to remote delivery). • Many parents and students will
projections suggest that COVID-19 view their current institution as a
• The impact on international students,
precautions may continue or, if they nonessential luxury.
while unknown, is likely to be
were to be lifted in the summer, may substantial and negative. • Absolute financial strain (barring
return next fall. significant intervention by the
government) will place higher
education out of reach for
some students.
2 | Higher education: COVID-19 and the associated economic crisis
• Fall semester first-time, full-time • Many students may elect to enroll in Prior to the crisis, increasing competition,
enrollment, while not something that online programs that allow them to changing student demand and rising
most institutions could take for granted be employed or be at home with family financial pressures were driving inevitable
even before COVID-19, is even more due to the unstable environment. change to the higher education sector
unpredictable now. and forcing mergers and closures on some
• Institutions that rely on endowment
institutions. The crisis will accelerate
• Campus visits, which helped students returns to support their operating
these trends. Revenue losses, combined
and families make decisions, are no model will see the value of that
with potentially increased operating costs,
longer an option. endowment reduced in the
could overturn the traditional higher
short to medium term and must
• Some students may decide to education business model and lead to
anticipate higher volatility for the
postpone full-time college, especially a sector shake-up.
foreseeable future.
if their families’ circumstances
Not all institutions will survive this crisis.5
demand it, or students may opt to
work and study part-time instead.3
• Other institutions will recruit and
discount right up to convocation,
including students already committed
to or enrolled in another institution.4
Higher education: COVID-19 and the associated economic crisis | 3
What are actions for consideration?
Institutions must navigate the crisis within their own context, but there are clearly
emerging crisis management themes. Currently, most institutions are focused on
surviving the disruption and establishing business continuity. As operations resume this
week, universities and colleges will turn their attention toward enterprise resiliency late
this spring and summer. By late fall, with at least one foot upon terra firma, they can
begin to reframe their future.
Now Next Beyond
Establishing business continuity Building enterprise resiliency Reframing the future
First and foremost, institutions Late spring and summer will see As summer peaks, institutions will begin
prioritized safety, communication and institutions shoring up the structures to reframe their future. First, quality
education continuity. They rapidly they immediately put in place. Remote online courseware will become standard,
moved students out, confirmed that learning structures will need continual and all the infrastructure to support
faculty and staff were safe, stood up enhancement and support, and it — technology, course designers, sound
business-continuity planning teams processes strained by remote staff will studios, student support services — will
and crisis management centers, built need adaptation. Some infrastructure need to be present at well-governed
out communications protocols, and will need scaling, and some may require institutions.6 The business processes for
initiated remote learning. Let us not repurposing or mothballing. supporting students — bursars/financial
underestimate the strain these tasks aid offices, health — will be redesigned
If cash was king before, it will soon be
placed upon institutions. Having and capable of transitioning seamlessly
emperor, and many institutions will
addressed the immediate needs of between “present” and “remote” delivery.
need to focus on liquidity and cash
students and staff, understanding the
preservation. The impact of the crisis This will also be the time that institutions
risk of near-term institutional instability
on covenants and composite scores is take objective stock of their strategic
through a rapid assessment of student
equally important to understand while position. It will be no time for sanguine
retention, the incoming fall cohort, and
parallel efforts are underway to secure futurists. Some institutions will need to
cash or liquidity realities is paramount.
exemptions from these, in addition seek stability in the structures of a more
to access to low-cost debt across the stable peer. Others may band together
sector. Equally important, this will be through shared services, collaboration
the time to assess insurance gaps and and mergers to build scale. Some will
begin the process of appropriately become white knights and absorb
documenting claims and anticipated institutions with questionable stability.7
federal emergency funding.
While the higher education sector is in a
clear crisis, it has endured reformations,
revolutions, civil wars, global wars and
more. Universities and colleges are
resilient institutions with a critical role to
play in society. They will undergo change,
but they will endure.
4 | Higher education: COVID-19 and the associated economic crisis
Higher education: COVID-19 and the associated economic crisis | 5
Take action Now
Establishing business continuity
The chart at right highlights • Get everyone to safety (duty of care)
and sequences several, but 1
Student • Shelter those who need to remain on campus
certainly not all, actions experience/ • Stand up crisis center and communication project
continuity
institutions will need to management office (PMO)
• Establish remote delivery protocols
address over the next six
• Assess retention risks
to nine months.
• Determine risk to incoming class
• Assure safety of staff and community (duty of care)
2
• Create a crisis center and communication PMO
Stakeholder
care
• Modify and readjust remote operations as necessary
3
Infrastructure • Assess vendor/partner risk
and
operational
support
• Understand short-term liquidity requirements
4
Financial
• Assess cash needs through summer and fall
implications
• Connect with political leaders to identify
5 emergency funding opportunities in response
Local, state
and federal to the COVID-19 pandemic
linkages
6 | Higher education: COVID-19 and the associated economic crisisNext Beyond
Building enterprise resiliency Reframing your future
• Enhance remote learning with online learning tools • Enhance online learning capabilities and migrate all courses
• Support faculty and students with technical/ to high-quality online offerings (vs. remote learning)
pedagogical challenges • Re-recruit existing/accepted students
• Address equity issues associated with remote learning • Target enrollment enhancements
• Plan for remote/online in the fall as a contingency
• Deploy retention and accepted-student care teams
• Adapt business processes for administrative staff • Adjust contracts
• Establish new norms for constituent care • Develop remote workforce options for both faculty and staff
• Enhance business processes around remote operations • Invest in online learning infrastructure (e.g., instructional
(e.g., systems, technology, training) designers, learning management systems (LMS), sound
• Scale systems infrastructure studios)
• Establish that cybersecurity protocols for altered • Monetize non-core physical capacity
technology infrastructure are in place • Enhance business disruption planning
• Repurpose or dispose of unneeded property, plant and
equipment (PP&E)
• Forecast liquidity and FY20 cash • Reforecast budgets/financial modeling
• Assess impact to debt covenant ratios, potential covenant • Redeploy assets
amendments, and Title IV access/composite score • Strategize how to build out urban and rural broadband
• Reprioritize capital spend to extend liquidity runway infrastructure to address remote working and learning
• Preserve cash and determine working capital actions
• Prepare for insurance and federal aid (e.g.,
FEMA) compliance
• Assess new debt
• Communicate with key political leaders and educate them on the impact of the crisis and need for relief
• [For public universities] Advocate that universities be eligible for refundable tax credits that the Families First Coronavirus
Response Act (FFRCA) provided for private employers
• Request regulatory flexibility including, but not limited to the following: support for graduate students and the cost for
research activities
• Determine the feasibility of accessing capital through low- or no-interest loans
• Work with sector (higher education associations, state agencies) to secure low-cost loans, relief from covenants and composite
scores, etc.
Higher education: COVID-19 and the associated economic crisis | 7Endnotes
1
See EY-Parthenon’s The other looming 4
In December 2019, the National Association
educational debt crisis: institutional debt for College Admission Counseling agreed to
and safeguarding the interests of students: a allow member institutions to recruit students
new student-centered financial health metric already committed to another school and pursue
for higher education institutions, https:// transfers of enrolled students.
www.parthenon.ey.com/po/en/perspectives/ 5
Indeed, the first university to stop accepting new
the-other‑looming-educational-debt-crisis-- students is Notre Dame de Namur. “Notre Dame
institutional-debt. de Namur Not Accepting New Students,” Inside
EY-Parthenon’s macroeconomic assessment
2
Higher Ed, March 24, 2020.
of enrollment drivers uses “mean weeks of 6
For an overview of “table stakes” in online
unemployment” as a proxy for this despondency education, see EY-Parthenon’s University
factor, which showed substantial explanatory strategy in a digital world: online and hybrid
power as it continued to climb long after the programs, https://www.parthenon.ey.com/po/en/
recession hit its trough in June 2009. Mean expertise/university-strategy-in-a-digital-world.
weeks unemployed rose from 17 weeks in 7
More perspectives on cross-institutional
December 2007, when the recession began, collaboration and mergers can be found
to a peak of 41 weeks in July 2011, and then in EY-Parthenon’s Strength in numbers:
fell back only very gradually. Mean weeks strategies for collaborating in a new era for
unemployed is an indicator that by its nature higher education, https://www.parthenon.
responds with a lag to events in the economy. In ey.com/po/en/perspectives/strength-in-
the current episode, unemployment is likely to numbers--higher-education-collaboration, and
rise very sharply, coinciding with declining GDP, TIAA Institute’s Mergers in higher education:
while mean weeks unemployed will again lag. A proactive strategy to a better future? Azziz, R.,
It is possible that a despondency factor could Hentschke, G.C., Jacobs, B.C., Jacobs, L.A.,
again suppress enrollments this time around but Ladd, H. (2017). New York, NY: TIAA Institute,
could do so more quickly than last time, because https://www.tiaainstitute.org/publication/
of the severity and speed of the downturn and mergers-higher-education.
extreme uncertainty about the future. Mean
weeks unemployed may not be the best indicator
of that despondency in this episode.
3
igher-ed consulting firm Art & Science Group
H
found that one in six high-school seniors who
expected to attend a four-year college full-time
before the pandemic now say they may take
a gap year, enroll part-time or consider a less
expensive institution. See the firm’s Impact of the
COVID-19 pandemic on college-going high school
seniors, March 2020.
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