How Higher Education Leaders Should Respond To The Coronavirus Financial Crisis

The coronavirus pandemic has imposed grave, urgent financial pressure on colleges and universities. Campuses had to move courses online in a matter of days, students and parents are demanding housing and meal plan refunds, and the spring enrollment cycle has been thrown into flux. State higher education appropriations will be cut to offset plummeting tax revenues, university endowments will yield smaller returns, and philanthropic giving will slow markedly (at least until the equity markets recover).

But there are also unknowns that are likely to make the coming recession worse for colleges and universities: How will the interruption in spring courses affect retention and Fall 2020 enrollment? Will a possible second wave of COVID-19 infections paralyze the campus next fall? How many international students will return to complete their degrees? How many students will be driven by family financial pressure or illness-related anxiety to transfer to a lower-cost university closer to home? How many high school seniors will decide to delay matriculation for a year? Perhaps most importantly (and most ominously for university CFOs), have we finally reached the point that the market will not tolerate the net price of college as the world recovers from the economic disaster of COVID-19? 

In any other industry, this kind of pressure leads to resource sharing, more innovative business models, and expanded and more efficient methods of delivering goods and services. If revenues cannot continue to rise, operating costs must come down and with them the price to students and taxpayers.

Higher education has always operated differently. Bowen’s Law, developed by the late economist and president of Grinnell College, Howard Bowen, is a theory that posits, in the simplest of terms, that colleges and universities will raise as much money as possible and spend it all, without saving adequately or passing savings onto students or taxpayers. Bowen based the theory on five rules: 1) “The dominant goals of institutions are educational excellence, prestige, and influence,” 2) “There is virtually no limit to the amount of money an institution could spend for seemingly fruitful educational ends,” 3) “Each institution raises all the money it can,” 4) “Each institution spends all it raises,” and 5) “The cumulative effect of the preceding four laws is toward ever increasing expenditure.”  

The law held true even in the aftermath of the Great Recession. Funded by skyrocketing tuition rates, administrative expenditures increased an average of 34% and student services spending increased an average of 46%—just in the last 10 years.

In the wake of the COVID-19 pandemic, however, higher education leaders have nowhere to turn except the federal government, and they know it. Thus, the president of the American Council on Education (ACE) dismissed the $14 billion emergency funding provided by Congress’s $2 trillion stimulus plan as “woefully inadequate,” while another senior ACE official reassured concerned industry onlookers that “This isn’t the last bus.”  

If Bowen’s Law is correct, though, higher education leaders are also asking for a massive relief program so that they do not have to make the difficult resource allocation decisions that, paradoxically, could also provide students with a better education at a lower price. What we need from higher education leadership is a vision for a lean new efficiency, an unprecedented restructuring.

Instead of raising tuition rates, universities should cut massive athletic subsidies, halt the facilities arms race, close centers that are not directly related to the teaching and research mission of the academy, and take a chainsaw to bureaucratic bloat. Adopt a laser focus on core instructional activities and the student services necessary to enable students to learn. Work on improving graduation rates and learning outcomes so that employers and families can be confident a college degree prepares graduates for the workforce.

It is time to address questions hitherto ignored as heretical. Why should a four-year degree require 120 or more credit hours? One-quarter to one-third of an undergraduate’s course credit hours are now devoted to “electives,” which by definition need no relationship to the student’s major. Since what is euphemistically called “general education” is more often than not a vast menu of choices, rather than a core of fundamental skills in writing, mathematics, history, language, and science, the grim truth is that the Great Recession notwithstanding, American higher education has been full of expensive fluff.  

That fluff is evident in course catalogs and in burgeoning student services. It would not be the worst outcome of this crisis for university leadership formerly too feckless to stare down intransigent faculty and the empire builders in student services finally to recognize that their choice is now between eliminating the fatuous and nugatory or slipping into insolvency.

Institutions like the University of California (UC) System, where the maximum teaching load for full-time faculty is four courses a year, are unlikely to continue to afford such a luxury, and the upshot might well be that faculty will teach more and as a result more students will be able to get a UC education. Nor would it be a bad outcome if colleges and universities made sure that at 8:00 a.m. and on Friday afternoons expensive classroom buildings and laboratories are no longer campus dead zones. Employers would assuredly welcome graduates whose academic schedules prepared them for the constraints of a real-world work schedule.

Ingenuity, entrepreneurship, resourcefulness, and discipline—the engines of American success—will ultimately be far more important than scoring a bigger slice of the debt-fueled pie. Institutions of higher learning need to find their way, and quickly, to such efficiencies.