“Over the past five weeks, the implications of the crisis have become clearer,” DeGioia wrote. “Even more challenging than responding to the impact for this fiscal year is trying to imagine the financial requirements for the coming academic year.”
The novel coronavirus has crippled colleges and universities of every size and stripe, forcing schools across the country to lay off workers, cut pay and, in some cases, close altogether. Congress provided $14 billion as part of a coronavirus relief package, and Democrats have proposed a bill to offer more help.
Some elite colleges have turned down aid, under pressure to tap their endowments instead. But the cuts made by Georgetown, whose endowment at last count was around $1.8 billion, illustrate the pandemic’s economic impact on even the wealthiest schools.
Johns Hopkins University, whose endowment tops $6 billion, disclosed in April that it would suspend contributions to employee retirement accounts, cut top leaders’ salaries and prepare for furloughs and layoffs. Harvard University’s top three leaders cut their salaries by 25 percent last month, and officials at the Massachusetts Institute of Technology said they were facing $50 million in unexpected costs.
The revenue streams that allow for schools like these to function — tuition dollars, research funding, philanthropy and those hefty endowments — have all been threatened by the financial crisis triggered by virus.
Georgetown was hit with $25 million in unexpected costs this spring, including room and board refunds, the cost of bringing students home from study-abroad trips, transitioning to a virtual environment, and accommodating other emergencies, DeGioia said. Now, leaders are anticipating an even larger budget shortfall as the school cancels summer programs, loses revenue at the campus bookstore and the school’s on-campus hotel, and watches summer housing and parking fees evaporate.
In response, 54 university leaders have taken voluntary salary reductions for the coming fiscal year, DeGioia said. Employees have been asked whether they are willing to take a salary cut or be furloughed for nine weeks, during which they would not be paid but the university would cover health-care premiums.
“Large schools with large endowments, they are not often in these tight budget circumstances, and they have a lot of spending when times are good,” said Ben Kennedy, founder and chief executive of Kennedy & Company, a higher education consulting firm.
Now, these schools need to pare back.
“Every year, they’re likely taking about five percent of the value of that endowment, and that’s going into different parts of funding their operations,” Kennedy said. “If you want to protect the long-term ability of the endowment, this is a bad time to take five percent.”
Georgetown spent 5.3 percent of its endowment in fiscal year 2017, according to the school’s most recent publicly available budget. That accounted for about $84 million in revenue, or 7 percent of that year’s total budget.
Whether the cuts eventually go deeper may depend on whether campus can reopen in the fall. Many college presidents are vowing to open, albeit with caveats. But this week brought news that California State University, the largest four-year college system in the country, will mostly continue online learning next semester. Georgetown’s DeGioia said he will outline the university’s plan for the fall in the coming days.
Kennedy, in a survey of 15,000 students at a dozen schools, found students are about 30 percent more likely to re-enroll if fall instruction is on campus.
“That’s about a 30 percent drop in revenue in the fall semester if they are only able to offer courses online,” Kennedy said. “For many schools, that represents an existential crisis.”