Colleges Are Facing Huge Financial Setbacks From COVID-19, but They Were Already in Trouble

Anthony P. Carnevale
Georgetown CEW
Published in
5 min readMay 21, 2020


By Anthony P. Carnevale and Martin Van Der Werf

The COVID-19 pandemic has dealt a series of staggering blows to college enrollment and finances. First, the risk of contagion caused universities to force most students to move off campus in mid-March, and the resulting partial refunds of room and board fees cut into college fund balances. Some colleges are having trouble meeting their enrollment goals as students wait to see if in-person classes will resume. Not only are campuses shuttered indefinitely, but all sporting events and other revenue-producing campus activities, everything from weddings to summer camps, are canceled for the foreseeable future.

Colleges collectively have laid off or furloughed thousands of employees to head off further losses, but the damage is done. One typical large public university, the University of Arizona, said it expects to lose $250 million as a result of the coronavirus.

Now colleges are facing further losses. The American Council on Education, the umbrella group for all of higher education, has projected a 15 percent drop in fall enrollment. Some students’ families, reeling from job losses or salary cuts, are no longer feeling financially secure, so students may opt to attend college at public institutions closer to home, or decide to sit out the upcoming academic year altogether.

It is adding up to be a Black Swan event for higher education. At best, it will take years for colleges to recover financially.

This wouldn’t be good news for any industry, but it is even worse for higher education, which has had the sword of Damocles hanging over it for some years.

Two recent books spelled out that existential threat.

The first, Demographics and the Demand for Higher Education, pointed out that starting in 2026, the number of college-aged residents in the United States will plunge almost 15 percent over a period of just five years. According to the author, Nathan D. Grawe of Carleton College, the population of 18-to-24-year-olds will grow slightly or not change much in the southern tier of the country but plummet nearly everywhere else. In fact, only one major metropolitan area in the entire Midwest and East, Minneapolis-St. Paul, will have more 18-year-olds in 2029 than it has now.

Enrollment at selective colleges that serve disproportionately wealthy students should be fine, even if these trends continue. The rising college-attainment rates of the past 40 years will mean that there will be more children from families in which both parents have college degrees. A high percentage of children from these households will go to college. Their parents will expect it and will have the financial means to make it happen, and those parents are likely to favor the most selective college that will accept their child. But what will happen to open-access colleges, which will serve an even larger proportion of low-income students and students who are the first in their families to attend college?

The second book, The College Stress Test, applies four factors to detect the financial health of 2,800 two- and four-year colleges across the country — new student enrollment, net tuition collection, student retention, and level of external funding. The authors find that about 10 percent of colleges face “substantial market risk” of closing and that another 30 percent will struggle.

“The losers — those institutions already at substantial risk — owe their bad luck to a grab bag of unexpected consequences. For most Four-Year Public institutions, it is their states that have erected the most troubling barriers, almost exclusively in the form of dramatically declining state appropriations — and in a few cases, an elimination of appropriations due to legislative and political deadlocks,” according to the authors, Robert Zemsky, Susan Shaman, and Susan Campbell Baldridge. “But there are other causes as well, including the mismanagement of endowment funds, and adopting risky pricing strategies that yield both ever higher discount rates and little or no increase in enrolling students.”

States are already hinting that they won’t have the money to bail out enrollment-starved regional public colleges. Ohio, for example, slashed its higher education funding by $110 million for two months. Maryland projects that state revenue will decline by 50 percent over the next three months. The catastrophic economic effects of the COVID-19 pandemic will undoubtedly result in the closure of some colleges. Scores of professors, administrators, and staff members will lose their jobs. Communities in which the local college was one of the largest employers will take another blow. Dozens of political stories will play out, with local lawmakers trying to protect local colleges. But they can’t all be saved.

Even with these foreboding predictions, which all but cry out for a change in direction, struggling colleges are stuck in a state of stasis. Many have hesitated to adopt new strategies, such as tailoring their offerings to older and part-time students or cutting tuition significantly. Many private colleges have stayed in business by engaging in a high-price high-aid model. They keep their tuition prices high as a market signal of quality while offering discounts as high as 60 percent to selected applicants, so the net tuition they collect is actually quite low. A shaking out of the college market that eliminates numerous financially weak colleges may begin to exhaust this funding model.

The stage is set for a period of Darwinian destruction. Colleges, both private and public, may be left to be sorted out by the markets. Consumers most likely will demand value. They will consider which postsecondary programs are worth it and which are not, and what are the shortest paths to a credential with proven workplace value. New sources of data, such as the College Scorecard, that measure the average earnings and debt of people who are majoring in specific college programs, are empowering potential college students with shopping comparison tools they never had before.

The wild card is that we don’t know what policy leaders will do. Will they invest more money to bail out the current system? Will free college become even more widespread, perhaps even nationwide? That would reshape the ecosystem by overwhelmingly favoring public colleges over privates. If so, increased competition would likely drive down prices among the remaining private colleges, particularly for-profit institutions.

We mourn the loss of jobs and the decline of communities that will occur as colleges close. These tragedies will begin to play out over the next few months and into the next several years. Many people consider the current higher education system the best in the world, but it is not impervious to change. We hope that the higher education system that survives is more in tune with the needs of its students, more accountable, less expensive, and more focused on outcomes than the system we have now.

Dr. Carnevale is the director and research professor and Van Der Werf is the associate director of editorial and postsecondary policy at the Georgetown University Center on Education and the Workforce. CEW is an independent, nonprofit research and policy institute affiliated with the McCourt School of Public Policy that studies the link between education, career qualifications, and workforce demands.

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Anthony P. Carnevale
Georgetown CEW

Director of the Georgetown University Center on Education and the Workforce, a research & policy institute within Georgetown’s McCourt School of Public Policy.