Prior articles on this website have already discussed how student debt borrowers and the general public are adapting to meet the challenges of COVID-19. Indeed, this website has noted how students may wish to forgo enrolling at certain schools for the time being, since many campuses will be closed for the foreseeable future, and courses can be completed remotely at cheaper institutions. Many commentators have begun to discuss the financial challenges this situation may pose to universities, and it is possible that colleges may go bankrupt because of COVID-19.
Many colleges rely on endowments to provide them with a steady stream of income to support operations. Although the economy has suffered from the ongoing COVID-19 pandemic, financial markets have recovered, and much of the losses that were suffered at the beginning of the COVID-19 crises have been erased. As a result, it seems that the main factor to assess when considering if colleges may go bankrupt because of COVID-19 is student enrollment.
It should be noted that numerous schools have small endowments, so in a normal year, these institutions rely heavily on student enrollment to provide the funds needed to pay the bills. However, it seems as if student enrollment is being impacted because of the ongoing COVID-19 pandemic. New students may wish to forgo college temporarily so that they can begin their studies when campuses open again. In addition, some students may wish to interrupt their studies to pursue some kind of activity while colleges are disrupted so that they don’t “waste” their college years when they cannot be on campus.
However, the biggest enrollment trend which will determine if colleges may go bankrupt because of COVID-19 is whether more students may enroll at cheaper, online universities. Many students have been forced to fulfill academic credits through online courses due to campus closures. There are already numerous institutions that offer a predominately online learning experience for cheaper tuition and fees. If students can complete credits at these schools that may transfer to their regular institutions, many students may wish to fulfill credits at these schools.
In addition, colleges may go bankrupt because of COVID-19 because of long-term changes in preferences among students. Higher education costs have increased more than the cost of inflation for decades, and students may second-guess why they are paying so much money for the campus experience. Some may wonder whether the typical campus-based learning environment is worth the money in the 21st Century. Of course, I have previously conveyed how the campus experience is worth the money, but not all students may feel the same way.
People who are much more knowledgeable about higher education than me have already begun to wonder how universities will be impacted by changes due to COVID-19. It seems unlikely that top-flight colleges may go bankrupt because of COVID-19. The prestige of such schools will allow them to weather the storm, because the value of a degree from one of these institutions is worth the money. In addition, low-cost schools that cater to non-traditional students and online courses may see increases in enrollment because of COVID-19.
However, many universities in the middle may be substantially impacted by COVID-19, and middling colleges may go bankrupt because of COVID-19. These universities are the ones most likely to see declines in enrollment because of COVID-19, as students do not see the value of paying more money for a degree at such a school while social distancing remains in place. In addition, many universities in the middle of the rankings may not have endowments and the alumni base to make up for financial shortfalls.
After asking if colleges may go bankrupt because of COVID-19, some students may inquire whether they should be cautious going to a school that might not be financially sound during these difficult times. As someone who has worked at law firms that have disappeared or changed their names, I can attest from firsthand experience how difficult it is not to have name recognition because an institution has gone the way of the dodo. However, it is difficult to predict whether colleges may go bankrupt because of COVID-19, and although there are good reasons to attend cheaper online universities during this time, financial issues at a university is normally not one of them.
In addition, many students may be nervous that if a school has financial troubles while they are enrolled, they may be in the lurch when it comes to student debt. However, federal law actually protects many students should their colleges go bankrupt. Indeed, if you attended a school while they shuttered, you may be eligible for a closed-school discharge that can eliminate your federal student loans. In addition, schools normally designate other schools as the custodian of academic records, so even if your school goes bankrupt, you should still have access to transcripts and other academic records. Other than inconvenience, and the loss of name recognition of your academic credentials, even if colleges may go bankrupt because of COVID-19, this should not pose a major financial issue to many students.
In the end, it is reasonable to assume that colleges may go bankrupt because of COVID-19, due to changes in enrollment patterns and financial instability. However, it is difficult to predict if a college will close its doors, so it rarely makes sense to consider the financial position of a university when making enrollment decisions.