What Were the Financial Implications of the Shift to Online Learning?

Since the onset of the COVID-19 pandemic, the financial implications of the shift to online learning have been a leading concern for institutions of higher education. Colleges and universities have lost significant revenue in auxiliary enterprises, accrued new expenses in the effort to provide safe in-person educational opportunities and online educational modalities, and received reductions in state appropriations and loss of tuition revenue. Students and families, meanwhile, have been challenged by job losses and health risks posed by the pandemic. Taken together, the pandemic has been a stress test on the higher education community unlike any in modern American history.

Since June 2020, New America and the State Higher Education Executive Officers Association (SHEEO) have explored the financial impacts of the shift to online education due to the COVID-19 pandemic. This includes questions related to institutional financial preparation for an emergency, challenges to university budgets stemming from the transition to online education, and longer-term changes to the university financing model. To answer these questions, we interviewed representatives from professional associations, chief financial officers (CFOs) and senior officials from a diverse mix of public, private, and for-profit institutions and systems of higher education.

The interviews yielded following key themes that explain the financial challenges confronting colleges during the pandemic:

• Campus Officials Were Not Prepared for the Pandemic, Financially or Otherwise
• Existing Online Learning Infrastructure—and Spring Break— Helped Considerably with Continuity of Instruction
• CARES Act Funds Had Too Many Restrictions, But Remained Critical to Stabilizing University Budgets and Saved Some Campuses from Closing
• Considerable Financial Uncertainty Is Ahead in 2021 for Public and Private Colleges and Universities
• The Pandemic Has Provided An Experiment in Distance Education and an Opportunity to Rethink the Financial Model

Campus Officials Were Not Prepared for the Pandemic, Financially or Otherwise

From the interviews, it was clear that campuses were not prepared, financially or otherwise, for a pandemic or emergency of this magnitude—this, after all, is an unprecedented event for modern times. One person we interviewed said, “We run as many scenarios as we can, which turns out to be around the edge: nobody runs scenarios for something like [this pandemic].” Some institutions, particularly those vulnerable to natural disasters, had emergency plans in place, but those plans did not cover unique challenges associated with pandemic. Campus financial reserves were essential during this time, as they relied on the reserves to provide refunds for campus dormitory and meal plans.

Existing Online Learning Infrastructure—and Spring Break— Helped Considerably with Continuity of Instruction

Despite the quick turnover to online instruction in March, the interviewees noted that existing campus use of online learning platforms and ubiquity of video conferencing allowed for a smoother transition to online education. For campuses and departments with more robust online educational offerings, the transition was easier. There were expenses involved, such as purchasing expanded Zoom licenses and cameras for labs, and faculty had to be trained on the new technology. Several interviewees noted the benefit of having the transition during their Spring break, which provided a critical time window for the campus community to move to online education, train faculty, and communicate changes in instructional delivery to students. However, from a financial perspective, the transition to online education and expenses involved were viewed as a lesser concern, especially compared to refunds for housing and dining plans and losses in state appropriations. As one CFO explained, “The costs weren’t huge, but they weren’t insubstantial either. All further complicated by students asking for tuition and room and board back.”

CARES Act Funds Had Too Many Restrictions, But Remained Critical to Stabilizing University Budgets and Saved Some Campuses from Closing

The CARES Act funds, signed by former President Trump in late March, were viewed as instrumental in plugging budgetary holes and giving students emergency aid. At first, most institutions had to use reserves to refund dormitory and housing meal plans. For some low-endowment private institutions, the CARES Act was the differences between the institution closing and remaining open. One CFO we talked to in the fall painted a stark picture, “I started out for fiscal year 2021 with a $32 million deficit. I cut it down to $28 million with some ‘magic’ [in part through CARES Act dollars]. I have now cut the deficit from $28 million to $3 to $4 million. And I’m hoping and prayerful that I can eliminate that. But I need two things to happen. We need another stimulus package which is like a yo-yo in Congress right now. I don’t know if we’re going to get it. And we need to open up in the spring. That $3 to $4 million deficit will grow otherwise.”

However, the CARES Act funds, which were limited to institutional costs associated with significant changes of instructional delivery, were viewed as late in the process, as well as having too many restrictions that confused institutions on eligibility of uses. Said one CFO, “Restrictions around the CARES Act makes it hard to dole out money and could result in dollars being left on the table and inhibit our ability to push out dollars to students.”

Congress may have learned some lessons about CARES Act funds being too restrictive. In the most recent COVID-relief package passed in December, Congress included nearly $23 billion with fewer restrictions than CARES. But this stimulus fell far short of the money needed to shore up many higher education institutions and didn’t include meaningful state or local funding to help with public colleges and universities facing budget shortfalls.

Considerable Financial Uncertainty Is Ahead in 2021 for Public and Private Colleges and Universities

University CFOs remain concerned over the stability of their balance sheets in 2021. This includes potential sharp state budget cuts in the 2021 legislative sessions, enrollment declines, deep losses in auxiliary revenues, and additional costs. “We’re heavily reliant on state funding,” explained one CFO at a public institution, “We have a third of our funding coming from the state. We are at risk of losing those dollars. I look at the state budget, and we’ve been told to expect 17 percent reduction but hopefully less. The state just released revenue forecasts for next fiscal year and beyond, the state looks like it’ll lose 25 percent of its revenue. Higher ed tends to take a bigger cut. And we’ll inevitably get beat up publicly for raising tuition.” Community colleges, in particular, are concerned about sharp enrollment declines. Reserves and financial flexibility available in 2020 are not available to the same extent in 2021. The December 2020 stimulus package, while long overdue, will be useful as campuses seek to fill deficits in 2021. Program closures, layoffs, furloughs, and other cost cutting measures are likely in the months ahead.

The Pandemic Has Provided An Experiment in Distance Education and an Opportunity to Rethink the Financial Model

University CFOs noted the opportunity to rethink the financial model due to the pandemic. However, many noted that some students were not impressed by the quality of online education, and investments in remote student services remain important for student success. As for the future of higher education after the pandemic, the institutions who have been forced to adapt will hopefully take this as a lesson for the future in a world where people crave more flexibility.

One leader of a college membership organization shared, “Some are saying we’re going to weather the storm, we’ll get out on the other side of this, and everything will be fine. Others are saying, no, things will never be the same. And so they are making a significant investment in technological infrastructure and pedagogical innovation...but I’m afraid that so many institutions across the country are engaging in short-term tactics as opposed to long-term strategic planning to address this challenge. This won’t be the last time that we’re facing this crisis.”

In the next few months we will follow up with some college and university administrators that we have interviewed to see if their financial situations have changed this spring semester. By examining the financial impacts of the shift to online education due to COVID-19, we hope to provide the necessary recommendations for state and federal policymakers to help colleges and universities overcome the likely long-term impacts resulting from the pandemic.

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