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Will Colleges Reopen in the Fall? The Economic Impact of Three Scenarios

Introduction

As state governments began to shut down schools this past March due to COVID-19, colleges and universities across the United States were forced to quickly transition and adopt remote education methods. With the Fall semester approaching, higher education institutions are evaluating and announcing a wide range of scenarios for educating students—from fully virtual options to bringing students back to college campuses under various restrictions to protect students, faculty, and staff. These decisions will impact the institutions themselves as well as the economies of college towns.

Even with virtual learning, COVID-19 has adversely affected the finances of colleges and universities. Although most higher education institutions were able to continue operations without completely shutting down, many still suffered severe financial shortfalls. Georgetown University was just one of many institutions which was forced to take austerity measures such as delaying capital expenditures, withholding salary increases, suspending retirement plan payments, and asking staff to take voluntary pay cuts. Other colleges laid-off or furloughed employees and cut athletic programs and scholarships.[1] Some colleges already facing severe financial constraints, like Urbana University in Ohio, permanently closed due to coronavirus-related revenue losses. While large public and private universities with sizeable endowments have survived thus far without taking many severe measures, even the most well-off institutions may struggle depending on how restricted campus access is for the upcoming Fall 2020 semester.

In addition to the impacts on the institutions themselves, colleges and universities are integral to local economies. Local food, hospitality, and entertainment businesses which rely on college students and visitors have already experienced revenue deficiencies from cancelations of large events such as commencement and graduation ceremonies. South Bend, Indiana, for example, missed out on $17 million in spending after the University of Notre Dame canceled their graduation ceremony.[2] One local restaurant owner in South Bend estimated that his four establishments have lost $3.5 million in revenue due to the coronavirus pandemic and related college closings. Depending on what re-opening policies local colleges and universities pursue for the upcoming 2020-21 school year, college-town establishments may experience a double hit of reduced local demand and no influx of students.

How might different scenarios affect your local university and surrounding regional economy? In this blog, we lay out three different re-opening plans currently being considered by major colleges and universities and what the impact of such plans on the university and local economy may look like.

 

Sources: Chronicle of Higher Education, Chmura

Scenario 1: Students Return to Campus

Most universities and colleges intend to welcome students back to campus this Fall semester with at least partially in-person classes. According to the Chronicle of Higher Education, which is currently tracking re-opening plans for about 1,200 colleges, 85% have announced plans for in-person or hybrid courses.[3]

For economic impact considerations, both in-person and hybrid teaching strategies involve students returning to the campus area. Most schools pursuing such strategies do not plan to reduce tuition and are still able to charge for room and board. This provides some continuity for school budgets and staff retention—tuition and fees account for about 20% of total revenue for public institutions, 31% for private nonprofit, and 94% for private-for profit institutions.[4]  Also, with students present on campus, restaurants, bars, and retail establishments which serve student populations will likely see at least some of their normal revenue return, though likely reduced due to social distancing measures. Nevertheless, everything will not return to normal as the Fall semester commences. Universities are limiting visitor access to campus and cancelling large events such as conferences and prospective student visitations. Additionally, it is still unclear if collegiate athletic events will be held this Fall.[5] If played at all, college football, which is a large revenue driver for many schools and surrounding businesses, will likely only  a small fraction of fans in the stands, assuming fans are allowed in the first place.

 

If you wish to obtain a custom, in-depth report on the economic impact of COVID-19 for a specific college and/or its surrounding region, please contact our consultants here to get a quote.


For many schools, especially regional universities and community colleges, visitor spending does not account for much of the school’s total economic impact. For example, spending by visitors to Radford University only accounts for about 1% of the school’s economic impact to its region. However, larger schools, especially those which have top-ranking athletic programs and/or host large events, typically experience larger economic impacts from visitor spending. For example, the region around the University of Notre Dame experiences a positive economic impact of around $181.8 million per season from home football games alone. This accounts for approximately 8% of the University’s annual economic impact (excluding value-added impact from working alumni).[6] With total visitor spending accounting for nearly $300 million in economic impact each year for the South Bend, IN area, COVID-19 restrictions will likely have a significant impact on local businesses. Ultimately, with universities taking austerity measures, and the likely loss of much visitor spending, negative economic impact could easily reach the hundreds of millions, especially for areas encompassing larger schools.

Scenario 2: Limited Number of Students on Campus, Online Classes

Several notable colleges and universities (including Harvard, Princeton, and all University of California state schools) have recently announced plans for mostly online education. Official strategies vary, but most schools adopting this approach will likely not allow more than 50% of students back on campus.[7]

In addition to the negative economic impacts due to social distancing detailed in Scenario 1, a smaller campus presence also means a reduced number of students paying for room and board and less revenue for local businesses from student spending. For colleges looking to cut expenses and serve a smaller student population, this probably entails layoffs for staff including janitors, food servers/cooks, and other facility employees. Additionally, colleges switching to remote learning are under pressure to reduce tuition as many students see online classes as less valuable. Princeton University, for example, has already said their tuition price will be reduced by 10% for the upcoming semester. Furthermore, some students may decide to take a gap year or semester, further slashing college tuition revenues.

Both surrounding businesses and the colleges themselves will be more severely impacted in this scenario than in the first. Colleges will likely need to lay off staff and potentially some faculty as revenues from both room and board and tuition drop. Several economic impact studies for colleges, including one performed by Chmura for George Washington University, place the economic impact of operations (from activities including employee compensation and research spending) at around 70% of the university’s total impact.[8] Some, if not all, spending sections included under “operations” will be prone to reductions in this scenario. With student presence on campus limited, student spending at local businesses (which on average accounts for approximately 12% of a university’s total annual economic impact) will also take a large hit.[9] Businesses around campuses which limit student access could see conditions similar to this past Spring when schools were forced to close due to COVID-19. Depending on how many students can return to the campus area, and how much universities cut operations spending, total negative economic impact widely varies.

Scenario 3: Colleges Close

As a worst-case scenario, some colleges, especially those which were already struggling financially before COVID-19, have been forced to permanently close due to lockdown-related revenue losses this past Spring. It is estimated that 20% of colleges currently face severe financial risks from COVID-19, with several small colleges including Holy Family College (WI), MacMurray College (IL), and Urbana University (OH) already shutting their doors.[10] Unfortunately, many of these small, financially-struggling institutions are based in small towns which depend on the college community to support area businesses and housing. College closings in such communities can be devastating for the local population.

Permanent college closings have strong ripple effects. Many highly paid professors would likely move away from the region to find work elsewhere. With no students or professors, local businesses suffer. Although these smaller schools mentioned above only enrolled about 500-800 total students, their total regional economic impact could easily be in the each year—a large blow to smaller communities.[11]

Conclusion

With the rapidly changing nature of COVID-19 and related policies, there is still much uncertainty surrounding higher education in general for this upcoming semester. This is a situation the likes of which colleges and universities have never seen, and these institutions must walk a fine line between continuing to offer a suitable education, maintaining revenue, and keeping students, faculty, and staff healthy. The decision on reopening policies will also have significant implications for local economies and businesses which rely on student populations.

 

[1] The College of the Redwoods in California, for example, was forced to suspend their football program (Source).

[2] Source: https://www.usatoday.com/story/news/education/2020/05/15/coronavirus-unemployment-2020-college-graduation-economy/5205202002/

[3] Hybrid courses involve a mix of in-person and online instruction.

[4] Source: https://nces.ed.gov/programs/coe/indicator_cud.asp.

[5] The Ivy League recently became the first NCAA conference to officially cancel Fall sports (source).

[6] Since this is calculated as an annual impact, the percentage impact over the Fall semester only would be much greater.

[7] For example, Harvard University plans to only have about 40% of the student body on campus this Fall (source).

[8] Working alumni value-added economic impact not considered in this calculation.

[9] Chmura analyzed five different economic impact reports (George Washington University, Radford University, University of Notre Dame, Vanderbilt University, University of Houston) from a variety of colleges, the average economic impact across all five school for student spending was 12% of the school’s total impact (excluding working alumni value-added impact).

[10] Sources: https://www.teenvogue.com/story/colleges-closing-permanently-coronavirus-pandemic and https://www.cleveland.com/news/2020/04/coronavirus-pandemic-closes-urbana-university-campus-permanently.html

[11] Estimated using the economic impact analytic in JobsEQ®

  

 

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