Moody’s Investor Services and Fitch have proclaimed that the financial outlook for American higher education looks bad. Moody’s has given the sector negative ratings for most recent years, predicting low albeit positive tuition revenue growth. The COVID-19 pandemic, however, is the undoing of colleges, as it reeks havoc on many other businesses, families, and institutions as well.
I am not an expert on university cash reserve positions, but I know that for many schools it is very modest. Unanticipated sharp declines in revenue will force many universities into substantial deficit spending this year, in some cases completely wiping out cash balances. For universities with an already mediocre revenue trajectory (e.g, enrollment declines over the past decade), this could perhaps force them into bankruptcy or possibly a merger with somewhat stronger neighboring institutions. COVID-19 will accelerate much needed creative destruction of some American universities, reducing collegiate over-investment.
Why? Here are six reasons. First, enrollments have fallen for almost a decade already, and no one was predicting a month ago that they would rise next fall. Will they fall moderately or drastically? Huge numbers of students were sent home suddenly from college recently. Will they all come back? Unlikely.