Under Financial Pressure, Colleges Face a Complex Balancing Act in the Weeks Ahead

With the current uncertainty about the virus’s trajectory raising doubts about the viability of in-person, residential undergraduate education, colleges and universities across the country are grappling with large projected revenue shortfalls.

Michael Hansen, CEO of Cengage – Pennsylvania’s public higher education system that consists of 14 universities, including Cheyney University, the nation’s first historically black college, and 17,000-student West Chester University – projects shortfalls of $100 million from lost room and board and other fees. Hansen notes that large state schools, such as the University of Wisconsin at Madison, are estimating a $100 million loss due to COVID-19 impacts — not including the potential lost revenue from lower enrollment in the fall.

While a few institutions can lean on significant endowments to offset the coming financial crunch, most colleges and universities heavily rely on revenue generated here and now: tuition dollars, activity fees and payments for room and board. With incoming students facing online lectures, cancelled sporting and arts programs, curtailed social events, and learning from their parents’ basement rather than residing on the campus of their dreams — substantial discounts are all but inevitable.

The quickly changing nature of the virus across the country exacerbated the financial challenges. On July 6, 2020, Princeton University, a private university in central New Jersey with an endowment of more than $26 billion, announced a host of measures it planned to implement for its returning undergraduates in September – only to scrap its carefully-made plans a month later.

To reduce population density on campus, Princeton initially intended to permit two incoming classes on campus at a time — freshman and juniors in the fall semester, and sophomores and seniors in the spring. To prevent spread among students and faculty, the university would mandate that all students living on campus be tested for COVID-19 upon arrival and throughout the semester. The mandate would also require masks in dining halls, elevators, labs, or any indoor space with people other than those who reside together in a residential suite. Students returning to campus would additionally be required to sign a social contract promising to adhere to these and all other safety measures.

All this careful planning and preparation went out the window last week when Princeton president Christopher Eisgruber informed all students that the upcoming semester would be fully remote in light of the worsening spread of the virus in other parts of the country and the New Jersey governor’s requirement that residents from 34 states quarantine for two weeks upon arrival in the Garden State.

While Princeton provided families with a 10% tuition discount because of remote instruction, other schools have not made any such concession, leading to lawsuits from parents and students alleging that online instruction is a poor substitute for traditional in-person learning.

The takeaway: even schools like Princeton, a wealthy institution with vast resources, will take a budget hit in the upcoming year and be forced to make and re-make plans to address student health and safety. The overall picture for higher education is unmistakably dire, at least in the near term. With the loss of room and board fees, as well as a dramatic drop in revenue that would otherwise be generated by athletics and other activities, nearly all colleges and universities will face serious financial headwinds in the coming academic year.

The COVID-19 Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.

Co-author Chistopher Leavell is an associate in the Bankruptcy & Restructuring Department at Klehr Harrison.