Managing Financial Challenges During Crisis – A Checklist for Higher Education

March 22, 2021 |
4 minute read
|

Many educational institutions are facing unpredictable financial challenges as a result of the COVID-19 pandemic. Costs associated with implementing technologies for virtual learning, decreased tuition and room and board revenue, keeping staff on payroll, all while working to set up public health infrastructure on campus for testing and contact tracing, have led some to draw on their endowments to cover these unforeseen costs and expenses.

Others seek alternate ways to address their immediate financial needs. Although not exhaustive, we’ve compiled a checklist of things to consider for institutions confronting short, intermediate, and longer-term financial issues.

1. Reduce services, cut programs or pause projects: In a survey conducted by Independent Sector, ‘The Impact of COVID-19 on Large and Mid-Sized Nonprofits,’¹ between February and May 2020, 71 percent of the 100 nonprofits surveyed reported a reduction in services and available operations. A vast majority of schools and other nonprofits followed suit and moved to all online or virtual learning for the latter half of the Spring 2020 semester and in some cases extended that through the Fall 2021 semester. Although some institutions may not have a choice in the short term, the reduction of services and potential pausing of projects, such as in-person classes, sports programs or enhancements/additions to buildings, has some students concerned that the quality of the education they are receiving is in jeopardy, and that they are not getting their money’s worth. The upside is that, as vaccines are rolled out, this is likely a temporary problem.

2. Make adjustments to staff and faculty through furloughs/layoffs and/or compensation and benefits: A Forbes article from April 2020 indicates furloughs at higher education institutions were already beginning, signifying financial troubles across the sector early in the pandemic. “Furloughs are generally seen as something of a way station when it comes to college budget cutting. A kind of fiscal purgatory where temporary travails are tried in an attempt to avoid the permanent pain of firing staff or faculty.”2 Whether schools will be able to hire back those who are laid off when campuses re-open remains to be seen.

3. Form Strategic Alliances, Mergers and Partnerships: A creative way for schools to remain operational and cut costs may be to consider forming strategic alliances or partnerships with other schools dealing with similar financial/programming issues. Sharing staff and other resources will cut costs, as will offering courses that are complimentary to each other instead of competing curriculum. Mergers are another consideration. Often looked upon as “failures”, an article in Forbes, published prior to the pandemic, highlights mergers as being not only beneficial but urges that they be viewed as more of “a strategic opportunity to create a more effective, lasting institution capable of better serving students and the community.”3 A recent report released by Inside HigherEd, “The Growing Role of Mergers in Higher Ed4, recognizes the struggles that institutions face when considering a merger , i.e. how can an institution stay true to its mission or maintain its identity? The report examines what worked and what didn’t for colleges and universities that recently explored merging and may be useful to those looking to do something similar. Partnerships with the private sector, although not new, may deserve to be looked at more intentionally.

4. Emergency fundraising for targeted areas (student support): Many colleges have set up emergency relief funds to support the school, students, families, and the communities connected to the institution. Donations to these emergency funds demonstrate that people are willing and able to give. In many cases, giving at universities and colleges in response to the COVID-19 pandemic reached record levels. Temple University’s Student Emergency Aid Fund and Temple Toast, the University’s annual day of giving, raised over $500,000 combined in April. The giving extended across to Temple University Health’s emergency fundraising efforts, which saw donations of more than $3mm. In total, for the 2020 fiscal year, Temple University received more than $107mm in donations.5 Giving to higher ed in response to the pandemic didn’t stop at the end of the 2020 fiscal year either. Emergency funds continued to see donations through the fall and into winter 2021. The University of Kansas (KU Endowment) has not only set up a COVID-19 Emergency Relief Fund but due to decreasing levels of financial support from the state the school plans to hold its annual ‘One Day. One KU.’ fundraiser on February 18, 2021, in hopes of surpassing last year’s $1.8 million fund raise. Those who make donations have the option to designate the school or department to where their money is received and which fund within that unit will benefit.6 This highlights that it is not only the students and the operational side of institutions that are suffering as a result of the pandemic, but that it has extended to all facets of the campus community, yet people are ready and have been making donations to support these efforts across the spectrum.

5. Sell assets: Although not common, an institution may choose to liquidate assets to build up its cash balance and to pay for immediate operational expenses. Board approval may be required if assets were gifts or bought with money from a restricted gift so for some institutions it may not be a quick solution, but something worth considering in the intermediate term. Liquidating assets under pressure can also have negative implications as forced selling often results in lower prices for the seller. This option should probably be one to consider only if other options are unavailable.

6. Increase cash on your balance sheet: Having extra cash on hand typically signifies that an institution is in good financial standing, at least for the short term. A strong cash balance could give lenders incentive to approve a line of credit or long-term debt financing. Cash on hand is also more readily available if a need arises suddenly whereas other assets may not be as liquid depending on how they are invested.

7. Look into PPP loans, main street lending facility: The CARES Act originally designated $14 billion to the Office of Postsecondary Education as the Higher Education Emergency Relief Fund, or HEERF. State and local municipalities have each adopted their own assistance programs using these funds for higher education institutions struggling through the COVID crisis. Institutions interested in applying for a loan or assistance should visit The Small Business Administration website, to find lenders and other information in their area. In December 2020, Congress approved an additional $21.2 billion of support and the Biden administration signed their own relief package into order on January 21, 2021, which asks Congress for another $35 billion (for HEERF).

These considerations are intended to be a springboard for discussions with your board and senior staff. Each institution is unique and should take into account its own financial needs while addressing the myriad issues at hand. We hope one or a combination of some of the aforementioned ideas might be useful as you continue to navigate these extraordinary circumstances.

 

  1. Independent Sector, “The Impact of Covid-19 on Large and Mid-sized Nonprofits”, June 2020
  2. Forbes, "College Furloughs Have Begun", April 2020 
  3. Forbes, "Make Mergers Of Colleges Strategic And Mainstream, Not Desperate And A Last Resort", February 2020 
  4. Inside HigherEd, "The Growing Role of Mergers in Higher Ed", June 2018
  5. Temple University, "FISCAL YEAR 2020 FUNDRAISING YEAR IN REVIEW", January 2021
  6. The University Daily Kansan, "KU Endowment prepares for 'One Day. One KU.' fundraiser, amid COVID-19 and budget cuts", February 2021  

      

Allison Kaspriske

Author

Allison Kaspriske

Director

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Disclaimer

Certain information contained herein has been obtained from or is based on third-party sources and, although believed to be reliable, has not been independently verified. Such information is as of the date indicated, if indicated, may not be complete, is subject to change and has not necessarily been updated. No representation or warranty, express or implied, is or will be given by The Common Fund for Nonprofit Organizations, any of its affiliates or any of its or their affiliates, trustees, directors, officers, employees or advisers (collectively referred to herein as “Commonfund”) or any other person as to the accuracy or completeness of the information in any third-party materials. Accordingly, Commonfund shall not be liable for any direct, indirect or consequential loss or damage suffered by any person as a result of relying on any statement in, or omission from, such third-party materials, and any such liability is expressly disclaimed.

All rights to the trademarks, copyrights, logos and other intellectual property listed herein belong to their respective owners and the use of such logos hereof does not imply an affiliation with, or endorsement by, the owners of such trademarks, copyrights, logos and other intellectual property.

To the extent views presented forecast market activity, they may be based on many factors in addition to those explicitly stated herein. Forecasts of experts inevitably differ. Views attributed to third-parties are presented to demonstrate the existence of points of view, not as a basis for recommendations or as investment advice. Market and investment views of third-parties presented herein do not necessarily reflect the views of Commonfund, any manager retained by Commonfund to manage any investments for Commonfund (each, a “Manager”) or any fund managed by any Commonfund entity (each, a “Fund”). Accordingly, the views presented herein may not be relied upon as an indication of trading intent on behalf of Commonfund, any Manager or any Fund.

Statements concerning Commonfund’s views of possible future outcomes in any investment asset class or market, or of possible future economic developments, are not intended, and should not be construed, as forecasts or predictions of the future investment performance of any Fund. Such statements are also not intended as recommendations by any Commonfund entity or any Commonfund employee to the recipient of the presentation. It is Commonfund’s policy that investment recommendations to its clients must be based on the investment objectives and risk tolerances of each individual client. All market outlook and similar statements are based upon information reasonably available as of the date of this presentation (unless an earlier date is stated with regard to particular information), and reasonably believed to be accurate by Commonfund. Commonfund disclaims any responsibility to provide the recipient of this presentation with updated or corrected information or statements. Past performance is not indicative of future results. For more information please refer to Important Disclosures.