Will Your College Be Forced to Close, Permanently?

Some colleges were close to a financial precipice, even before the coronavirus pandemic hit. The economic impact of social distancing and stay-at-home orders may be enough to force a few of them to close permanently by fall. Moody’s Investor Service downgraded the entire higher education sector from stable to negative.

Colleges face several big risks in the aftermath of the pandemic:

• New international student enrollment may evaporate. Some colleges rely on international students as a revenue center. Continuing students, who are already in the U.S., will return. But, incoming freshmen might not, especially if our borders remain closed because of the risk of hidden infection.

• Domestic students may stay close to home. Normally,about three-quarters of students in Bachelor’s degree programs and more than four-fifths of all undergraduate students enroll in colleges in their state of legal residence. This percentage may increase as families become more risk-averse. Private non-profit colleges are more likely to be affected, since about half of their students come from out-of-state.

• College recruiting activities have flatlined. Newly admitted students have been unable to visit college campuses to go on a campus tour, sit in on classes, taste the cafeteria food and stay overnight in the dorms. New student welcome weekends have been cancelled.

• Students may be dissatisfied with online education. If colleges are forced to continue pursuing distance learning, students and parents may be unwilling to pay top dollar for an online education.

• Public colleges may face cuts in state funding. Traditionally, states cut support of postsecondary education during a recession and for a few years afterward. When state tax revenues drop, appropriations for public colleges also drop. This forces public colleges to increase tuition at above-average rates.

• Families don’t have the funds to pay for college. Demand for financial aid will increase, especially when millions of people have lost jobs or suffered pay cuts. College savings plan balances have been affected by stock market losses. It is clearer than ever before that summer work expectations in financial aid formulas are completely unreasonable. Even when parents can afford to pay for college, they will be more cautious because of the recent economic upheaval.

• The countercyclical effect will not increase college enrollment. During high unemployment, college enrollments normally increase as people seek credentials to make themselves more attractive in the job market. That won’t happen when the job loss is due to health worries, not a lack of marketable job skills.

About 300 to 400 colleges have big endowments and will be able to weather the storm even though their endowments have dropped in value. But, the rest will feel more financial pressure, especially since room and board refunds from the spring may represent 5% to 10% of that term’s total revenue.

To check whether your college will be under financial stress, look up the college using CollegeNavigator.gov and click on the Enrollment tab. The Undergraduate Student Residence chart shows the percentage of undergraduate students who are in-state, out-of-state and international students. If a college has a high percentage of students from foreign countries or other states, it may face some financial challenges.