Coronavirus could be ‘make or break’ for universities’ finances

Pandemic may tip some institutions ‘over the edge’ financially, but others may be able to capitalise on increasing numbers of people ‘at home with a lot of extra time on their hands’

March 19, 2020
Source: Getty
Dial a trial: dancers in China ready for an online exam. If institutions don’t quickly shift online, ‘it will be really bad for their finances’

Universities that fail to successfully transition to online education in the wake of the novel coronavirus pandemic could be at risk of permanent closure, but other institutions could gain financially from the disruption, an expert has claimed.

Increasing numbers of institutions in the US, Europe and Australia have shut campuses and switched to online classes over the past week as the number of Covid-19 cases worldwide grew to more than 150,000 and countries began preparing for a pandemic that runs for several months. A secret Public Health England briefing for senior NHS officials stated that the epidemic in the UK would last until next spring, according to The Guardian.

Economists have also warned that the virus is likely to lead to a global recession, and some universities have already announced plans to limit spending and to cut staff.

But Caroline Hoxby, Scott and Donya Bommer professor in economics at Stanford University, said the outbreak would not necessarily have a negative impact on universities’ finances.

“As a rule, enrolment in higher education goes up during recessions…because opportunity costs go down,” she said. “My sense is that if an institution is reasonably savvy about getting some of its classes online and making them available to people, it might actually be good for the university’s finances.”

She added that it was “not terribly expensive to put a class online these days”, and observed that there would be more people “at home with a lot of extra time on their hands” who might take the opportunity to enrol in a course that they have long been interested in or might use it to improve their skills in an area that will make them more desirable to employers at the end of the recession or the coronavirus outbreak.

However, Professor Hoxby said, if institutions do not “make themselves more readily available to those people who will want to enrol…it will be really bad for their finances and might tip them over the edge”.

“It really depends on the capability of the administration – can they get a good share of their instructors to move to an online platform. The other thing that matters is who are the people who would want to go to this institution normally…An institution that is going to be in the most difficulty is an institution that either really depends on a group of students who [only] want to go in person or who are really not comfortable with technology,” she said.

Meanwhile, large, residential universities, such as Oxbridge in the UK and the Ivy league and prestigious liberal arts colleges in the US, will “probably have to lay quite a few people off or at least reduce their hours of work”, with campus maintenance and temporary teaching staff likely to be most affected, she said.

A university administrator who is familiar with the financial model of the Russell Group, and wished to remain anonymous, said research-focused institutions in the UK, which are usually considered to be the most secure, were now “very vulnerable” because of their “fragile” business model of cross-subsidising research costs with overseas student income.

“Whether it’s enough to tip them over the edge − probably not in October 2020. But if [the impact] comes in waves and it’s two years before the global population has developed its immunity, then cumulatively it’s not good news,” the administrator said.

“It’s difficult to imagine that there aren’t going to be reduced [student] numbers come September…That’s a long-term impact because if they don’t come in year one, they are not going to be there in years two and three.”

The administrator added that Brexit was more likely to hit less prestigious institutions, but the two events combined meant that a large share of the UK university sector could be at risk financially.

However, Salvatore Babones, associate professor in sociology and social policy at the University of Sydney and adjunct fellow at Australia's Centre for Independent Studies, who last year published a report on the risks that the Chinese student boom poses to Australian universities, said he did not think institutions in the country were “at any risk of collapse or serious financial damage” because of the virus.

“The universities that are most exposed to international students are the universities in the strongest financial positions…They’ll lose a lot of money, but they are well placed to lose it,” he said.

Professor Babones added that there was “no real financial impact” in the short term for institutions transitioning to online education, and in the long term “it will certainly save them money”.

“There’s a high cost to doing it in a quality way, but [institutions] are not going to do it in a quality way,” he said.


Print headline: Coronavirus: a ‘make or break’ moment for universities

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Reader's comments (1)

She added that it was “not terribly expensive to put a class online these days” Ha ha ha ha ha... Oh really? Any university that tries to do this on the cheap will soon realise they just wasted the little money they spent. You have to pick two of three: it can be good, it can be cheap, or it can be quick. It can’t be all three.