College as We Know It Coming to an End? Don’t Bet on It

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(Bloomberg Businessweek) -- Purdue is a school that, in the words of its president, Mitch Daniels Jr., “promotes density of our population.” The current enrollment of the university in West Lafayette, Ind., is more than 44,000, up 25% since he took over in 2013. Purdue keeps tuition under $10,000 for in-state students, and room and board costs are lower than those of any other school in the Big Ten. Its football stadium holds 60,000 people. Its theater is larger than Radio City Music Hall.

Like every other American university, Purdue sent its students home as the coronavirus swept through the country in March, switching to online classes to finish the semester. Its commencement also took place virtually. But when the university restarts for the 2020-21 school year, professors and students—including the second-largest freshman class in its history—will be returning to campus, just as they always have.

Purdue “intends to accept students on campus in typical numbers this fall, sober about certain problems that the Covid-19 virus represents, but determined not to surrender helplessly to those difficulties but to tackle and manage them aggressively and creatively,” Daniels wrote in a letter to the university community on April 21. He concluded: “Purdue will employ every measure we can adopt or devise to manage this challenge with maximum safety … while proceeding with the noble and essential mission for which our institution stands.”

Noble, yes. Essential, yes. And an absolute financial necessity.

Do you remember MOOCs? The initials stand for massive open online courses, and there was a moment, about a decade ago, when they were all the rage in higher-education circles. Some predicted that online courses would become a dominant mode of learning, allowing universities to expand enrollment significantly while lowering their own costs. Although MOOCs are still around—mainly serving nonstudents paying for online lectures from high-profile professors—their impact on higher ed has been marginal. The reason is that students didn’t like online classes. Neither did their parents. And neither did their professors.

College as We Know It Coming to an End? Don’t Bet on It

Students wanted to be on a campus, interacting with other students, going to basketball and football games, and generally absorbing the “college experience.” Parents had zero interest in paying upwards of $70,000 a year to have their children take classes on a computer screen. And professors objected as well, in part because they’re territorial and in part because interacting with students during a class was infinitely more difficult when the class was virtual. Indeed, the only students who regularly relied on online learning were athletes, for whom virtual classes were often unavoidable given their practice schedules. (When he was the star quarterback at Texas A&M, Johnny Manziel was said to have never stepped on campus other than to play football.)

The pandemic, of course, has raised the prospect that universities will have to change dramatically, just like so many other businesses. And the most common forecast is that the future of the university is online, especially since schools all over the country have been doing it since mid-March. One prominent advocate is Scott Galloway, a marketing professor at New York University’s Stern School of Business and well-known tech prognosticator. When he talks about what universities will look like after the crisis has passed, he sounds a lot like a MOOC booster of yore. He told New York magazine recently that he envisions the 50 biggest university “brands”—Harvard, Stanford, and the like—partnering with the biggest tech brands, such as Facebook Inc. and Apple Inc. Together, he said, they’ll create a hybrid model with some students still attending the brick-and-mortar school but many more—maybe 10,000 or 20,000 more—attending online.

When asked why students would willingly accept an online-only education, Galloway replied that “50% of this investment is in one thing: certification.” He added that “your degree largely signals your lifetime earnings.” In other words, going to Harvard gives students such enormous advantages that it’s worth accepting an inferior experience to be able to put the name on their résumé. Galloway also believes that dorm life and in-person classes will be reserved for the children of the 1 Percent, whose parents will presumably pay an even higher premium than they do now.

As for what happens to universities not among the top 50, Galloway prophesies doom. “It will be like department stores in 2018,” he told New York. “Everyone will recognize they’re going out of business, but it will take longer than people think. There will be a lot of zombie universities.”

There’s no question many Tier 2 and Tier 3 schools will suffer. According to Moody’s Investors Service, 30% of universities are running a deficit. The American Council on Education expects college revenue to decline in 2020 by $23 billion, or 4%, and reports that 67% of university presidents are worried about their school’s long-term viability. Rana Foroohar of the Financial Times described what may be coming as “the hollowing out of America’s university system.”

The university administrators I spoke to, though, tended to describe what’s coming in far less stark terms: severe belt-tightening, but nothing more radical than that. So far the only school that’s “hollowed out” is the University of Akron, which has cut 6 of its 11 academic colleges and three minor sports. But Akron was in terrible shape long before the pandemic; it lost $130 million (on $221 million in revenue) in the 2018-19 academic year and has $341 million in debt. (Kent State University and a few other money-losing schools are also talking about major cuts.)

As for the idea that the pandemic is going to cause a sharp shift toward online learning, the evidence suggests it’s not going to happen. It’s true that the California state system has announced it will use virtual classes to educate its students this fall. Almost half the students in the system live at home, and many hold down jobs to help pay for college. “This is not an intense residential experience,” says Kevin Carey, vice president for education policy at the New America foundation. “This is a different mode of education already.”

It’s also the exception, not the rule. Most schools aren’t announcing campus reopenings as bluntly as Daniels did at Purdue, but they’re clearly expecting it to happen. At the University of Florida, a blog post on a school website announced that the start of classes was being pushed back a week, to Aug. 31. And it listed a variety of measures the university was taking to manage its likely financial shortfall. The post ended by saying the school was refining its “science-driven” plan to “gradually return to more normal campus activity.”

Notre Dame plans to open its campus on Aug. 10, two weeks earlier than normal, and end the semester before Thanksgiving. Students and faculty will be required to wear masks and follow social distancing guidelines. Boston College has announced it will open its campus at the end of August.

Columbia University President Lee Bollinger wrote a recent email to the faculty describing his plan to first open research labs—Columbia gets about $1 billion from the federal government for scientific research—and then to open the university itself. “We all wish to return to in-person instruction and campus life, and our intent is to make that possible as soon as it is safe to do so,” he wrote. Columbia plans to include the summer as a regular semester to spread out the school year so fewer students will be on campus at any one time.

Most university presidents resort to their most inspiring language when they discuss their plans for the fall semester. “These strange and frightening times have most certainly deepened our collective appreciation of the University’s many vital roles in society,” Bollinger wrote to his faculty. But what is driving this push, far more than “the mission,” is the need for tuition income. Purdue had just under $2 billion in revenue in 2019, of which $1.3 billion was generated from tuition and student fees. Columbia is a $5 billion institution. But every source of income has been hit hard—and the only thing the schools can easily recoup is tuition.

University admissions officers are already seeing an influx of “ gap year” requests from students who are anticipating their school will impose online classes in the fall—and want to avoid having to take them. Schools know they need to open their campuses to prevent even more defections. Yet they also know they’ll have to offer some online classes for those students—and there will be some—who are afraid to come to campus because of the virus.

They know one other thing: A significant shift to online learning of the sort Galloway imagines will destroy their unparalleled ability to raise prices into the stratosphere. Indeed, it will bring about ruinous tuition deflation (ruinous for the school at least). It will mean the loss of room and board fees. It will mean the loss of status. None of this is tenable. And so even though bringing students back to campus in the fall entails some small risk of a Covid-19 outbreak, the universities know it’s a risk they have to take, as long as their state allows it. The federal government will likely back them up. “If I were president of a university today, I would be planning to go back to school,” Senator Lamar Alexander, chairman of the Senate Education Committee, told Fox News recently.

Will the pandemic change anything about university life? Sure, on the margins. For instance, it’s likely that practical majors will trump classic liberal arts majors. Students living through this economic time are going to be worried about their job prospects, so if a university has to choose between its undergraduate business program and its art history program, art history will probably lose out. Liberal arts schools that have long eschewed such practical majors will decide they need to dive in. Another rationale is that it’s easier to find donors for such programs.

A second possibility is that the recession which will likely come in the wake of the pandemic will cause parents to become far more cost-conscious about college than they are now—and universities will be forced to react to that change. Schools outside the top tier have long been able to take advantage of “the Harvard effect”—raising their prices so they were just a bit below those of the Ivy League. While it is true that many students receive scholarships to help defray the costs, many of them also wind up saddled with tens of thousands of dollars in student loans. It’s not hard to envision a scenario in which parents and students decide they can’t afford to take out loans and begin shopping for college on the basis of price. Suddenly in-state public universities—which have a much lower price for in-state students—will start to look more attractive.

Second-tier schools that need to compete for those students will have to adjust their prices downward. The economic pain likely to be meted out in the pandemic’s aftermath could well cause parents to search for education bargains—good schools with reasonable prices. A school might conclude that setting tuition at $25,000 instead of $50,000 could give it a competitive advantage.

For years critics have complained about the university business model—its bloated costs, the way it rewards research instead of teaching, its overemphasis on the football team, and so on. But here’s something to keep in mind. There was an influenza pandemic in 1957 and 1958. It did nothing to change the university business model. There was another one in 1968-69, which killed 100,000 Americans. That one didn’t change universities either. There may well come a time when the current business model will finally crumble. But it won’t be because of Covid-19.

©2020 Bloomberg L.P.

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