Spare a thought for the underappreciated victims of Covid-19: Airbnb entrepreneurs. The Wall Street Journal reported the case of one tragically “overextended” New Jersey landlord, who bought and maintained two condominium buildings in Jersey City and a house in Miami on loans; one property rented on Airbnb alone generated a breezy eight thousand dollars a month. Each new app notification was the sound of “magical money”! Yet when bookings vanished in March she was left with no way to pay for twenty-two thousand dollars in expenses. Plenty of schadenfreude on social media ensued.
The business model of most American colleges and universities is not so different. The funds for dormitory construction are often raised through the issuance of bonds (half of all public university construction, for instance, is debt financed). To an investor, each bed in the brick or fiber-cement clad bunkhouses that pass for housing on American campuses represents a guaranteed cash flow over time, in tuition plus room and board. If new students don’t show up in the fall, colleges will be left holding the bag, not unlike the landlord in New Jersey. Given the current occupant of the White House, the latter may expect greater sympathy and relief.
The familiar procession of dismal news from the tenure-track job market now marches to a funereal dirge, following the epidemic of hiring freezes announced across the American academy in the past few weeks. Yet this decline is only symptomatic of a looming crisis on the balance sheet of higher education. Covid-19 is all but certain to reveal what observers and ratings agencies have been shouting for some time: the sector, as industry analysts like to call it, was already in deep financial trouble. Given what is to come, schools of every kind are now at risk.
Tuition and fees, for decades the apparently inexhaustible engine of growth in higher ed—backed as they are by federal student loan guarantees—have begun to hit a ceiling. Tuition and rental income has long been the gold standard of revenue in higher education: unlike private gifts, federal grants, or state appropriations, it has no restrictions on its use, and can be deployed freely to pay the staff salaries, pension liabilities, debt service payments, and other operational expenses that regrettably cannot be embossed with a donor’s name. Corralling students into expensive meal plans or building spectacular rec centers was not just about attracting wealthy, full-fee students—these practices were also a way to convert the restricted financial aid received by less rich students back into unrestricted funds. This model relies on ballooning student debt to fill the widening gap between student family incomes and college expenses: an outstanding balance of $1.6 trillion now worries even the Federal Reserve, but it has mostly kept the show on the road. Yet, adjusted for inflation, published tuition and fee charges of both public and private four-year institutions have all but leveled off in the last several years. Most students, meanwhile, do not pay full fees: the line for actual net revenue at private colleges is even flatter.
As the anthropologist Caitlin Zaloom reports in Indebted, the struggle to pay for college already reaches Homeric proportions for a middle-class American family today. Their reluctance to pay exorbitant fees has triggered a flood of downstream ripples. With the huge wave of millennials having finally graduated—we’re not so young any more!—there has also followed eight successive years of enrollment decline, with higher education shedding two million students since 2011. At the top of the pyramid, elite and highly selective private universities have continued to compete with ever more lavish facilities and “campus experiences” for the small pool of domestic and international full-tuition payers. Meanwhile the rest of the sector has been left to compete for the dwindling resources of all other applicants, racing to add the most amenities while slashing sticker prices behind the scenes. The situation for public universities, where legislators in red and blue states alike castigate schools for tuition increases even as they cut direct subsidies, is even more dire. In June 2019, Alaska Governor Mike Dunleavy proposed a $135 million cut to the University of Alaska system, an astonishing 41 percent of its already meager state subsidy. Although this was ultimately negotiated down to “only” a seventy-million-dollar cut over three fiscal years, it is a sign of things to come nationwide, as states from Missouri to New Jersey facing declines in tax revenue aggressively move to cut budgets at the expense of public higher education.
The joke about the Ivies is that they are nonprofit hedge funds with schools attached. Most schools are closer to sprawling conglomerates: an equity fund, a real estate empire, a private hospital, a football team, an apparel company, a brand licensing agency, and an event space, with a little teaching on the side.
Adding to the real estate portfolio has looked like one good way to grow revenue. But without an extensive and wealthy donor base this involves debt-financed construction that generates additional vulnerability in the future. In 2017 the flagship Norman campus of the University of Oklahoma, suffering from reduced state support and resistance to tuition increases, engaged in a complex deal with mutual fund managers to create a non-profit financial vehicle, “Provident Oklahoma Education Resources,” that sold $250 million in bonds to finance the construction of an upscale apartment-style dorm with the intent of luring upper-year students and their rent payments back to campus. Student disinterest pushed the university to renege on a lease agreement with Provident in 2019, triggering a bond downgrade. The law firm representing Provident and its investors did not mince words in a letter to the university administration: “This belligerent act sends a loud and clear message to the marketplace and business community. YOU CANNOT TRUST AND SHOULD NOT DO BUSINESS OR BUY BONDS OF THE UNIVERSITY OR THE STATE OF OKLAHOMA.”
Financialization has also opened up higher ed to new risks in and of itself. Lacking in-house expertise, many schools have turned over much of their financial strategy to hedge funds for enormous fees; at some of the Ivies, fund managers usually receive more in annual payments from endowments than do students in financial aid. In the early 2000s a number of schools in need of funds were forced to issue riskier variable-rate bonds to attract investors. Since possible future interest rate increases presented a significant risk, Wall Street banks responded by offering the schools “interest rate swaps.” These financial instruments covered the potentially fluctuating rate of interest, but only so long as schools bound themselves to a predetermined fixed-rate payment for up to thirty or forty years. (Corporate-world instruments of this kind rarely extend beyond five to ten years). In the post-2008 era of Fed-induced ultra-low interest rates, these have invariably turned out to be terrible deals: the Roosevelt Institute in 2016 estimated a breathtaking $2.7 billion in excess costs among a sample of just nineteen schools.
All of these pressures led Moody’s to reduce the outlook for the sector as a whole from “stable” to “negative” for 2018 and 2019—a verdict reconfirmed in the wake of Covid-19. Some 30 percent of both public and private schools tracked by the ratings agency were already running deficits before the pandemic, and half of these had less than ninety days of cash on hand. Paradoxically, the diversification of revenue of some schools has suddenly turned into a liability. Even at large, well-funded urban campuses, the gargantuan preponderance of medical centers has itself proven to be an unexpected downside during this strange, viral-induced medical recession. Mass cancellation of elective procedures at the Johns Hopkins Medical Center, the Wall Street Journal reported, has generated a massive shortfall overnight. Meanwhile the football giant Clemson is facing down a year or more of empty stadiums, much like the colleges that rent out space for conferences and events. Major research universities, where both the National Institutes of Health and National Science Foundation have continued to reimburse payment of salaries and benefits even while non-essential research is disrupted, are slightly better protected, although here too expensive laboratories with significant overhead now sit idle. Who knows how funding agencies will respond in the uneven state-by-state terrain of lockdowns over the next few months, or to the White House’s bloody edict of an imminent return to business.
The tsunami wave of the pandemic—genuine threats to the life of staff and students, skittish financial markets, massive revenue shortfall—is bearing down on a rickety edifice. Already, many schools have reacted with drastic austerity measures: campus-wide halts on construction, deferral of capital projects, across-the-board budget cuts, retirement contribution moratoria, hiring freezes, salary cuts, furloughs, layoffs, and potential pension cuts. Many short-term faculty have already lost their jobs; others don’t yet know whether they will work in the fall. Tenure is often proving no protection. On April 29, Missouri Western State University announced it would cut fifty-one faculty positions, twenty of them tenured, over two years. Two days later, at Ohio University, 140 staff employees and several assistant professors in the Women’s, Gender, and Sexuality Studies and African American Studies Departments were informed they would be laid off. Further deep cuts elsewhere are almost certain. Once the taboo of firing tenured faculty is broken, the floodgates will open. Under the cover of the crisis, university administrators will finally undertake the massive restructuring they have dreamed of for years.
The effect on existing staff and faculty will be painful enough, and worse still for those who lose their jobs. Yet for the cohort of PhDs in or graduating into the current academic job market, this amounts to a generational extinction event. There will not be a “poor” market in 2020–21 and perhaps beyond, even by the anemic standards of the present: there will simply be no market. Numbers from the Modern Language Association show that job listings not only did not recover after 2008—they were lower last year, at the supposed height of the economic recovery, than they have ever been in the recorded data, which goes back to the 1970s. You don’t need a PhD to surmise that “recovery” after the drop from this existing low point will be just as feeble, possibly worse. With stopgap positions like postdocs and lectureships first on the chopping block, thousands will simply drop out of the academic labor force altogether, taking a decade or more of training and research expertise with them. As with healthcare and housing, where Medicare and home ownership shelter only older generations from the storm of the market, here too the young are thrown off the lifeboat in order to keep afloat a system that rescues only those who are already secure.
At the lavishly endowed Ivy Plus schools, the crisis is finally forcing a reckoning with endowment spending rules. Student and faculty pressure is being brought to bear to tap into the billions sitting in private equity: if the global pandemic and yawning recession doesn’t count as a unique emergency, what would? Yet endowment fund managers and boards of trustees worship at the altar of “institutional stewardship.” Under this gospel any spending in the present is an inexcusable theft from the imagined future generations of the university. This may be why a course on “Yale and the External World” was once misprinted in an academic catalog as “Yale and the Eternal World.” Given present circumstances, even the abstract calculations of actuarial prudence should recommend discounting for the risk of potential civilization collapse—an event the present catastrophe all too clearly augurs. Yet Ivy League administrations, with tens of millions of endowment funds invested in fossil fuels, prefer not to think of such things. Harvard is in the midst of spending $1.4 billion to renovate its already luxurious dormitory system, most of which lies in the rising flood plain of the Charles River estuary. Large swathes of New Haven, Connecticut are due to be underwater by 2080, but Yale—which underspent even its own paltry 5.25 percent endowment spending target by $648 million since 2013—will remain (just) above sea level, no doubt with a bigger endowment still.
The garish elitism of the Ivy Plus universities has already provided ready fodder for the populist right. The Republican Senate sneaked a tax on large endowments into the 2017 tax bill; more recently Missouri Senator Josh Hawley has thundered against the receipt of CARES Act relief by rich universities. But while the necessary siege on the false religion of institutional perpetuity which demands sacrificial offerings from the living must continue, the truth is that most other schools, given the state of their balance sheets, would be so lucky to even entertain such a debate.
What can we expect in the fall? As pandemic lockdown orders extend further and further through the spring, there has been a great deal of speculation about how or whether college education would proceed. Rumors floated at different schools of cancelled or remote semesters, even of months-long adjustments to the academic calendar. But for all but the richest universities, the conclusion has never truly been in doubt. In a recent New York Times op-ed, Christina Paxson, the economist, vice-chair of the Association of American Universities, and President of Brown University, spelled it out: “The basic business model for most colleges and universities is simple. . . Most colleges and universities are tuition dependent. Remaining closed in the fall means losing as much as half of our revenue.” In the event of extended precautionary closure, “It’s not a question of whether institutions will be forced to permanently close, it’s how many.”
The prophets of innovation in higher ed once imagined that remote learning was the key to a shining future. The late Harvard Business School professor Clayton Christensen, who coined the term “disruptive innovation,” predicted in a 2013 New York Times op-ed that a quarter of colleges and universities would go under in the next ten to fifteen years as online education swept through the sector. Nothing anywhere near so dramatic has yet come to pass, but the irony is that the failure of online learning may itself bring about precisely the cataclysm Christensen predicted. For the last three months the press has been filled with accounts of the petty frustrations and systemic inequities of remote teaching at every phase of education. Even several weeks of provisional, emergency Zoom courses at the college level has unleashed a fusillade of student lawsuits to recoup tuition. Faced with such a prospect, it seems likelier that schools in the fall will attempt a mixed approach: a notional return to campus for undergraduates, for instance, through extensive testing and tracing, enforcement of social distancing and protective equipment, and targeted use of remote technology for trickier problems like large lectures. At the very least, extensive remote accommodation will be required for the hundreds of thousands of international students who may be barred from entering the United States. Whatever the arrangements, the sociality of campus life will be barely recognizable. In its place students are likely to get a surveillance state version of in loco parentis, as university presidents speak of using 24-7 mobile tracing apps.
However individual schools navigate the rapids ahead, it appears inevitable that many will head toward bankruptcy. At least sixty-one small private liberal arts colleges have closed or merged since 2016, and a similar number of public institutions have been consolidated into larger public systems. And this was in an economic “recovery.” The budgetary damage of the coming year will be orders of magnitude higher. Even with the spring teaching semester at a close, campuses that rely on income from events leasing will now sit idle as long as lockdowns remain in place. Full-fee paying international students, the last great hope for the bottom line of university administrations, were already in the crosshairs of the immigration-obsessed Trump administration. But this fall it seems likely many foreign students will either choose not come to the US, or else will be legally prevented from entering the country. For the next year the American Council on Education predicts a 15 percent decline in enrollment and a staggering $45 billion in lost revenue across the sector. One analyst suggests that some two hundred private liberal arts colleges could close within a year.
The true believers in creative destruction will revel in the carnage that is to come: this is a necessary shakeout in a bloated industry, they will say. But there is no evidence to suggest that a better outcome for anyone will follow from the incalculable damage to hundreds of thousands of students, faculty, and staff, and to the communities that rely on local campuses as economic anchors. The most likely outcome will be further stratification of an already radically unequal landscape. Here, a luxury securitized experience at an expensive private campus achieved through policing and technology; there, networks of remote lectures vaguely attached to an immiserated community college.
There are a few signs of hope. The crisis has produced a genuine, albeit incipient militancy, and even a tentative sense of solidarity, across the ranks of academia. A petition signed by seventy senior professors threatening to boycott American colleges and universities that refuse to include graduate students and non-tenure track instructors within the one-year extensions granted to junior faculty has now amassed over 2,800 signatures. Administrators in this moment of radical uncertainty are nervously looking over their shoulders at their peer institutions: victories on one campus reinforce demands everywhere else. A wildcat teaching and rent strike erupted among graduate students at Columbia University, many of whom are stuck in university-managed apartments in New York with no means of paying rent and with visas that prohibit any other form of employment; actions elsewhere, like the collective “sick-out” at NYU and drive-in protests at UMass Amherst, are evidence of broader unrest. Undergraduates everywhere have organized to pressure administrations on questions of equity. Who can and cannot afford to vacate campus at a week’s notice? What can grading truly measure when students are potentially sick or caring for ailing relatives, or lack private working space altogether? Why are the academic programs that speak to students of color always the first on the chopping block?
Perhaps the wave of academic labor organizing, especially at the graduate worker and contingent faculty level, will accelerate in the wake of disaster. The extraordinary gains made by graduate student unions after the NLRB’s 2016 Columbia decision were partially halted and even reversed by an aggressive and combined counteroffensive from the White House and university leaders. But the year to come, whether because of newly invigorated organizing, or the election of a Democrat to the White House, may change the calculus. At a larger scale, the shared vulnerability of both instructional and non-instructional staff at every level (even within the allegedly safe harbor of tenure) also makes patently evident the need for larger-scale forms of organization, ones that cross not just academic but all employment ranks. Industrial unions which encompass instructors of every rank and organize alongside campus service workers are the answer.
In the meantime, we are suffering from a manufactured disaster, produced by the private and privatizing model of higher education intensely unique to this country. The grant-funded public systems in large portions of continental Europe, to take one counter example, will face no such immediate calamity, although they will also be vulnerable to enforced austerity. Moreover, as Thomas Piketty argues in Capital and Ideology, higher education in the United States today is not the engine of meritocratic leveling its evangelists proclaim, but precisely its opposite: a radically hierarchical system of class reproduction that principally serves to cement and even widen existing cleavages. The outcomes can be read in every possible indicator, from the shocking divides in life chances and lifetime earnings to the voting patterns that produced the divides of 2016. Defenses of higher education as a public good would carry more force if the fruits of college attendance were not so unequally and unethically distributed. The system is so unequal that it may seem like nothing short of the full socialization of ownership and democratization of higher education could solve its problems. But more tangible possibilities remain. Title IX protections on campus, bureaucratic and patchy though they remain (especially given the latest erosion from the Department of Education), are enforceable on all but a tiny minority of religious institutions because they are a requirement for receiving government aid. What if the torrents of federal money that will be needed to relieve the system required union neutrality, living wages, endowment spending ratios, or more egalitarian admissions? All this is of course unthinkable for the current federal administration or its only near-term alternative. Nevertheless, the first step forward always requires an act of imagination. What would we build instead?