This year, many college campuses were eerily quiet. The usual back-to-school fanfare and excitement weren’t there because there was, well, a lot missing from the picture. Tailgates. Big parties. In some cases, students. Not surprising given that a number of campuses decided to begin the Fall 2020 semester “remote-only” because of the pandemic.
And while colleges are trying to make due, the truth is that campuses are struggling financially because of pandemic-related switch ups and restrictions.
The higher education industry is a $600 billion plus whale. It relies on students’ tuition and fees for anywhere from 60% to 80% of revenue, according to a Bloomberg report on a study by the National Association of College and University Business Officers.
And it’s not just schools’ tuition that’s taking a hit. Other services are hurting, too. “Students pay for housing, for dining, for parking, and in many circumstances, for other activities on campus,” says Diana Hoadley of Goldman Sachs’ Investment Banking Division.
The financial pain goes beyond campus. Small businesses in college towns across the country depend on the presence — and the spending — of students and faculty.
A group of bar-restaurants in a college town with a notable athletics program reported to Bloomberg that 20% of its revenue came from football weekends alone, and that 60% of remaining revenue occurred throughout the school year. That’s a whopping 80% of funds that typically come from “business as usual.”
More broadly, Goldman Sachs Research estimates that school closures subtracted roughly 2.2% from the annualized US real GDP growth in the second quarter of 2020.
So, why not just reopen? Aside from the obvious health concerns, reopening now would actually come at a substantial cost. For the 5,000-plus universities across the country, the estimated total cost of reopening would be $70 billion, or a 10% uptick on each college’s regular overhead expenses, according to a New York Times report on a survey by the American Council on Education.
Some schools that did reopen had to pay up for additional safety measures like cleaning supplies and personal protection equipment. And according to the Wall Street Journal, those expenses have totaled millions of dollars for some campuses.
Online classes have sparked their own cost conundrum. In an effort to stay open and make money, many universities offered online classes. But that also comes at a cost, including money spent on software, licensing, and training.
And a Brookings Institution study concluded that a move to online instruction may not actually trim costs. That’s partly because some institutions reduce class size for online classes, which means there’s little difference in instructional costs.
And many students and families think that an online education shouldn’t carry the same cost as an on-campus one. And some students are sitting out the year altogether.
Fall enrollment among undergraduate students is 4 percent lower than last year, and community colleges are especially hard hit with first-time enrollment down 22.7 percent, according to an analysis by the National Student Clearinghouse Research Center.
The short-term solution for many universities? Debt. Just like we may turn to personal loans for short-term cash reserves or other financial goals, colleges are taking on more debt to manage the circumstances.
Goldman Sachs’ Hoadley says that there’s been “a tremendous amount of debt issued in the market” recently, approximately $49 billion. And she explains that doing so helps universities get some much-needed flexibility in their operations budgets.
How colleges navigate this crisis could serve as a template (or warning) for cities and states as they navigate reopening larger public spaces.
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.