Scenario, Risk, and Budget Planning: Is Your University’s Fall Term Toast? The spring terms at higher education institutions are just about history. Campuses are eerily quiet. The faculty have settled in (somewhat) to teaching online. Most students have headed home while some are hunkered down in dorms, apartments, or homes near campus because they can’t journey home for various reasons. Most institutions have already made the decision to conduct summer school online.
But what about the 2020-21 academic year? What’s to become of it? While the jury is still out, what we do know is that the decision whether to open or close will have wide-ranging ramifications. And ultimately, higher education will be following the National Institute of Allergy and Infectious Diseases Director Dr. Anthony Fauci’s advice: “You don’t make the timeline, the virus makes the timeline.”
Institutions already are developing scenarios. For example, 64% of the Association of American Colleges & Universities members reported they are projecting a “moderate” scenario that allows students to return to campus although there will need to be modifications to operations (social distancing, fewer major events, and more online classes). The remainder feels that students will not return in the fall semester and may not be on campus for the entire academic year.
Additionally, 84% of respondents believe their institution’s enrollment will drop. That coincides with the American Council of Education, which projects a 15% decline in traditional student enrollment and a 25% decline in international student enrollment. ACE anticipates that some institutions will lose more students because they won’t be able to offer in-person classes.
Ultimately, each higher education institution must make some assumptions to begin scenario planning. For example, the University of Central Florida (UCF) did a great job in developing four scenarios for reopening the University. They were:
- Rapid and Effective Control (Best Case). Social distancing is relaxed but some health precautions remain in place.
- Effective Response. Social distancing is relaxed to some extent – it is case-based – and health precautions remain in place.
- Virus Reoccurrence (Base Case). Social distancing has been relaxed nationally, but there remain regional restrictions.
- Pandemic Escalation (Worst Case). National and regional social distancing remains, and the local area becomes a hotspot for positive cases.
These four potential scenarios, while very simplified, took an inordinate amount of thinking and analysis to get to this point. The beauty of these scenarios is that it gives institutions a framework within which to begin to make assumptions.
For example, what a reoccurrence of the virus happens in your state, which is the scenario that Dr. Fauci and others have said could happen this winter without vaccination in place? That could lead to the third scenario above. What would that scenario do to on-campus instruction? Do you even want to take that risk of potentially bringing students and faculty back to campus too soon?
Developing assumptions requires taking calculated guesses based on unknown situations and variables. As a result of the current pandemic, assumptions need to be developed in a number of areas including enrollment, instruction, research, employees, athletics, student life (activities, housing, dining), and travel.
These assumptions are then developed in further detail to create projections for the budget. This needs to take into account both state funding (and potential state funding cuts due to the economic ripple effects from the pandemic), research funding and enrollment of traditional, graduate and international students.
Areas to consider in calculating budget revenue include operating revenue, student tuition and fees, federal grants and contracts, state and local grants and contracts, nongovernmental grants and contracts, sales and services, interest on loans, total operating revenue, state and federal appropriations, student financial aid, noncapital grants, noncapital gifts, investment income, sales and services, and interest and fee on debt, other non-operating revenue, net non-operating revenue and total revenue.
The expense side of the equation requires higher education leaders to look at each scenario and analyze different components, whether it’s online education course loads or furloughing employees.
An Eye on the Budget
Every CFO worth his or her salt will tell you that the most challenging thing in developing a budget is making assumptions. Yet, if there were no need for assumptions, you could draw up one budget and it would always work. But that’s not the reality, especially in our current environment. In a recent conversation, Rob Hartman, CFO for Columbia International University, said that they have at least five different budgets based on assumptions they have made.
These scenarios and assumptions are underscoring the financial challenges that colleges and universities will face in the near future. Institutions need to be preparing for significant changes in day-to-day operations, academic offerings, course delivery, and finances. The potential for limited on-campus courses, interactions and culture will have a direct impact on the institution’s budget and financial reserves.
McKinsey & Company estimated that 25% of public colleges and universities and almost half of the private institutions will see a budget shortfall of at least 5%. This estimate assumes that institutions will be able to undertake a controlled virus scenario and return to operations in the fall semester.
However, if classes remain online-only, the estimated budget shortfall increases to 57 percent for public and 77 percent for private. McKinsey projects that with this scenario, more than 800 institutions experiencing a 20 percent or greater shortfall in next year’s budget.
The pandemic also is shaking up the opportunity to forecast fall enrollments. Education Dive reported that over 75 percent of college enrollment officers are concerned about fall enrollment. In fact, the National Association for College Admissions Counseling announced that it would now allow college officials to recruit students after May 1, the historical deadline for students to select a college and recruitment to end.
That change in the timeline is important because the pandemic has placed students’ college decisions in flux. One-third of high school students surveyed said the outbreak is influencing their decision and nearly one-fifth said their top choice school had changed as a result. Slightly more than one in ten students who were planning to attend a four-year school said they are now looking at alternatives, whether community college or not enrolling at all. This fact alone will have a tremendous impact on many institutions’ bottom lines.
Additionally, colleges are not helping themselves by NOT keeping prospective students informed. Education Dive also reported that 40% of high school seniors who have decided on a college have not received “adequate information” from the institution about the coronavirus’s effect on enrollment. (While this decision is still up in the air at many institutions, it still highlights the importance of regular and clear communications with prospective students.)
However, many current students’ perceptions of their university or college have fallen since the pandemic started so this is an area to watch. In fact, more than 40% of currently enrolled college students said their opinion of their school has worsened in the few months since the pandemic outbreak. Furthermore, a startling 63% of respondents reported that the online instruction that colleges and universities are now using is worse than in-person courses. Despite being disgruntled, 86% plan to return for the fall term.
What Other Institutions are Doing
Worth noting, Inside Higher Education noted that institutions are currently focused on 15 different scenarios, which include:
- An intensive that would bring first-year students on campus and let others (sophomores, juniors, and seniors) learn remotely offers another option. These students would learn in residential classes and participate in campus-based orientation and social-connecting exercises designed to help the student build a deep relationship with the institution.
- How a student begins their college experience may be the best predictor of how their college experience will end. The ability of a student to persist through the rigors of college life is in part dependent on the quality of the support they receive in orienting to the independence and intensity of college-level work. Recognizing the importance of the first year and the first few weeks and months of the transition to college, this plan brings only first-year students to campus in the fall. First-year students learn in residential classes while also participating in a full range of campus-based orientation and social-connecting exercises. Sophomores, juniors, and seniors continue to learn remotely for the fall semester.
- Some institutions are considering a targeted curriculum approach for the fall semester. This would require limiting the number of in-person courses such as course courses or signature experience courses offered on campus prioritizing support resources. This also could mean eliminating courses with low enrollment and prioritizing courses that could be offered both in-person and online.
- One approach would bring selected groups of students back to campus based on their need for face-to-face interactions or in-person access to university resources. For example, graduate students could return to continue studies and assist with research.
Not surprisingly, higher education institutions are leaning in different ways. For instance, Boston University and Brown University are leaning toward in-person classes; California State University at Fullerton has that same goal but is asking faculty to prepare to start the fall semester teaching online courses. Oakland University is adopting a hybrid approach that will include both face-to-face and remote instruction during the fall semester. Southern New Hampshire University is planning to open and will offer full-tuition scholarships to incoming freshmen. And the University of Pittsburgh is starting that “back to normal probably is not likely” for the fall semester.
Higher education is currently in the great unknown. We don’t know where the pandemic will lead and when the all-clear will be given. This state of uncertainty will require institutions to build a variety of scenarios and develop a risk plan to begin to consider the budgetary and institutional implications for each scenario.
Furthermore, institutions don’t know what students—both incoming and current–will do. Many are considering remaining close to home or not attending at all. Many current students are not pleased with the quality of online instruction they are receiving in comparison to the face-to-face courses they were taking prior to the pandemic. Therefore, it’s important to focus on building relationships with students and also taking their input to help faculty improve their online courses, which will be imperative if the institution is required to only offer online courses in the fall or if there is a sudden recurrence of the pandemic.
Institutional leaders also need to consider the different scenarios that might emerge in the fall semester. Taking each of these into account can offer some semblance of being vigilant and thoughtful about creating a plan in a situation that is rapidly evolving and will continue to change in the foreseeable future.