The virus is causing immediate financial pain for institutions everywhere – with the potential for broader upheaval to follow
University blues: the COVID-19 toll
Universities around the world are facing a major funding crisis due to the sudden loss of revenues caused by the COVID-19 pandemic.
The large, commercially-oriented university systems in the US, UK, Australia and Canada, which are increasingly dependent on often-exorbitant tuition fees from Chinese students, are seen as particularly vulnerable compared with continental European universities.
“The Anglo-Saxon countries have been badly hit. The impact is less the more public the systems are. There’s substantial funding and low tuition fees protecting universities in northern Europe,” said Bert van der Zwaan, former rector magnificus at Utrecht University.
Enrolment could plummet in the coming years, experts warn, in places that can’t tame the coronavirus. Many are also talking about a broader, long-term shakeup for universities.
“I think we’re into disruption now. It’s not going to fall back to where it was, I’m convinced of that,” said Graham Love, former chief executive of the Higher Education Authority of Ireland.
The crisis could be an opportunity for tech companies to move onto campuses, Love said. “If companies like Apple and Facebook come in to universities and help them really make the online [teaching] work, then these institutions could go around hoovering up students. Where does that leave the small-to-medium institutions?”
“What this crisis is showing people is that there are other options – in the space of three months, we’ve shown it is possible to do blended learning. There’s going to be more high-quality content delivered remotely,” Love said.
Many see the virus as an accelerator for universities, bringing a lot of change in a short space of time. “As Lenin said, there are decades where nothing happens; and there are weeks, as during COVID, where decades happen,” said Love.
Reputations at stake
Money shortfalls are a pain for some US universities — for other universities the revenue loss may be a disaster.
Dick Startz, professor of economics at the University of California in Santa Barbara, says universities face three major falls in income, from hospital charges, tuition fees and state funding.
The top US university hospitals, many of which are at the forefront of fighting the coronavirus, saw revenues fall dramatically as elective procedures ground to a halt during the pandemic. These hospitals are often “the big financial gorilla on campus”, said Startz.
The federal government has said it will provide about $14 billion to colleges and universities to weather shutdowns but this “doesn’t come close to replacing what has been lost,” Startz said.
The available data doesn’t tell us which universities are in trouble yet, but Startz expects cutbacks, mergers and possibly even closures. “The really wealthy ones, if they lose a lot of income for a year, it’s going to be unpleasant. If you don’t have a healthy bank account going into COVID, it’s a disaster.”
One of the best indicators universities have for next year’s tuition fee income is students booking accommodation during the summer in expectation of turning up on campus for the new academic year.
“Students are still saying they’re going to accept but until it’s time to physically show up, it’s not clear how we’ll know,” Startz said.
Student housing and board are “nontrivial revenue streams” for universities, said Startz. “If universities have to keep going remote, almost all of this funding is going to go. You don’t have to stock as much pizza or tofu in your dining halls, but you’re still paying the mortgage on your buildings.”
“There are also going to be some very interesting internal discussions inside universities too, about who’s subsidising whom,” said Startz.
For now, most universities maintain that they will charge full tuition fees, which can be as high as $50,000, even if all they can offer is distance learning. In the last few months, universities have been largely successful in constructing a credible version of their normal selves with available online materials.
“Gearing up to do college remotely is costing universities a lot of money. This being America, there’s also a whole bunch of universities that are being sued by students [for tuition refunds],” Startz said.
Harvard University and the Massachusetts Institute of Technology have also sued the Trump administration, seeking to block a proposal that would remove visas from foreign students and deport them if the courses they take this autumn are exclusively online.
“The order came down without notice—its cruelty surpassed only by its recklessness,” Harvard president Larry Bacow said in a statement on Wednesday. “It appears that it was designed purposefully to place pressure on colleges and universities to open their on-campus classrooms for in-person instruction this fall, without regard to concerns for the health and safety of students, instructors, and others.”
“These students are our students… [and] we will not stand by to see our international students’ dreams extinguished by a deeply misguided order,” Bacow said.
Harvard is one of several big universities that has announced it will run its courses entirely online in the autumn. The university notes that the Trump order comes as the US has been setting daily records for the number of new infections, with more than 300,000 new cases reported since 1 July.
With both domestic student tuition fees and research funding below many universities’ operating costs, overseas student fees are a vital money-maker. A growing middle class in emerging markets, especially China, has led to a surge in admissions globally. Almost one million Chinese students are now studying outside the country.
The resurgence of the virus in many US states could dent the country’s reputation as the prime global destination for students, however. “The US leads in exporting higher education to the rest of the world. If it becomes possible for other English-language countries to open up and not us, that will be an interesting challenge,” said Startz.
Trouble in Australia
In Australia, the financial implications of the crisis hit universities sooner than in other parts of the world.
Here, universities are projecting a loss of A$4 billion (€2.5 billion) in 2020, or more than 10 per cent of their income, said Andrew Norton, professor of higher education at the Australian National University.
The timing of travel restrictions meant that tens of thousands of Chinese students were stranded at home at the start of the year. The Australian academic year starts in late February or early March, giving universities in the country less time to adjust to teaching online.
“The problem is that the normally large mid-year intake will not happen, and there is a risk that the normal early 2021 year intake will not happen either, or will happen on a smaller scale due to some source countries not having COVID-19 under control,” said Norton.
Universities are cutting costs, including reducing their workforces, in the face of 2020 losses. They could shed up to 21,000 full-time jobs this year, including 7,000 in research, a government report said in May.
“At this point I am not expecting any public universities to go broke or need a bailout this year. [But] I think this is possible for a number of smaller private higher education providers that rely exclusively or mainly on international students,” Norton said.
To add to universities’ woes, the government announced a major reform package for student funding in June. “While this will be revenue neutral for universities in the short term, in my view it will cause further disruption at exactly the wrong time,” Norton said.
Fewer international students in Europe
The European Commission this week estimated that the Polish economy would be the least affected by the coronavirus crisis in Europe. Still, the rector of Warsaw University, Marcin Pałys, is expecting fewer international students in autumn.
He’s happy that the 2020 government subsidy for higher education will not be cut to help pay for the pandemic. “We have to be cautious with budgets for 2021 though,” he said.
Pałys says the crisis gave his university a jolt to move administrative procedures online “and students appreciate it”.
“The rather slow onset of remote learning and teaching was greatly accelerated. This transition will have a lasting effect; blended learning is not any more considered exotic,” he said.
Meanwhile, the overall revenue loss for Irish universities this year is likely to be in excess of €300 million, said Jim Miley, director general of the Irish Universities Association. “More than half of that is loss of international student fees,” he said. Non-European students can pay anywhere between €20,000 and €50,000 for their studies in Ireland.
China, India and the US are the biggest overseas markets for Irish universities. “There’s big COVID-19 challenges in all of these places – the US in particular,” said Miley.
Adding to the COVID-19 headache, Irish universities were “not in rude health” before the pandemic struck, said Love. “They have been significantly under-resourced for a decade.”
Ireland’s university model combines state financing and revenue earned from tuition fees and other market-driven activities. The state is paying 40 per cent less now per student than in 2009, while the student population has increased by a quarter, said Love.
According to the European Universities Association (EUA), Ireland is not alone. Countries including Czech Republic, Romania and Slovakia have reduced higher education funding since 2008 “despite some recent positive economic trends”. Countries like Luxembourg, Germany, Switzerland, Norway, Austria and Denmark have meanwhile significantly increased funding compared to their GDP growth.
“Ireland is one of those cases where you see it takes a very long time to turn back lost investment, with a long-lasting negative effect on competitiveness,” said Thomas Estermann, EUA’s director for governance, funding and public policy development
There’s growing hope that the new Irish coalition government, which came to power last month, will pump stimulus money into the sector. The creation of a new department for higher education is “an encouraging signal”, said Miley.
Irish universities are not considering a fee reduction for courses delivered in part online, said Miley. “The ones who have just graduated this year, the integrity of those degrees are no lesser. Our universities are adamant that the quality in the year ahead would not be diminished if it was delivered online,” he said.
Now, universities are waiting to see which students will follow through on accommodation bookings, which will require follow-up payments in the coming months, and should leave the sector with a clearer idea of intake for the year ahead.
“Most universities have indicated to students that if health restrictions continue to be tight, they’d refund their deposits. So there was no risk for students to make their initial bookings,” Miley said.
In the UK, about a dozen universities face going bust if they do not get a government bailout or help with their debts, according to recent research by the economics think tank, the Institute for Fiscal Studies (IFS). A “very tightly targeted bailout” from government for these institutions could cost just £140 million, which would be a lot less than a broader rescue package.
The crisis has exposed the flaws in the UK’s high-tuition fee model, said Steven Jones, professor of higher education at Manchester University.
“The market approach has been quite alienating for a public who see universities-as-services as distasteful. Bringing in more international students is obviously a good thing, because they bring diversity to the campus. But the model puts universities in competition with one another. And now UK universities will have had to go cap in hand to governments, like they’re private companies,” Jones said.
UK universities are also dealing with uncertainty over EU research money and falling demand from European students after Brexit. “Fewer EU students will travel to the UK now that they are out of the bloc,” predicts van der Zwaan.
The UK’s universities minister, Michelle Donelan, has turned the heat up on the sector even more, saying recently that an increasing number of students are not getting good value from universities. She accused universities of “dumbing-down” courses and spending too much money on marketing to entice cash-cow overseas students.
“There’s a lot of pressure coming from above. But the government shouldn’t interfere in what universities do. Once you start referring to courses as low quality, you’re saying they’re not worthwhile,” said Jones.
Talent hunt squeeze
The funding crisis is also expected to hurt research, which is central to UK universities’ international rankings, which in turn help attract students and talent.
The IFS report says that the elite universities in the UK are among those facing the biggest drops in income or increases in costs, because they have large intakes of students from abroad, who pay high fees, and may decide to stay away.
Cambridge was ahead of many universities when it announced that there will be no face-to-face lectures in the coming academic year, and that face to face small group teaching will be conducted only where social distancing allows.
But Cambridge and universities of its ilk are actually not the most at risk of running into major difficulties, says van der Zwaan.
“The research-intensive universities are strong anyway. They have [cash] reserves, and they’re less affected by the shift to digital teaching. They’re safer, even if they will now have trouble attracting talent from abroad.”
New professors hired by universities in recent months have not been able to take up their posts because of travel bans, notes Estermann.
Some of the reduction in travel seen during the pandemic “will be permanent,” van der Zwaan believes. “The digital means to replace travel are improving. There will be fewer incentives for a student to go from China to the UK, for example.” The quality of the Chinese higher education system is also improving all the time, tempting more students to stay home.
“High tuition fees in the western world, and add in the worsening geopolitical environment between China and the US, and you have an explosive mix of factors that will shift the higher education landscape forever,” he said.
While he predicts northern European universities are well placed to come through the crisis, those in the southern European countries face a difficult climb back, he said. “They didn’t bounce back as well as other countries after the 2008 crash. These countries will now have enormous trouble again getting their budgets back on track,” van der Zwaan said.
Some voices are warning of the longer-term threat of a not-nearly-over pandemic to university life.
“Let’s be honest, the virus could last years. This might be more than an acute short-term thing,” said Love.
If online courses keep improving, students might become less inclined to seek out foreign studies, he said. “Some may be thinking: why would I pay €30,000 to come study in Ireland, when I could maybe do it remotely for a fraction of that? That’s potentially an existential threat to the model that has to be taken very seriously. The full campus experience could become the preserve of the very wealthy.”
Others say that you can’t easily replace the full university offer. “I think the big tech people have consistently misunderstood the higher education market,” said Norton. “Online is a good option for students who just want the course content and the credential in the most convenient way possible. It is growing for that reason, especially in courses for working professionals updating their skills.
“However, for younger undergraduates university is a social experience as well, and despite the big improvements in online education technology on-campus classes remain, and are likely to remain, the preferred option,” Norton said.
Pałys can’t see a long-term shift to distance learning either. “Many students miss the campus life, the direct contact, sport and cultural events.”
Indeed, the rapid switch to online study during COVID “could damage the reputation of online education, as they are receiving an education that is well below the quality that planned, well-designed online classes provide,” Norton said.
If anything, we will likely see students delay their studies temporarily, “but the public demand for university education will remain steady,” said Jennifer Lee, professor of higher education at the University of Arizona.
Successful examples of distance learning, like the Open University in the UK, are still seen by many as second-best alternatives. “It is completely clear that remote instruction is not as good as in-person instruction,” said Startz.