Interview
Financing Higher Education During a Time of Disruption
- Universities have substantially increased debt issuance to enhance operating budget flexibility in response to pandemic-related stress.
- Early-year borrowing focused on refinancing a decade-old debt and funding new capital projects; current activity prioritizes refinance and issuing more taxable debt.
- Taxable debt issuance allows for greater flexibility regarding the permissible use of bond proceeds to manage pandemic disruptions.
- Approximately $45 billion in higher education debt was issued in public markets recently, with roughly two-thirds in the taxable market and one-third in the tax-exempt market.
- Fall semester learning models are varied, ranging from fully on-campus to hybrid and online, driven by state regulations, student origin, and available physical infrastructure.
- Specific operational determinants for campus reopening include housing capacity for social distancing and the availability of medical facilities for infected students.
- A shift to online learning creates tuition revenue risks, as students may resist paying full rates without access to physical campus resources.
- Auxiliary revenues from housing, dining, parking, and campus activities face significant pressure due to campus closures or limited occupancy.
- Athletic programs, while revenue-positive for larger institutions funding other sports, face disruption; major conferences like the Pac-12 and Big Ten have announced potential postponement of football to the spring.
- Institutional financial pressure is exacerbated by the absence of national championships and reduced donor/alumni engagement during the upcoming semester.
- Investor demand for higher education bonds remains strong for institutions with large endowments and robust student demand, but caution is increasing regarding smaller, stressed institutions.
- Rating agencies express concern over second or third-tier public universities and smaller rural institutions facing declining state funding and shrinking K-12 pipelines.
- Universities are diversifying financial strategies beyond debt, including evaluating program cuts, adjusting faculty levels, and reassessing facility needs for a remote-work environment.
- Asset monetization is being explored as a contingency measure, including land reconfiguration, building consolidation, merging with other institutions, and licensing royalty income streams.
- Long-term impacts may involve a fundamental shift in the value proposition of higher education as students and families weigh the cost against the loss of on-campus community and "personal brand" development.
- Campus reopenings carry infection risks that could serve as indicators for broader public health trends in surrounding cities.