How higher ed institutions are responding to the financial pressures of COVID-19: results of EAB’s survey of finance officers

Expert Insight

How higher ed institutions are responding to the financial pressures of COVID-19: results of EAB’s survey of finance officers

The COVID-19 crisis is still unfolding, but higher education leaders are already projecting significant financial losses and preparing for a range of challenging budget scenarios. EAB recently surveyed over 100 business and finance leaders from higher education institutions across the United States, Canada, the United Kingdom, and Ireland to learn how they’re responding to new financial pressures.

Emergency expenses already straining operating budgets

About 65% of survey respondents have estimated their emergency COVID costs incurred to-date. The range of costs estimates was wide, given the diverse size of responding institutions. On average, costs represented 3.7% of an institution’s annual operating expenditures. The median cost estimate was $7M. To put that in perspective, the average private institution would need to enroll more than 486 new students to make that up, while the average public would have to enroll more than 673 new students.1

Nearly every surveyed leader indicated that room and board refunds comprise their largest emergency cost. To be sure, institutions will recoup some utilities and janitorial savings from campus facilities closures, but not nearly enough to make up for these sizable COVID-19 losses.

Other noted emergency costs include hazard pay for critical on-campus employees. Around 25% of respondents were either offering such pay or considering it, most commonly at 1.5x an employee’s hourly rate.

Federal relief funds not expected to cover a significant portion of emergency costs—let alone future losses

1 in 4

Finance Officers expects CARES Act funding to cover no more than 15% of emergency costs.
Finance Officers expects CARES Act funding to cover no more than 15% of emergency costs.

We asked leaders of US institutions to project what percentage of their emergency COVID costs they expected CARES Act funds to cover. (The survey closed before the Department of Education had announced final distribution amounts, so leaders based their responses on the funds distribution formula that Congress published in the relief bill.) Unsurprisingly, responses varied—institutions with higher relative Pell grant enrollments logically expected funding to cover a higher percentage of expenses, since the CARES distribution formula favors those institutions. That said, most surveyed business leaders do not expect federal relief funds to provide substantial relief. Nearly 3 in 4 respondents estimated that CARES funding would cover fewer than 45% of emergency costs, and more than 1 in 4 expected it to cover fewer than 15% of emergency costs.

Cash is king: most institutions actively seeking to increase liquidity

We asked survey respondents what tactics they have pursued and are considering pursuing to increase liquidity in the face of significant emergency expenditures.

  • 41% of respondents have already made emergency appeals to state, provincial, and other government agencies—the most common tactic pursued to-date across both public and private institutions. We expect that number to increase in the weeks ahead, as US states receive their shares of the CARES Act’s Governor’s Emergency Education Relief Fund and potential relief packages are debated in Canada, the UK, and Ireland.
  • 1 in 3 survey respondents have also launched emergency donor campaigns,though it’s not yet clear how successful these campaigns have been in the current economic environment.
  • Around 20% of respondents have tapped into existing lines of credit or opened new ones to meet short-term obligations.
  • Credit access has helped institutions avoid making unanticipated or greater-than-expected endowment draws—only 4% of respondents have had to take such measures to-date. That said, more than 1 in 5 private baccalaureate institutions are considering making endowment draws in the weeks ahead. Notably, no public, private masters, or private doctoral institution expects to draw on its endowment, suggesting that they may be in a better position to continue to access credit, reserves, or donor funding than their private baccalaureate peers.
  • Intuitively, only large doctoral institutions plan to issue bonds or other money-market issuances in the short-term, as these financing options are largely only available to institutions with the highest credit ratings.

Leaders scrambling to update financial contingency plans and enact cost containment measures

More than 4 in 5 leaders indicated that they are updating their institution’s financial contingency plans or creating them for the first time. Most respondents (68%) are using revenue losses and/or incremental expenses vs. budget projections to trigger cost containment actions.

4 in 5

leaders are updating their institution's financial contingency plans or creating them for the first time
leaders are updating their institution’s financial contingency plans or creating them for the first time

To date, about half of respondents have only pursued “tier 1” (i.e., least aggressive) savings tactics—meaning most tactics to-date have only minorly impacted personnel. 85% of institutions have implemented travel freezes (a politically palatable tactic in the COVID-19 world), while another 68% have enacted hiring freezes. More than half of respondents had also limited discretionary spending (65%) and paused or delayed capital projects (57%).

Unsurprisingly, institutions expect to make more dramatic personnel cuts if the financial impact of the crisis worsens. Nearly half of institutions across segments expect to reduce sessional or adjunct instructor spend. More than 40% of respondents are considering furloughing administrative or professional staff, while 23% are considering layoffs. Notably, many of these institutions are concurrently considering executive salary cuts to minimize the impact of furloughs.

Uncertainty surrounds future planning decisions

While business leaders agree that the COVID-19 crisis will shrink their operating budgets, most are uncertain about the accuracy of their budget assumptions. A majority of survey respondents (67%) indicated that they were only “somewhat” confident in their current scenario models, while more than a quarter of respondents were “not much” or “not at all.” Overwhelmingly, leaders are finding it most difficult to project fall enrollments.

EAB is building a virtual scenario planning workshop for boards and cabinets to help inform planning assumptions amid uncertainty. We will update this page once it is available.

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