COVID-19 crisis

Sector impact and considerations

Education: Higher Education

March 2020
COVID-19: Impact on sector ecosystems
COVID-19 today What to expect
► More than 500,000 cases in over 160 countries/regions
Human health

► Many economists and institutions have cut their forecasts, with

► Current fatality rate now estimated to be around 1.4%
► Testing not fully available to key populations
► Vaccine will not be available for a year. Initial trials
beginning for treatments and vaccines
► Health systems/authorities scrambling to respond
► Key global markets have lost 20-50% of their value
Economy
consensus pointing to a global recession in 2020. The annual
GDP could decrease anywhere from 5%-15%
► Key markets across the globe have already lost 20-50% of their
value year-to-date
► The majority of this loss will take place in Q2 2020 with the
potential for rebound in Q3 2020 pending the virus’ resurgence
in September/October
► Within higher education, the following trends are anticipated:

► Risk of rapidly declining enrolment (retention, transfers,

► Economic consensus favors a recessionary environment incoming class)
► COVID-19 increasingly risk factor across sectors ► Flight to scale online providers
► Full economic impact is unknown at this time ► Endowment pressures

Source: EY analysis; RBB; Spiegel; World Health Organization; Desk research

How will this shape the ecosystem for the sector going forward?

► Student preferences, already changing, will tilt more quickly towards online/hybrid and stackable credentials
► The need to seamlessly transition from “present” to “remote” is a requirement
► Quality online experience for students
► Remote student supports
► Remote business processes
► Long present sector strains will be exacerbated
► Many institutions will close
► Shared services and cross-institution collaboration will become ubiquitous
► Mergers will accelerate
► Strong institutions will become acquirers
► The sector will emerge changed but enhanced

March 2020 | EY-Parthenon | Page 2

COVID-19: Higher Education context pre-crisis
One in five private institutions were facing substantial financial risk before
the onset of the global pandemic

Context

► The COVID-19 Pandemic and associated economic disruptions come at a challenging time for the U.S. Higher
Education sector which was already managing a myriad of challenges,
► Flat enrollments
► Intense competition over students
► Increasing tuition discounting
► Rising costs
► Shifting demand preferences
► Since the outbreak of COVID-19 in the U.S., institutions have been consumed with operational triage and have
canceled study abroad programs, cut athletic seasons short, and requested students leave campus for an
indeterminate period among numerous other decisions
► Within a week, almost all classroom learning shifted to a remote delivery model often using commercially
available collaboration tools as the foundation

► In an unprecedented confluence of events, discerning "what to expect" requires some speculation

► Typically, higher education enrollments are counter-cyclical, but it is unclear how that will evolve in this crisis
► At the height of The Great Recession, despondency seeped into the psyche of prospective students, and enrollments flattened
instead of accelerating as they had in previous years
► Today, many projections suggest that COVID-19 precautions may continue or, if they were to be lifted in the
summer may return next fall

March 2020 | EY-Parthenon | Page 3

COVID-19: What to expect
In an unprecedented confluence of events, discerning "what to expect"
requires some speculation but some planning assumptions can be made

What to Expect

► Ancillary revenues derived from summer programs will likely disappear

► Institutions may face other financial challenges due to refunds associated with housing and dining and online
learning, lost revenue from cancelled university programs and events, and increased operating costs (e.g.,
switching to remote delivery)
► Student retention rates for many institutions may decline due to one or more of the following reasons
► The emotional hold on remote students is weaker
► Many of those students will experience sub-par remote learning
► Many parents/students will view their current institution as an inessential luxury
► Absolute financial strain (barring significant intervention by the government) will place higher education out of reach for some
students
► Fall semester first time-full-time enrollment, while not something that most institutions could take for granted
even before COVID-19, is even more unpredictable now given that
► Campus visits, that helped students and families make decisions, are no longer an option
► Some students may decide to postpone full-time college, especially if their families’ circumstances demand it; or students may
opt to work and study part-time instead
► Other institutions will recruit and discount right up to convocation and students already committed or enrolled in another
institution
► Many students may elect to enroll in online programs that allow them to be employed or be at home with family
due to the unstable environment
► Institutions that rely on endowment returns to support their operating model will see the value of that
endowment reduced in the short to medium term and must anticipate higher volatility for the foreseeable
future

March 2020 | EY-Parthenon | Page 4

COVID-19: Actions for consideration
In an unprecedented confluence of events, discerning "what to expect"
requires some speculation but some planning assumptions can be made
Now
Ensuring business continuity
► First and foremost, institutions
prioritized safety,
communication, and education
continuity
► Rapid transition of students
faculty and staff
► Established business continuity
planning teams and crisis
management centers,
► Built out communications
protocols
► Initiated remote learning
► Having addressed the immediate
needs of students and staff there
is a need to understand the risk
of near-term institutional
instability
► Risks to student retention
► Risks to the incoming fall cohort
► Cash/liquidity realities
Next
Building enterprise resiliency
► Shore up structures that were
rapidly put in place
► Remote learning structures
► Business processes to support
remote staff
► Technology infrastructure
► Liquidity assessment and cash
preservation
► Impact on covenants and
composite scores (along with
efforts to secure relief)
► Debt access
► Insurance gaps and
documentation for
claims/anticipated federal
funding
Beyond
Reframing your future
► Establish the infrastructure to
support quality online operations
► Courseware
► Technology
► Course designers
► Sound studios
► Student support services
► Redesign business processes for
supporting students –
bursars/financial aid offices,
health – to be capable of
transitioning seamlessly between
"present" and "remote" delivery
Take objective stock of their
►
strategic position
► Remain independent
► Seek stability in the structures
of a more stable peer
► Build scale through shared
services, collaboration
► Merge
► Acquire
March 2020 | EY-Parthenon | Page 5
Managing through the crisis life cycle
Higher Education
Prior to the crisis, increasing competition, changing student demand, and rising financial pressures were driving inevitable
change to the higher education sector and forcing mergers and closures on some institutions. While the crisis will accelerate
these trends…

Now Next Beyond

I Student ► Get everyone to safety (duty of

care)
experience and ► Shelter those who need to remain
continuity on campus
► Stand up crisis center and
How will the academic communication PMO
environment be affected ► Establish remote delivery protocols
by the recently altered ► Assess retention risks
sector ecosystem? ► Determine risk to incoming class
► Enhance remote learning with online
learning tools
► Enhance online learning capabilities
and migrate all course to high
► Support faculty and students with quality online offerings (vs. remote
learning)
technical/pedagogical challenges
► Re-recruit existing/accepted
► Address equity issues associated with
remote learning students
► Plan remote/online contingency ► Target enrollment enhancement
► Deploy retention and accepted
student care teams

II Stakeholder ► Assure safety of staff and

community (duty of care)
► Adapt business processes for
administrative staff
► Adjust contracts
Develop remote workforce option
care ► Create a crisis center and ► Establish new norms for constituent
►
for both faculty and staff
communication PMO care
What adjustments will be
required for academic
professionals to meet
new demands?

III Infrastructure ► Modify and readjust remote ► Enhance business processes around ► Invest in online learning
operation as necessary remote operations (e.g., systems infrastructure (e.g., instructional
and operational ► Assess vendor/partner risk technology, training) designers, LMS, sound studios)
support ► Scale systems infrastructure ► Monetize non-core physical capacity
How will the academic ► Ensure cybersecurity protocols for ► Enhance business disruption
altered technology infrastructure are planning
support infrastructure in place
need to adapt to fulfill ► Repurpose or dispose of unneeded
new requirements? PP&E

March 2020 | EY-Parthenon | Page 6

Managing through the crisis life cycle
Higher Education
…universities and colleges are resilient institutions with a critical role to play in society. While the higher education sector is in
a clear crisis, it has endured reformations, revolutions, civil wars, global wars, and more. Despite the inevitable changes,
universities and colleges will endure

Now Next Beyond

Understand short term liquidity Forecast liquidity and FY20 cash Reforecast budgets/financial
IV Financial ►
requirements
► ►
modeling
► Assess impact to debt covenant ratios,
implications ► Assess cash needs through potential covenant amendments, and ► Redeploy assets
summer/fall Title IV access/composite score ► Strategize how to build out urban
► Reprioritize capital spend to extend and rural broadband
How does the business liquidity runway infrastructure to address remote
model need to change to ► Preserve cash and determine working working and learning
align with new strategic capital actions
priorities? ► Prepare for insurance/Federal aid (e.g.,
FEMA) compliance
► Access to new debt

V Local/State/ ► Connect with political leaders to ► Communicate with key political leaders/educate them on impact of crisis and
identify emergency funding need for relief
Federal opportunities in response to the ► Advocate that universities be eligible for refundable tax credits that FFRCA
COVID-19 pandemic
linkages provided for private employers (limited to public universities)
► Request regulatory flexibility including, but not limited to the following: support
How will government for graduate students, and cost for research activities
regulations and policies ► Determine the feasibility of accessing capital through low- or no- interest loans
shape the higher ► Work with sector (higher education associations, state agencies, etc.) to secure
education ecosystem low-cost loans, relief from covenants/composite scores, etc.
moving forward?
Contacts

Rob Lytle Haven Ladd Kasia Lundy Seth Reynolds

robert.lytle@ haven.ladd@ kasia.lundy@ seth.reynolds@
parthenon.ey.com parthenon.ey.com parthenon.ey.com parthenon.ey.com

March 2020 | EY-Parthenon | Page 7

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