Balancing act: Evaluating the financial impact of declining enrollment and COVID-19

Higher education leaders must deal with the challenges of today while still planning for the future.
By: | January 1, 2021
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New data from the National Student Clearinghouse shows that undergraduate enrollment is down 4.4 percent this fall as compared to last year, with the most significant drop in enrollment attributable to incoming freshman and community college students. While U.S. enrollment has been experiencing a steady decline prior to the COVID-19 pandemic due to changing demographics in the country, the sudden drop among younger students may be a sign of what’s to come in post-COVID academia.

Derek Freitag, Synario

Derek Freitag, Synario

There are many factors contributing to the enrollment decline, but the closing of international borders is among the most important to consider in this complex issue. According to the latest Open Doors report the number of international students studying in the U.S. dropped by 16 percent for the 2020-21 academic year. And, a report by NAFSA: Association of International Educators calculated that the international enrollment decline cost the economy $1.8 billion last year.

While it’s expected that international student enrollment will rebound once the vaccine is widely deployed, travel bans due to COVID and policies that discourage international students have already wreaked havoc for institutions that have become reliant on it for needed revenue.

Many leaders in higher ed currently stand at a crossroads. Path one involves propping up temporary workarounds to increase funding until COVID is no longer a public health emergency. Path two has them enacting a fundamental shift away from campus-first education models that have been the largely recognized norm in higher education since its inception.

Whichever path higher education leaders choose, they must find ways to balance out the loss in revenue from fewer undergraduate students without raising tuition—while also evaluating the long-term financial realities brought about by COVID. However, at a time when they are reliant on alumni donations and stimulus dollars, which were never designed to be enough to power an institution, this balancing act seems impossible. Looking at the bottom line to align efforts appropriately brings another big choice: Do we make long-term investments or cuts in order to stay afloat?

Some leaders have chosen to invest in things like new marketing efforts and sports teams in order to attract new students and survive the pandemic. Others have made the hard decision to make cuts––things like smaller programs, physical footprints, and even faculty and staff reductions have saved institutions millions of much-needed dollars. Others still have pursued a combination of investments and cutbacks in hopes of staving off dire financial problems.

Central to this decision-making process is the ability to confidently answer questions about the future. What happens if enrollment continues to decline? What happens if we have to shut down temporarily? What happens if we cancel the football season and its associated fundraising efforts? What happens if we have to employ an online or hybrid model? What happens if we discount tuition to keep the students we have or attract more?

While there is no way to have complete certainty about what tomorrow will bring, scenario analysis may provide the next best thing—realistic predictive data. By identifying and quantifying the full field of future possibilities, higher ed leaders can gain valuable insight for making real-time, informed decisions. However, in trying to predict the future, there are often too many factors to consider. One way some leaders are creating a picture of the future while taking into account the numerous possibilities and the institution’s goals is to develop best, worst and expected case scenarios.

Worst-case scenario: While often unlikely, in this scenario everything that can go wrong, does. Students do not enroll or return, campuses are forced to close, athletics seasons are canceled, and state funding doesn’t come in. This scenario is every leader’s nightmare, but as they say: by failing to prepare, you are preparing to fail.

Expected-case scenario: This is often the most likely outcome, the situations most expected to occur often do. Institutions will continue in a hybrid model for the near future, student attrition will continue but slow, campuses will reopen for the 2021-22 academic year. In normal times this is often called the baseline scenario as it encompasses things running smoothly or as expected.

Best-case scenario: While also unlikely, this scenario covers the dream situation. Full dorm rooms and athletics stadiums, professors in classrooms and programs growing to keep pace with local economic needs. The factors going into this scenario can often help make decisions on how to improve upon the baseline.

Op-ed on managing declining enrollment and other COVID-related challenges: 'By identifying and quantifying the full field of future possibilities, #highered leaders can gain valuable insight for making real-time, informed decisions.' Click To Tweet

While these macro scenarios are common, the variables and assumptions that go into them are anything but. They will be specific to each institution and take into account things like tuition fees, existing debt, enrollment trends, learning modalities, physical footprint, athletics and endowments.

Confronting an event like the coronavirus requires university leaders to be exceptionally nimble in their response, both to minimize disruptions to students and to avoid major dents to operating revenue. Now more than ever, higher education business officers need to quickly understand the financial impacts of enrollment scenarios to help support strategic decisions for the future. Rigorous scenario analysis not only provides crucial insights into decision outcomes, it also enables institutions to be agile in their response to challenges and minimize major dents in revenue. And, while in the midst of this pandemic, it’s essential that decisions about the future are made based on comprehensive data, not gut-feeling or rudimentary budget forecasts.

Derek Freitag is a strategic account executive at Synario. Synario is a modeling platform that facilitates collaborative exploration of important questions, opportunities and risks.