For tuition-dependent colleges, the news about reducing faculty, bypassing usual tenure and appeal rules, cancellation of sports seasons, reduced pay deals, empty residential beds and students wanting lower tuition for virtual learning, has you wondering: will we make it? You can look for your institution on this “perish/struggle/survive/thrive” list. Closing or merging is certainly a very last resort, but maybe there is a less nuclear option that might save your institution. If you act now.

In calmer times, a few brave Boards reluctantly tried to manage a planned closing (Sweet Briar in 2015) or a merger (Hampshire College in 2019).  In both cases, alumni temporarily came to the rescue and new leadership was installed. But there will certainly be colleges that do not survive COVID. Most tuition-dependent colleges are surely already running contingency plans and scenarios for what happens if fewer students come, safety costs escalate or more tuition has to be returned. 

For most institutions, tuition is the primary source of revenue. If tuition revenue for 2020-21 falls enough, your institution will not have enough cash to make payroll and pay bills. Your Board and finance people are looking carefully at this number. Can 20-21 revenue be supplemented with spendable cash reserves? (Most endowments are restricted, but even if you can spend the principle this year, then you have less for next year.) Maybe the government will provide more cash? Maybe we could borrow money from a bank (which would be based upon what the bank thinks future tuition revenue will be.)  Your Board hopefully now knows (and you should too) how low can you go?

Low revenue in the Class of 2024 is a four-year financial problem. If your 2020 Fall class is smaller or has a higher discount rate (they needed more financial aid and provide less net tuition revenue) there will be low revenue from this class for the next four years. More gap years could mean greater demand in Fall 2021, but will they also be more willing to pay? If the next four years return to average revenue, then it will still not be until 2024 that you will have four full classes enrolled at once. That will require even more spendable cash and the assumption that you can recruit more students in the next few years (even though we already know that the birth rate 18 years ago means fewer 18-year-olds are going to be graduating from high school). If you want to charge them more, are you really in the process today of creating greater value for next year? 

Hope is not a strategy. My fear is that many colleges will start the year only hoping that they have enough revenue. The plans to reopen are looking more desperate and less reasonable as every day goes by. If cases worsen in the next few weeks, costs rise or parents dig-in on not paying as much for virtual learning, the financial picture could look different quickly. Campuses are spending enormous amounts of money on tents, tests, and filtration systems and even diverting fundraising efforts to pay for this–estimated at $74B nationally. Perhaps there is no vaccine in January, or college-behavior changes (or does not change when it comes to Greek life)? Note too, that school closures were one of the best “non-pharmaceutical interventions” to blunt the Spanish flu in 1918-19. Do you really want to turn your college-town into a cruise ship? Some Boards and presidents are already worrying that the decision about moving online, is really the (pen)ultimate decision about closing entirely. 

As bad as planned closures are, running out of cash or an abrupt end of operations mid-year would be a disaster for students, faculty and staff. Even if there is enough cash for one year of payroll, I think a harder look now might be in order.

Maybe the way to save your institution is to close down now for one year. Colleges are not like barber shops: while no one is going to pay for their missing haircuts, students will eventually need four-years of college. Students who take a gap year and stay engaged will eventually do four years of college. You want them to do this with you.

This is an incredibly hard call to make, but if your hope for fall revenue is looking less likely, now is the time to ask if your problem might really only be with 2020-21. There are risks either way, but are you spending so much extra money this fall (testing, new tech, buying tents, etc.) for so little revenue (fewer students, lower tuition) that you are creating a four-year hole that is too deep?

Are there other meaningful things that you could do this year to keep students engaged? Offer a few really good online classes and virtual gap experiences—but at a reduced price. The goal is to keep students engaged, so they are ready to come back in a year (and worst case, two years.) During the last world war many colleges became accelerated military training facilities as students, staff and faculty were all drawn into war efforts with few or no civilian students, but they reopened after the war. Maybe there is a COVID training that your campus can provide? Maybe faculty and staff could get paid to be contract tracers for a year and help solve the COVID crisis rather than making it worse?

Here is the hardest part: you may need to furlough some faculty and staff for a semester, or even a year to lower your costs while you wait for the ability to resume F2F classes

Perhaps your institution can afford to give everyone (both faculty and staff) a partial pay sabbatical. Then perhaps this becomes a good time to have telecommuting teams work on reimaging the college—pedagogy and curriculum included!—post-COVID? That is harsh, but even if it is only medical benefits and minimal pay for nine months, would that be better than shutting down for good? Humans are terrible at decisions like this; if you need painful surgery, you want to know for sure in advance, that it will cure you. It is much easier to manage pain if you know that it is of limited duration and then will stop. We generally put off pain amidst uncertainty.

For the institutions that are increasingly switching back to virtual only (and better now than two-weeks into the semester) the assumption is that classes, engagement, learning and satisfaction will much significantly higher than it was from the mid-semester switch to emergency remote learning. The data we have so far, is that student satisfaction and engagement plummeted after the move to remote learning. Will you really be able to improve teaching that much and that quickly? Do you also have a plan to increase networking, the sense of community, the friction of difficult roommates, and random new friendships virtually?

Now may be the time to take your losses and plan for a better 2021-22. Given the number of students already planning a gap year (as many as 25%? and that will be higher if you move to online only) Fall 2021 might potentially bring an unusually large class for some schools. Maybe the better investment is recruitment, planning of new programs and saving cash for 2021-22? You might even need more beds and more services in 21-22? The worst-case scenario would be to have spent all of your reserve cash in Fall 2020, and then not have enough to operate in Fall 2021, despite a potentially larger tuition-paying class. (Even if you are tuition dependent, your campus probably still has other sources of revenue: tuition does not cover 100% of costs anywhere. Oversimplified: if you spend the principle in Fall 20, then there is no operating cash interest payment in Fall 2021 and you need even more tuition revenue in the following years.)

Boards are often said to be the instrument of intergenerational equity. Students often want the immediate gratification, but Boards are required to think long-term. Taking money from the endowment now may be justified if it preserves the future, but it also robs the future of opportunity. Few would argue that this is not the ultimate crisis: now is the time to spend, but spend on what? Is spending it all on a big bet for one facsimile year the wisest play or is taking a painful loss now to save for the future better? Are there some smaller things you could spend on now—like the virtual working groups I’ve proposed above—that might improve your odds of success in the future?  Does a furlough year offer a better chance of survival? Closing for a year, by itself, probably won’t help, but if that year could lead to better programs, relevance and value lower costs, more services for more students and a new shared mission, then maybe it is worth consideration. Every institution will have a different calculation but now might be the last chance you will get to ask these questions.