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America Disrupted: Colleges face cash crunch

Yahoo Finance’s Alexis Christoforous, Brian Sozzi, and Akiko Fujita speak discuss what the college education landscape will look like due to the coronavirus pandemic, and speak with H&C Education CEO Pierre Huguet about how students are reconsidering their enrollment.

Video Transcript

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ALEXIS CHRISTOFOROUS: Colleges across the country are facing a pretty tough financial future. Since the coronavirus caused closures this spring, millions of dollars in housing and dining fees have had to be refunded. And the crisis is far from being over students now debate whether or not to return to school in the fall.

Yahoo Finance's Akiko Fujita has been following all of this for us and has a special report. Akiko, with a senior graduating from high school about to enter college, I am very much looking forward to your report. I'm curious what you found out.

AKIKO FUJITA: Yeah, and so many seniors are looking at the fall semester saying, what exactly is it going to look like? So a lot of these universities were already facing a cash crunch well below well before the pandemic. But as they looked at declining enrollment with so many students reconsidering their fall plans, the industry is bracing for a wave of permanent closures.

AUDREY LABOVITZ: I think even if the quality of the education is the same-- if we get sent home, I don't know if I will be able to learn quite as well.

LAURA SACRISTAN-LAGUNAS: If it's just at home, it's going to be, like, watching YouTube videos and learning. You're not really going to have that freshman experience.

AKIKO FUJITA: It's a dilemma college freshmen have never faced before-- the prospect of remote learning replacing in-class lecturers, social distancing replacing socializing. With the fall semester in limbo, Audrey Labovitz and Laura Sacristan-Lagunas are thinking a lot about that $75,000 annual tuition.

Have you thought about delaying your freshman year?

AUDREY LABOVITZ: I have, I have. That's a lot of money if I'm just going to be on my couch.

AKIKO FUJITA: Universities across the country are scrambling to fill classrooms. In California, home to the country's largest public university system, Timothy White is already seeing the consequences of moving classes online.

TIMOTHY WHITE: Some of the smaller campuses are showing, maybe, a 2% or 3% decline. So worst case, we're imagining that overall enrollment across this remarkable system could be in the area of 2%, 3%, 4%.

AKIKO FUJITA: Another blow to enrollment-- nearly one million international students who pay full tuition here, many unable to return because of travel restrictions.

How big of a hit would it be from a revenue standpoint if you see a big decline in international students?

TIMOTHY WHITE: Hundreds of millions of dollars. For us, it's a major source of revenue for the institution. What we're doing is we're reaching out to individual families. We have staff all over the world. We're working with embassies-- working with everybody, because it's an important part of who we are as a university.

AKIKO FUJITA: Universities already faced a cash crunch from declining enrollment, higher tuition fees, and reduced funding. The sudden closures and increase investment costs are adding to the burden.

TIMOTHY WHITE: We're anticipating about a $400 million a year permanent reduction starting July 1, which translates to 10% of what the state appropriation typically is. We, many months ago, put in a hiring freeze. We've stopped traveling. We are looking at projects that are costing money that we can delay their start. And we also worked hard over the last six or seven years to grow a reserve that we could use for a rainy day. Well, guess what? [CHUCKLES] It's raining now.

AKIKO FUJITA: More than half a dozen colleges have announced closures since March.

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AKIKO FUJITA: Online education platforms are filling the void. Coursera's enrolled nearly a million university students since the lockdown.

JEFF MAGGIONCALDA: The education and credentials will almost all ubiquitously be available online. And in some universities, and certainly far fewer than today, we'll add into that offering the residential experience. So I think there will be fewer college campuses in the United States that people go to, maybe by a wide margin.

AKIKO FUJITA: Labovitz considers campus life key to her college experience. But in the face of so much uncertainty, she's weighing quality and cost.

AUDREY LABOVITZ: With the internet now, I could learn-- if I wanted to, I could learn anything without any help, you know. And it would be helpful to have professors. But if I really wanted to, I could learn most of it from YouTube. So to me, the value is always the experience.

AKIKO FUJITA: Now with higher learning employing about three million people-- with higher learning employing about three million people nationwide, this is sure to have some ripple effects if we see some of these closures accelerating.

Alexis, you know, we've talked so much about how this pandemic has exposed the divide that we're seeing, and that's no different in higher education. Those Ivy Leagues who have massive endowments-- you know, they're going to be fine. But it's the smaller liberal arts colleges as well as the state schools that are going to be facing an increase in cash crunch with those budgets drastically declining.