How higher ed can plan for looming budget shortfalls

Schools located in different geographical areas and those that need to comply with Title IV regulations each face their own unique challenges, but institutions can still allocate endowment funds to help balance their budgets, but communicating with donors is key

Higher education is expected to experience upwards of 10% in budget shortfalls and a 13.4% drop in endowments for the 2020-21 school year and needs to prepare for this reality sooner rather than later.

Budget planning for every college and university will differ, from Title IV schools to urban and rural institutions, but a good place to start is endowment management.

Navigating endowments

Endowment management officials can reallocate donations to help balance various school budgets but first need to identify which funds are restricted to avoid legal repercussions.

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“Just because an endowment is currently restricted doesn’t mean schools can’t reach out to their donor to explain the current budget situation and request that they change the restrictive nature of their donation to help support an area in need,” says Steve Agran, managing director at Carl Marks Advisors, an investment bank and advisory firm that operates in principal investing and advisory services.

“First make sure that easing a restriction on a certain donation would make a major impact before asking donors to make that change since it it is inconvenient to change the status of a donation, but, on the whole, most donors are happy to help and will be responsive to your current needs.”

Rural college vs. urban school challenges

Urban schools will most likely see a higher drop in enrollment than rural colleges and should therefore expect higher budget shortfalls, since COVID-19 tends to more easily spread in densely populated areas, but rural colleges still need to stay vigilant during budget planning.

“One of the mantras that I have is ‘Don’t get too comfortable just because you are seeing strong enrollment and commitment,” says Agran. “Where we are today and where we will be on the first day of school is still a long way away. A lot can change in two weeks, so every rural college needs to be cognizant of that.”

Title IV schools

Complying with Title IV regulations will be difficult during these times, but title IV schools can analyze multiple scenarios based on different assumptions and run the results through their budget planning process. Next, officials need to identify how these results will affect compliance and reach out to agencies and stakeholders for advice if compliance runs out in each scenario.

“Even if you are not out of compliance this year, you should still work on this now instead of waiting until the end of the fiscal year and finding yourself stuck with the department of education,” says Agran.

“Everybody needs to be realistic about this,” he adds. “Schools are having challenges now and they are expected to continue having challenges for a number of years. Schools that act proactively can find themselves in a really good situation, but if you are reacting and you do this at the final hour, it will become much more challenging.”

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