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Coronavirus UK: Universities face £2.5bn tuition fee loss next year

Capping student numbers will not avert financial catastrophe, report warns.

Capping the number of students who can attend each British university will not stave off the financial catastrophe that institutions face following the coronavirus outbreak, a report from the University and College Union (UCU) warns.

The report forecasts the sector could lose around £2.5bn next year in tuition fees alone, along with the loss of 30,000 university jobs, based on gloomy predictions of international and domestic students staying away if Covid-19 continues unchecked.

The government is negotiating with the university sector to limit the number of students each institution can admit in September, in the hope that it will help some avoid cutthroat competition and possible bankruptcy if their student intake slumps.

But the report, commissioned by UCU from London Economics, says a cap could be ineffective if more students are prepared to sit out next year. The consultancy’s forecasts show even the likes of Oxford and Cambridge seeing falling numbers of undergraduates entering from the UK and abroad.

“Our world-renowned universities are doing crucial work now as we hunt for a [Covid-19] vaccine and will be vital engines for our recovery both nationally and in towns and cities across the UK. It is vital that the government underwrites funding lost from the fall in student numbers. These are unprecedented times and without urgent guarantees, our universities will be greatly damaged at just the time they are needed most,” said Jo Grady, the UCU’s general secretary.

Rebecca Long-Bailey, the shadow education secretary, backed the call for greater government support. “UK universities must be valued as part of the frontline response to the coronavirus pandemic, supplying students to the NHS and conducting world-class research into the virus,” she said.

The report suggests that universities could lose £1.5bn in international student fees, more than £600m from UK-based students, and £350m from students from the EU, based on surveys of students’ intentions, including one conducted for Ucas, the admissions service.

Gavan Conlon, a partner at London Economics, said the pandemic will result in a “very substantial loss” in enrolments and income, requiring significant government support.

“The proposed student numbers cap will not be enough to avoid an overly competitive market for the remaining pool of applicants, with the impact of this actually being worse for some institutions than the effect of the pandemic itself,” Conlon said.

But Nick Hillman, the director of the Higher Education Policy Institute, said he thought the report’s forecasts for students numbers – particularly a 16% drop within the UK – were overly pessimistic.

“I do not want to underestimate the severe impact of Covid-19 on higher education. But, given the diversity of our higher education sector, we must ask if it is right for modelling to assume every single institution will face a recruitment crisis across the board,” Hillman said.

London Economics’ forecasts did not include the £790m lost in accommodation, catering and conference income identified by the Universities UK group of vice-chancellors in its recent submission to UK governments calling for at least £2bn in bailout funding.

“The union is absolutely right to warn of the knock-on impacts this would have for jobs, regional economics, local communities and students,” said Alistair Jarvis, the chief executive of UUK.

“Government must take urgent action to provide the support which can ensure universities are able to weather these very serious challenges, and to protect students, maintain research, and retain our capacity to drive the recovery of the economy and communities.”

▻https://www.theguardian.com/education/2020/apr/23/coronavirus-uk-universities-face-25bn-tuition-fee-loss-next-year

Universities brace for huge losses as foreign students drop out

Call for a government bailout worth billions to help sector survive the crisis.

Some universities are already expecting to lose more than £100m as foreign students cancel their studies, with warnings that the impact of coronavirus will be “like a tsunami hitting the sector”.

Several organisations are now planning for a 80-100% reduction in their foreign student numbers this year, with prestigious names said to be among those most affected. The sector is already making a plea to the government for a cash injection amounting to billions of pounds to help it through the crisis, as it is hit by a drop in international student numbers, accommodation deals and conference income.

Universities are already lining up online courses for the start of the next year, but academics are concerned about the impact on first-year students new to university life. Many institutions have recently borrowed heavily to pay for attractive new faculties, often designed to attract overseas students. It comes against a backdrop of declining numbers of university-age students in the UK and the previous uncertainty around Brexit.

Andrew Connors, head of higher education at Lloyds Banking Group, said the crisis has felt “less like a perfect storm and more like a tsunami hitting the sector”. Banks have not had urgent requests from universities, as big financial hits are expected later in the year. However, he said that “while the immediate impact we are seeing in the sector is slower, the overall impact of Covid-19 is potentially deeper and longer”.

In a blog for the Higher Education Policy Institute (Hepi) published today, he writes: “Many institutions are modelling reductions of between 80% and 100% in international student numbers. Every university we have spoken to expects to be impacted and for some the potential loss to income is projected to be greater than £100m. And that is before you factor in that losing new students has a multi-year impact.”

He adds that he expects banks to offer UK universities loans where needed, given their significance in the economy. He warns, however: “I worked through the financial crisis of 2007/08 and it does not compare in my experience to what we are witnessing now – this crisis has touched everybody in some shape or form and many previously viable businesses are now in a fight for survival.”

The Office for Students, the independent regulator of higher education, has already streamlined its rules in the wake of the crisis, calling for universities to sound the alarm if they fear they’ll run short of cash within 30 days.

Universities UK, the industry body, has proposed a series of measures to the government to double research funding and offer emergency loans to troubled institutions, as well as placing a cap on the number of undergraduates many institutions can recruit in 2020-21.

Nick Hillman, Hepi’s director, warned that universities only had limited options to cut their costs. “There are things they can do to mitigate the impact, such as doing all they can to ensure international students keep coming, pausing the development of their estates, doing less research, looking at their staffing and persuading home final-year students to stay on for postgraduate study. But some were in financial difficulties even before the current crisis.

“If international student numbers are down a lot, we have a big problem. The ones with lots of international students could still potentially fill their places with home students (who pay lower fees) but that just leaves a problem lower down the tree.”

▻https://www.theguardian.com/education/2020/apr/11/universities-brace-for-huge-losses-as-foreign-students-drop-out?CMP=Sha

#universités #étudiants_étrangers #trésorerie

Another perfect storm? The likely financial impact of Covid-19 on the higher education sector – by Andrew Connors, the Head of Higher Education at Lloyds Bank

It does not seem very long ago that those involved in the higher education sector talked about the perfect storm. The colliding forces were a consistent decline in the number of 18-year-olds in the UK, turbulence surrounding Brexit and the resulting potential impact on the number of EU students alongside the policy challenges of a minority government.

As we entered 2020, however, if felt like the sector was weathering that storm with a majority government, certainty around the UK’s withdrawal from the EU and the number of UK 18-year-olds forecast to start growing again from 2021.

All this has changed due to the impact of Covid-19, which has felt less like a perfect storm and more like a tsunami hitting the sector.

Over a dynamic and fast-moving few weeks, higher education institutions have sent students home, moved to online tuition and, as the short and medium-term implications of Covid-19 become clearer, they have been assessing their immediate and ongoing liquidity requirements. The discussions we have been having at Lloyds Bank with institutions up and down the country suggest that a great wave of liquidity is likely to be necessary to support institutions through these most challenging of times.

The UK’s higher education institutions are, though, facing into different challenges to much of the rest of UK Plc. Many sectors have been hit immediately and extremely hard by Covid-19 with trading halted and businesses closed overnight, necessitating workforce redundancies or furloughing.

All UK banks are dealing with a significant and urgent volume of liquidity requests from their customers, the likes of which we have never seen before. To help meet these challenges the Government has made dramatic interventions to support companies in the form of the Job Retention Scheme (JRS), the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Corporate Financing Facility (CCFF) and now the pending launch of the Coronavirus Large Business Interruption Loan Scheme (CLBILS)

I worked through the financial crisis of 2007/08 and it does not compare in my experience to what we are witnessing now – this crisis has touched everybody in some shape or form and many previously viable businesses are now in a fight for survival.

Financial Impacts

The dynamics in the higher education sector are different to a lot of UK Plc. At Lloyds Bank we have not seen urgent requests for liquidity from the sector over recent weeks and nor would we expect to have given the crisis timeline looks very different to the one a large portion of companies are facing into.

Yet, while the immediate impact we are seeing in the sector is slower, the overall impact of Covid-19 is potentially deeper and longer. The cost of lost commercial contracts in the summer alone is believed to be approaching £600 million and, as we look towards the 2020/21 academic year, annualised international student fee income of around £6 billion is at risk.

Over the last few weeks, we have had many conversations with higher education institutions who know they will have a significant reduction in income over the summer term and are scenario planning potentially dramatic reductions in international students for 2020/21. That simply would not have been imagined a few short weeks ago.

The discussions we are having suggest impacts on the current financial year that range from minimal to tens of millions of pounds for some institutions. Significant lost income has come from the waiving of accommodation fees for students for the summer term while many are committed to nomination agreements with other accommodation providers. Catering income alongside hotel and conferencing facility income have disappeared, with no expectation that summer schools will take place. This is likely to lead to some immediate cashflow implications for some, who will be carefully reviewing the Office for Students’ recent guidance around new reportable events, including the new short-term financial risk reporting requirement around the need for thirty days’ liquidity.

As we look into the next academic year, the most significant concern is that potentially dramatic drop in international students. Many institutions are modelling reductions of between 80% and 100% in international student numbers. Every university we have spoken to expects to be impacted and for some the potential loss to income is projected to be greater than £100 million. And that is before you factor in that losing new students has a multi-year impact.

Banks and Funding

It is not surprising, therefore, that all universities are urgently looking at their short and medium-term liquidity needs. These discussions at Lloyds Bank have fallen into three buckets:

Those looking to access one of the government schemes.
Those looking for medium-term funding from their banks – most commonly three to five-year revolving credit facilities.
Those looking to secure longer-term funding – through their banks – or more commonly the bond or private placement markets although this is less common at this time.

Fortunately, given the wave of liquidity discussions we (and other banks) are having, the banks enter this crisis having transformed their balance sheets from 2007/08 driven by lessons learned and underlined by EU and government regulation.

The banks have done this by repairing capital and liquidity ratios, transforming their loan to deposit ratios and significantly increasing their liquid assets. All this means that there should be plenty of liquidity available for UK Plc – and that is before adding in the recent cancellation of bank dividends and the impact of the Bank of England’s new term funding scheme.

Given the significance of the higher education sector to the UK economy and its world-class track record, I would expect the sector to be able to access liquidity where needed. At Lloyds Bank our stated purpose is to ‘Help Britain Prosper’ and that’s just what we’re working to do with this sector.

Government support

What of the Government schemes? While the Government have, to date, made no specific announcements around support for the higher education sector, there are no obvious exclusions within the already announced schemes.

To access the CCFF, for example, the Bank of England sets out the need to make a material contribution to the UK economy as being essential for access. At Lloyds we have been signposting those clients who wish to discuss access to the CCFF to the Bank of England. This has included confirming their Investment Grade credit rating, which is key to accessing the scheme.

The newly-announced CLBILS scheme, likely to launch around the 20 April, could also be a real support to smaller higher education institutions who have a need for under £25 million of liquidity repayable over the medium term at preferential rates.

We know a number of universities that are already using the Job Retention Scheme to furlough colleagues – particularly those with hotel and conferencing facilities.

Lessons Learned

Given the potential wave of support needed, it is clear that both the Government and financial sector have critical roles to play. For those like me with long memories, I have been reflecting on some lessons I learned from the actions the best companies took during the financial crisis of 2007/08 which I would sum up in the phrase: plan for the worst and hope for the best. That philosophy should lead to the following critical actions:

Ensure you have timely and good quality financial information, including forecasts which should include a worst-case scenario alongside your base case. The test is to ask yourself, what would be the most severe outcome in every situation?
Ensure you have sufficient liquidity in place to meet the downside risks.
Seek professional advice where necessary.
Be relentlessly challenging on expenditure and costs.
At these times, you cannot over-communicate to colleagues and other key stakeholders, including your advisors and funders. Ensure your funders are invested in your institution and on the journey with you.
And finally, some companies thrived during the financial crisis because, of course, even in the toughest of times there is opportunity. Be open to the opportunity to transform your operating model, to grow your people and to future proof your institution.

There is no doubt that, by the time this Covid-19 outbreak is over, it will have had a significant impact – on individuals, on businesses and on society. But there is clear guidance and support available and never before in peacetime has it been truer that we are all in this together. For universities and businesses more generally, there is great commitment from government and lenders to do everything we can to help you navigate through the interruptions.

We will get through this and, for those that need it, support is available to ensure higher education institutions emerge healthy.

▻https://www.hepi.ac.uk/2020/04/12/another-perfect-storm-the-likely-financial-impact-of-covid-19-on-the-higher-

Here Come the Furloughs

Sharp reductions in revenue and potential increases in expenses are spurring colleges to furlough or lay off employees while they wait for the coronavirus outbreak and the uncertainty it brings to subside.

First came the hiring freezes. Now come the furloughs.

Several colleges announced furloughs and layoffs this week and warned of potential additional staff reductions in the weeks to come. As colleges field unexpected expenses and lost revenue due to the coronavirus outbreak, paying employees — especially those who are unable to do their jobs remotely — is becoming more difficult.

MaryAnn Baenninger, president of Drew University, announced via video message on Sunday that a group of about 70 employees would be furloughed through at least the end of May. A smaller group will be laid off permanently. Furloughed staff members were notified Monday.

“I can’t guarantee that some of these furloughs won’t transition to permanent layoffs in the future,” Baenninger said in the video. According to the Drew website, furloughed employees will be updated by May 26 on the status of their furlough.

Staff reductions had been on the table for weeks while the Drew virtual team — the group appointed to bring Drew online and weather the outbreak — considered how to balance the needs of the university and what was best for employees.

The decision was, in part, an equity issue, Baenninger said.

“There were people who were working harder than they ever worked … and there were people for whom we wanted to have work, but we didn’t,” she said.

The financial picture Baenninger painted for Drew is similar to those at many other colleges and universities. She cited lost revenue from events, conferences, catering, summer camps and other operations, diminished endowment returns, and reduced giving from alumni and donors.

“On the expense side,” she continued in the video, “we will need to be prepared for potential changes in student financial aid, likely increases in health insurance costs, and we have had significant unexpected increases transitioning to a virtual environment, responding to the myriad changes brought on by COVID-19 and the potential need if called upon by the state of New Jersey to prepare our campus to house first responders and displaced medical patients.”

When colleges are forced to consider budget cuts, administrative costs such as travel and expense funds are typically the first to go, according to Ken Rodgers, director at S&P Global. Hiring freezes come next, which result in “a reasonable amount of savings,” he said. If that’s not enough, pay reductions, furloughs and layoffs become viable expense-saving options.

Baenninger and her team are considering salary reductions.

“We were pretty certain that salary reductions wouldn’t preclude a furlough, but maybe a furlough would prevent some salary reductions,” she said in an interview.

Drew had already experienced financial struggles in recent years. But it is not alone in feeling increased pressure that forces furloughs amid the coronavirus.

The University of New Haven — which is expecting a $12 million to $15 million in revenue loss due to issuing student refunds and credits — announced across-the-board pay reductions for faculty and staff two weeks ago. Last week, the university announced that some employees would be furloughed.

Furloughs are sometimes used as defensive measures, Rodgers said. They can better position colleges should their financial situations get worse, “i.e., this fall, if it turns out that students, for whatever reason, don’t come back.”

Guilford College in North Carolina has furloughed 133 people, more than half of its nonfaculty employees.

“Many of the jobs that we were looking at were really the jobs that couldn’t be done from home, because they involved direct contact with students,” said Jane Fernandes, president of Guilford. “We decided that just to help — not to solve anything — but to help our budget get to the end of the year, we would furlough staff.”

Marquette University announced Wednesday it would furlough approximately 250 employees beginning in mid-April. Bob Jones University, a private evangelical university in Greenville, S.C., also announced Wednesday that about 50 employees would be furloughed, with the potential for more down the road.

The furloughs don’t appear to be cutting into faculty ranks at this time, although faculty numbers are likely to be affected by already announced hiring freezes, reductions in pay and other actions at colleges and universities around the country.

The first round of furloughs and layoffs is typically operationally easier on colleges, Rodgers said.

“Those initial layoffs and furloughs typically are — you have to be careful when you say this — not too difficult for the university to administer,” Rodgers said. “If you get into the situation where a lot of students choose not to come back to campus and you have to implement a more broad-based reduction, that would be more challenging for any university to implement … because then you have to cut into core programming.”

Employees who work on campuses for third-party vendors that contract with colleges are also being laid off. Bon Appétit Management Company, which provides dining services to many colleges around the country, has furloughed many of its employees. Contract workers are not usually considered employees of the college they work at, and they face an uncertain future until students return to campus.

Colleges are borrowing money to bolster their cash positions, but not to support recurring operations, including payroll, Rodgers said.

“We view unfavorably any organization that borrows money to support recurring operations, including for payroll purposes,” he continued.

June is likely to be a key decision point on future furloughs and layoffs, Rodgers said, because the June 30 end of the fiscal year will be approaching. Colleges will be working out their budgets for the new 2021 fiscal year.

“They’re trying to see how this is going to impact their fiscal ’21 budget,” he said. “They’re having to make assumptions that may be very difficult to make as far as what enrollment to anticipate under scenario one, scenario two, scenario three.”

▻https://insidehighered.com/news/2020/04/10/colleges-announce-furloughs-and-layoffs-financial-challenges-mount
#USA #Etats-Unis