For Colleges, Vaccines Come Too Late to Save Spring Semester
A vaccine, which is on the cusp of approval, could end the financial pain, though colleges will have to wait for their share.
(Bloomberg) -- Colleges can’t count on a coronavirus vaccine to save the spring semester.
Because young, healthy students are at the back of the line for shots, dorms that are already lightly populated are unlikely to fill up soon. That threatens revenue and creates risk for investors who financed a decades-long building boom.
A vaccine, which is on the cusp of approval, could end the financial pain, though colleges will have to wait for their share. “We have seen overwhelming interest from all sectors, and higher education is no exception,” said Laurie Forlano, Virginia’s deputy commissioner for population health.
The education economy in the U.S. is a high-stakes competition for universities and students alike. Many young people take towering loans to finance college and graduate school, creating a transactional relationship with schools, which woo them with expensive amenities. That’s created a vast market for investors: more than $280 billion in college and university debt in the municipal and corporate markets.
Even as some schools aim to bring back more people in the spring, including Harvard and Princeton, the pandemic has choked off the pipeline of students and their payments for tuition, room and board that support operations and the debt.
Enrollment of freshmen, who often are required to live in dorms, is down 13% through Oct. 22, according to a survey by the National Student Clearinghouse Research Center. All undergrad enrollment is down about 4.4% compared with last year.
“It ended up being way too expensive for the experience I was getting,” said Aleah Gooden, 19, who finished her first semester at the University of Arizona but won’t be going back for the spring term. She’ll take classes at her home near Denver after finding that dorm rules meant to protect students were isolating.
Thousands of similar decisions are hurting the bottom line, along with less money from parking decals, athletics and bookstores. For the first time in at least 20 years, colleges are confronting back-to-back fiscal years of declining revenue, said Emily Wadhwani, a director of U.S. public finance at Fitch Ratings Ltd.
“We haven’t even seen the full brunt,” Wadhwani said. Fall was grim, “and it’s a similar level of pressure in the spring.”
Moody’s Investors Service said operating revenue will decline 5% to 10% over the next year, and schools are issuing debt or refinancing to bolster liquidity. Auxiliary services, including dorm and dining fees, remain the hardest-hit stream. They can account for 30% of revenue.
Following enrollment declines of 12.5% in the fall semester, S&P Global Ratings Wednesday cut its rating for the New School, a private university in Manhattan, to the third-lowest investment grade, saying the pandemic could exacerbate enrollment challenges.
Even the wealthiest schools aren’t immune.
Harvard, the richest university thanks to its $42 billion endowment, is projecting a second year of operating losses, a first since the 1930s. Columbia University, with a $11.3 billion endowment, is projecting Covid-related net financial losses of $300 million in fiscal 2020 and 2021, the interim provost announced last week.
Smith College in Massachusetts has taken in less revenue because of reduced enrollment and lower room and board income, said Stacey Schmeidel, a spokeswoman. Revenue could be down as much as 15% year over year.
Smith is welcoming back 80% of its students for the spring term. That could generate about $9 million in room and board, but “all of that revenue will go into providing a safe and supported campus experience,” Schmeidel said. Opening campus wasn’t a financial decision, she said, and if school projections hold it won’t see a net gain by having students return.
Reserves Drained
In September 2019, the University of Arizona’s dorms housed 7,500 students, mostly freshmen. A year later, fewer than 4,250 came. The university expects to be down to about 4,100 in the spring.
“Even going back into April, I didn’t think it would be as grim as it was in August,” said Alex Blandeburgo, executive director of housing and residential life. His department’s $10 million reserve is basically gone, and the school has deferred debt payments, paying more over the next decade.
If, as expected, a virus vaccine becomes more available over the next several months, students’ need will be weighed against those of other populations, such as health workers, the elderly and essential employees. Few expect they will be high on the list.
“There is still a great deal of planning going into how those priority groups will be identified, and we do not know enough about the distribution speed to be able to quite put our finger on where students will land at this point -- even at the national level,” said Theresa Cullen, health department director of Pima County, which includes the University of Arizona.
Even before the pandemic, Blandeburgo and his peers worried about the dwindling number of high-school graduates. Now they fret about whether students will want to live in dorms configured for roommates, and with a shared bathroom on each floor.
“We won’t be back to normalcy in the fall, in terms of enrollment and finances,” said Donald Heller, vice president of operations at the University of San Francisco. “First of all, institutions that lost revenue this year, they’re going to have to make up for it.”
Colleges and universities have sold about $40 billion worth of bonds in the municipal and corporate markets since the start of the year, the most on record according to data compiled by Bloomberg. Much of that boom was spurred by colleges refinancing higher-yielding debt at lower rates, a tactic that could help ease some of the fiscal stress.
The College of New Jersey in Ewing sold $182 million of bonds in June to refinance loans, pushing out payments to give short-term breathing room, Fitch’s Wadhwani said. She said the tactic, often called “scoop-and-toss,” has been replicated several times this year as schools try to cope. The school will cut about $88 million in debt-service costs from the deal, which spokesman Luke Sacks called a “strategic restructuring.”
Economic Impact
The economic fallout from Covid-19 began with refunds for dorm room and meals when colleges cleared students in March to avoid spreading the virus. The costs were high: for Harvard, it was $32 million.
Michigan State University returned $61 million in room and board charges for the fall semester for those living on the East Lansing campus when it pivoted to virtual classes in August.
And universal vaccination remains a faint promise.
“We’re still going to be looking at the same issue in the spring that we’ve dealt with all fall,” said Robert Doolittle, medical director for student health at North Carolina A&T State University in Greensboro. “The vaccine may rescue us, but it won’t be this coming semester.”
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