Colleges on Financial Edge

Magellan College CounselingIn normal times, we tell students and parents to try to step back from the emotional aspect of the college admission process, and realize that colleges are a business.

This advice is more important than ever now.

Colleges are, indeed, businesses, with budgets and bottom lines.  And right now, they are afraid.

They’ve seen their endowments, which sometimes support a hefty chunk of their annual operations, decline significantly.  They had to send their customers home mid-semester and in many cases, refund a chunk of cash – room and board – that they may not have had immediately available (= revenue loss).  They’re not 100% sure if they’ll be operating “as usual” in the fall – lots of people are rumbling about not wanting to pay full price for online classes, because that’s not the college experience they’re paying for for their kids (= revenue loss).  Their typical retention rate – the percentage of students who return for the next year – is almost certain to decline (= revenue loss)Fall sports programs – for some colleges sports are major money-makers – are in question (= revenue loss).  And there’s tremendous uncertainty as to whether high school students and their families will want to go away for college now, or stay closer to home.

Colleges are cutting costs quickly.  The UCs announced a hiring freeze.  Even Harvard, with its venerable $40 billion endowment, is cutting salaries and freezing new project spendingSome colleges are going to be fighting for their financial life.  And some will give up the fight.

Here are two more articles from Bloomberg – one says that colleges are going to be pushed to the breaking point, and one says that colleges are facing an uncertain financial future.

In case you missed it from all of those links, this is a much-discussed topic among higher education officials at this point.  Most admission offices are not at the upper echelon of college and university budget-setting and policy-making – but they are the pipeline for future revenue.  At the moment, college admission offices are spending most of their time thinking about the Class of 2020 – who will “yield,” as we say – who will accept the offer of admission, how full will their class be and how many additional offers of admission will they have to extend.  In a normal year, high school seniors have typically completed their decision-making process by May 1, when they put a deposit down and commit to a college.  For many reasons, this year is anything but typical, so colleges may not complete the Class of 2020 process until into the summer.

To the extent they ARE thinking ahead to how things will look for the Class of 2021 (and beyond), they’re focused more on the recruitment phase – whether they’ll have to deal with staff cuts, or reduced travel (fall is typically college travel season), or cancellation of large college fairs.  Some colleges have announced they will not require the Class of 2021 to submit SAT or ACT scores.  More about what that means in terms of the application review process is here.

As colleges deal with their financial disruption and uncertainty, your best bet, as a student or a parent, continues to be this:  look for colleges where you’ll not only benefit from what they have to offer both inside and outside the classroom, but also contribute to their campus culture.  That’s what we call a good-fit college.  As always, your list must be balanced, because a list full of “reach” schools usually ends up in more disappointment than celebration.  And I’d keep an eye on colleges’ financial stability at this point as well, measured through their endowment and bond rating, but also through reading college newspapers, which would indicate major financial issues manifesting on campus, such as department cuts or other impacts to the academic environment.

Realizing that colleges are a business, and behave as such, is relevant when times are stable, but it’s even more important to keep in mind now.


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