It shouldn’t come as much of a surprise to learn that the number of students attending college has fallen due to Covid-19, 16% for incoming students and 4% overall, with the total decline greatest among foreign students. Those foreign students, who pay top dollar, have been staying away first due to China bashing (the Chinese were very well represented) and then due to Covid risks and travel restrictions.

Remember that the drop in enrollment comes on top of other hits to revenues. We gave the broad outlines of how Covid-19 translated into a grim future for higher education in May:

“Decimate” might be too charitable a forecast for American higher educational institutions, since the word originated with the Roman army practice of killing one man in ten. Coronavirus is hitting pretty much all of the bad aspects of their business models at once.

Let’s list them:

Dependence on/preference for foreign students, often not for their accomplishments but for their ability to pay full and even premium fees. Chinese students accounted for one-third of the total. Their enrollment was already falling as of 2019.

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But Chinese students’ contribution to revenues is out of proportion to their numbers. From the New York Times in March:

Universities in English-speaking countries, especially Britain, Australia and the United States, have grown increasingly dependent on tuition from Chinese students, a business model that the virus could dismantle….potentially leaving countries with multibillion- dollar holes in their universities’ budgets.

Foreign students were dismayed by the way US schools shut down abruptly and gave little to no help in helping get them back home.

Skyrocketing prices leading more students to question college or emphasize “practical” degrees. As with mortgages, access to debt has led to higher prices. And with student debt terms so draconian, more and more students are trading down: going to cheaper schools or focusing on programs that teach harder skills that hopefully translate into market value.

Bloated adminispheres and gold plated facilities. MBA parasites have colonized universities, with the justification often that they increase fundraising. For what purpose? To pay themselves better, and to create naming opportunities for donors with new buildings, and to justify high charges via plush dormitories. Apparently swanky gyms are common.

All those expensive buildings have become an albatross.

Now consider the impact of coronavirus.

Litigation over terminating on-campus instruction. This is probably the least of their worries….

Low likelihood of resuming classes on campus this fall….

Why should students and/or their parents be willing to pay full prices for a degraded product? They won’t get interaction with instructors. For science and engineering classes, they won’t get lab work. They won’t get to make connections and meet potential mates. They won’t get tips from other students on career and summer job strategies. They won’t get to participate in extracurricular activities, which is a low-stakes way to learn to work with other people. They won’t learn how to grow up in a somewhat protected environment.

There is the very real possibility that employers will downgrade the value of degrees conferred during the plague years.

It’s hard to see how colleges and universities escape cutting tuition, save perhaps the most elite…

And what happens to university budgets due to the loss of room and board income?

Schools already looking at probable downgrades. Standard & Poors is already put a long list of higher educational institutions on its negative watch list. Bear in mind that S&P and Moody’s tend not to downgrade before Mr. Market already has the bond trading at a lower rating level. From an April 30 Ratings Action:

While S&P Global Ratings’ outlook on the U.S. not-for-profit higher education sector has been negative for three consecutive years now, we believe that the COVID-19 pandemic and related economic and financial impacts exacerbate pressures already facing colleges and universities. The financial impact on institutions from the loss of auxiliary revenue from housing and dining fees, and parking fees; as well as revenues from athletics, theater, and other events, is material for many. For schools with health care systems, lost revenue from cancelled elective surgical procedures could also be significant……

Many colleges and universities have disclosed estimates of 2020 budget shortfalls, despite the inclusion of CARES stimulus funds. We expect that the colleges and universities we rate will face an unprecedented level of operating stress and tightened liquidity, which will worsen the longer and deeper the pandemic lasts.

Back to the current post.

As our May piece anticipated, the shift to online instruction is a net loser. Students on campus generate lots of other income. Some schools like Princeton have lowered their tuition as an acknowledgement that online instruction is inferior to live classes; holdouts like Harvard have gotten a lot of criticism but have not relented.

The spate of articles on enrollment levels in higher educational institutions breaks out the results by type of organization as well as other categories, like the fall in male enrollment (6.4%) versus female (2.2%). But one surprise is the big hit to community colleges, which saw a 22.7% drop in enrollment. From the Wall Street Journal:

We had thought that young people might switch from four-year degree programs to the more practical instruction that community colleges offer. What appears to have happened instead is that the devastation in lower-income jobs hurt the ability of students to work part-time to participate in those programs, and may also have reduced the attractiveness of some programs.

From Bloomberg:

Empty seats are inflicting financial damage on colleges already reeling from the pandemic. Earlier this year, when the virus began spreading, many schools cleared their campuses of students and refunded housing costs. With enrollment waning, revenue from tuition, dormitories and dining halls is being hurt at a time when some institutions are posting low endowment returns.

“The colleges are losing billions of dollars,” said Jack Maguire, founder of the enrollment-consulting firm Maguire Associates and former dean of admissions at Boston College. “It may not be the end of it if this new waves hits and students are sent home again.”

On the one hand, it’s hard to feel sorry for most of these institutions, since it’s become evident that the beancounters are in charge and the educational mission has become a mere product, and too often crapified in the process. Add to that the fact that the adminisphere and top level salary bloat is inextricably tied to relentless increases in higher educational costs and student debt burdens. But as with the economy overall, the ones that will take the hits first are low level workers like food service personnel and adjuncts.