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Week 2: Financial Impacts of COVID-19 on Colleges/Universities

Mar 21, 2021

Hello Everybody,

Hope everyone is staying safe and healthy! For the next few weeks, I’m going to be primarily focusing on the financial aspects of my project. This week, I further investigated the financial effects of COVID-19 on institutions of higher education. I’m going to start off this post by restating a surprising statistic from last week’s post. Projected revenue losses for this fiscal year have been steep for public and private colleges alike: $25 million at George Washington University, $66 million at the University of Arizona, $90 million at Northwestern University, and $100 million at Penn State University, to name a few (Kelly, Andrew P. and Rooney Columbus, 1 July, 2020). This is just an economic projection, but is still surprising nevertheless. 

To be entirely transparent, Big state schools and those in the Ivy League will come out the other side to be sure. But small liberal arts colleges will not be nearly as fortunate. Unfortunately, many smaller universities/colleges do not have large endowments or state funding to fall back on. There is less ability for smaller institutions of higher education to provide scholarships and financial aid in normal years, let alone a COVID year. This has led to many students not being able/wanting to attend a smaller school where the cost of attendance is typically on the higher side. Every dollar that smaller universities/colleges are able to get from their students goes a very long way. Because of this, hard decisions such as the cutting athletic programs and size of faculty have had to be made. Richard Vedder from Forbes Magazine claims that COVID-19 will result in the “killing” of 500-1000 colleges/universities within the U.S. Vedder also points out, “Schools on average earn roughly 10% of their income from auxiliary operations, including food and lodging. When kids were sent home a few weeks ago, the schools still owed them the right to use rooms (which they had been forced to leave) and be provided food for the remainder of the term. Refunds are in order that are in many cases probably approach 2% of annual school revenues.”

Without the help of “big brother” (aka the government), most universities (more specifically small private ones) would be financially ruined for many years to come. To combat severe financial losses, the federal government has made multiple attempts to help bail out universities. For instance, the Coronavirus Aid, Relief, and Economic Security (CARES) Act set aside $14 billion for higher education institutions. Additionally,  The package included $6.2 billion for direct institutional support, $6.2 billion for emergency aid to students, and $1 billion for minority-serving institutions. The long-term effectiveness of the CARES Act is yet to be seen, but I expect this to be crucial in covering the operating costs for many American universities/colleges for the next year or two. Moreover, recent administrative and congressional actions, including the enactment of CARES Act provides additional student loan relief measures: Interest rates on federally held student loans are being set to 0% from March 13, 2020, through September 30, 2020.  Federally held student loans are being placed in a special administrative forbearance for March 13, 2020, through September 30, 2020. During this time, borrowers will not be required to make payments due on their loans. 

Fortunately, my internship site has multiple connections to government clientele. During this week, I was able to work with my on-site advisor to get on a short phone call with some knowledge about the CARES Act. From what I learned, the main purpose behind the act is to 1. Ensure that colleges have the necessary funds to keep running and 2. Make attending college an affordable expense for many students and families alike. In a lot of ways, the CARES Act is an investment made by the federal government. The expectation is that the intuitions of higher education will help provide an intelligent, high-skilled, and employable workforce for many generations to come.

I appreciate everyone for stopping by this week. Stay tuned for next week, I will be going further in-depth on the financial impacts of COVID-19 on prospective college students.

Much Appreciation,

Karan Mehta

 

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