By Dr. Bjorn Mercer
Program Director, Communication, Philosophy, Religion, World Languages and the Arts, American Public University

This is the third of a five-part series examining the difficulties of reopening brick-and-mortar schools in the midst of the coronavirus pandemic.

In Parts I and II of this series, we looked at the CDC data related to COVID-19 and primary and secondary school children, teachers and staff, and the health risks related to these age groups. Now, we will look at higher education and the structural issues that are affecting the financial health of colleges and universities.

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Many institutions of higher education have been on shaky financial ground for a long time. Although the Ivies of the world get most of the press, their percentage of overall students is very small and their enormous endowments are unique. Over the past few decades, a variety of risk factors that might have been small or minor previously have grown into serious issues that can severely hurt various colleges and universities; these serious issues might cause some of them to close permanently.

Finances for Many Colleges and Universities Are Tenuous

Year-to-year finances for many colleges and universities are tenuous. Also, the business model that higher education uses, which depends on new student enrollments every year, cannot be disrupted even for a short time. Yearly enrollments have to stay consistent so institutions can predict budget needs and plan accordingly.

However, enrollments can vary greatly from year to year. Some small- to mid-size institutions have been experiencing a downward trend in enrollment for years with students deciding for a variety of reasons not to attend their local or regional college.

In addition to revenue from enrollments, most institutions depend on endowments and donations to remain open, which requires a great deal of time and money spent on fundraising. For the elite, large, and well-known schools, their endowments are in the billions or hundreds of millions of dollars, so they are fine.

For all other colleges, the median endowment was around $65 million in 2018. This means that half the colleges had endowments of less than $65 million, making them susceptible to the fluctuations of enrollments and unable to consistently fund portions of their budgets.

Administrative growth over the past few decades has put a great deal of stress on the annual budgets of colleges and universities. Because of their desire to provide additional student support, they have created more non-academic departments, activities and facilities. Although these types of support help students succeed and cost a lot of money, they do not directly affect student learning the way that the faculty does.

According to the Harvard Crimson, Harvard University has 954 student and academic affairs staff compared to the average of 235 at peer institutions. Brigham Young University’s staff numbers 40. By doing a quick calculation, if the average student and academic affairs staff has an annual base income of $55,000 plus an additional 30 percent for benefits, the staff at Harvard would cost around $67 million a year, $17 million at peer institutions, and $3.5 million at BYU. Although Harvard and BYU might be the extremes for comparable institutions, this type of additional staffing costs colleges millions each year.

Colleges and Universities Constantly Try to Remain Competitive

Next, many colleges and universities are constantly trying to improve their facilities and buildings, infrastructure, and their “look” because they have to compete on the national and international levels. That requires a great deal of money to be spent on capital improvements. Money spent on capital improvements is money typically not spent on improving learning outcomes; these expenditure only add to the cost of running the institution, and that is somewhat debatable.

If you look at Arizona State University, a large university in Tempe, the total cost to replace all 376 buildings is estimated at around $8.1 billion. This extraordinarily large number is theoretical, but the cost of maintaining these buildings, including new ASU building projects, is a huge strain on this public university.

Large State Institutions Can Take on More Debt than Smaller Ones

In addition, in FY19 and FY20, ASU earmarked about $300 million for new building projects, with the majority of the funds coming from financed debt. Large state institutions can take on more debt than smaller ones, but these larger institutions have a large amount of debt.

At ASU, the debt is between $1.7 and $2.1 billion. And these institutions must pay off their debts on time to maintain their credit rating. With COVID-19 and the drop in enrollments disrupting the typical financial cycle of colleges and universities, we will see if any of them start struggling to pay their debts.

Overlapping Academic Programs and the Competition between Educational Institutions

Another risk factor that many institutions of higher education ignore are overlapping academic programs. Most institutions do not collaborate with each other, especially not when money is involved. Many states have institutions competing with each other for the same students.

For example, ASU, the University of Arizona and Northern Arizona University all have degree-granting schools of music. The three schools are state institutions that receive public funds to help cover their operations and should be beholden to educating the citizens of Arizona.

If these music schools decided to collaborate, they would have to change their structure so each institution would have a specialty. One could focus on performance by creating a conservatory, and another could focus on musicology, ethnomusicology, theory, and composition. The third school could focus on music teacher education.

This tactic would give each school a specific niche and allow them to collaborate and compete for students more efficiently. Such a division of academic programs could produce state institutions that are unique, rather than them all being masters of none.

Higher Education Politics and the Growing Divide

Another issue that affects higher education in particular is the current growing partisan divide between those who denigrate higher education as a bastion of left-wing ideology and those who support higher education for its own sake. In many ways both arguments have merit; people should question the value of a college degree because a degree does not automatically equate to a job or a stable career. At the same time, there are many ideas about diversity and inclusion that have merit and should be investigated impartially.

Higher education should be a place where diversity of thought exists. The typical argument that colleges are populated by left-leaning academics is of course simplistic. Many college professors do not care about politics and leave it out of their teaching. But for others, politics is seen in everything, even COVID-19.

Enter COVID-19 into the Education Picture

With so many risk factors slowly destabilizing higher education over the past two decades and with some colleges closing down or merging, COVID-19 could not have come at a worse time. In the next article in the series, we will look at CDC data for COVID-19, college-age students, and the faculty and staff who teach them.

About the Author

Dr. Bjorn Mercer is a Program Director at American Public University. He holds a bachelor’s degree in music from Missouri State University, a master’s and doctorate in music from the University of Arizona, and an MBA from the University of Phoenix. He writes about culture, leadership, and why the humanities and liberal arts are critical to career success. Dr. Mercer also writes children’s music.