The best and most concise description we have heard from higher education CFOs asked to describe their role has been, “I manage risk.” The COVID-19 pandemic and attending economic turmoil have made this basic role extraordinarily challenging. As colleges and universities look forward—and economic forecasts continue to sour—institutions need to prepare for a wide range of possible outcomes. This article outlines the risks facing higher education and the steps CFOs can take to help their institutions navigate these very uncertain times.


Evaluate Risks Related to COVID-19

The environment for higher education includes many risks in both the short and long term:


Domestic students

Students may not be able to return to campus to finish the spring term; many institutions have already committed to finishing the term online. Students who were unable to return home may need continued support. As we move through the summer into the next academic year, federal and state governments will face challenging decisions as they try to mitigate or suppress repeated COVID-19 outbreaks. These decisions will have direct impacts on enrollment.

International students

U.S. national policy could affect international enrollment. For example, the U.S. Department of State decided on March 20 to suspend all routine visa services, including student visas. Decisions made by other countries to manage COVID-19 outbreaks will compound international enrollment risk. 

Financial aid

Potential job losses and income reductions in the wake of an economic downturn may make financial aid awarded for the upcoming year insufficient, creating additional financial pressure on the institution to make up the shortfall. Inability to make up the financial aid shortfall may result in enrollment target shortfalls.

Online learning

Online or remote learning may prompt requests for tuition refunding from families that believe the instruction quality and overall student experience are not justified by the normal residential tuition price, especially if the current situation continues into the next fiscal year. Accrediting agencies may introduce requirements before stating that online offerings are on par with in-person instruction. Room and board losses will compound the impact of any tuition refunds.

Government funding

Federal and state funding for higher education could be reduced to support other societal needs or increased to help colleges and universities bridge to more normal times, with related impacts on sponsored research, student debt/Pell grants, capital appropriations, and general operating revenue. The last recession resulted in significant reductions of state appropriations.


Stock market losses could significantly affect philanthropy. During the last recession, many institutions experienced reductions to fundraising.

Capital market uncertainty

The now 25% loss in investment markets could significantly rebound within a year, hold, or get even worse, with related impacts on the balance sheet and operating cash flow. Interest rates may remain very low or increase, with related potential impacts on pension plans, swaps, debt issuance prospects, and other liabilities.

The risks outlined above are present for nearly all colleges and universities, although the magnitude of risk will depend largely on factors such as geography, number of out-of-state and international students, and mix of programs and funding sources. Scenario analyses, as described below, help frame these risks and plan a course forward.


Support Executive and Board-Level Conversations with Scenario Analyses

Given the substantial financial risk that higher education faces today, institutions will need to revisit their strategic and financial plans and make difficult decisions that weigh program development against new financial realities. For example, some stakeholders may want to proceed with planned or different initiatives even if resource erosion and a potential ratings downgrade are expected. Other stakeholders may want to retain past financial parameters or set restoration of the institution’s resource position as the planning priority. 

Funding for online instruction and programs will likely get a lot of attention. There is little doubt the current crisis will jumpstart online programming at many institutions. Some will want to retain portions of the remote programming developed this spring and develop more mature online programming for the fall, but this will require resources. Institutions that can further rationalize and fund online investments in already stretched financial plans will likely be better positioned to augment revenue and reduce expenses in the years to come.

Balance sheet management will weigh heavily on the minds of board members, presidents, and financial leadership. Colleges and universities should consider whether and how to keep financial assets deployed in a recession. Funding short- to intermediate-term strategic, capital, and liquidity needs with credit alternatives may allow institutions to participate in investment portfolio recovery in the future. Balance sheet expansion via debt issuance, lines of credit, and other means would also take pressure off investment portfolios. Institutions must, of course, be mindful of any debt covenants, pension-funding obligations, and other commitments.

We recommend four basic steps to prepare for the planning conversations that lie ahead:

  1. Identify the risks specific to your organization along with the environmental risks already cited. Incorporate insights that may have been gained during the last recession.
  2. Quantify the likely financial impact of each risk and assess the impact of different scenarios (various combinations of risks) on your organization’s FY20 and FY 21 budgets and the long-range financial projection. As for risks related to enrollment, work closely with enrollment management and financial aid to develop a range of potential outcomes.
  3. Develop mitigation or contingency plans that outline steps the institution would take in the event selected scenarios were to occur, including actions the institution would need to take to reduce a budget deficit (e.g., furloughs, administrative efficiencies, etc.).
  4. Document for discussion the decisions and next steps facing the institution, including:
    • How should the strategic plan be revised in light of the current crisis and impending recession?
    • What are realistic revised financial performance expectations for FY20 and budgets for FY21? Will the organization reduce planning targets for liquidity?
    • Which capital projects are essential and which could be adjusted or deferred?
    • What are the near-term borrowing plans and how should these be revised?
    • What steps remain to adequately plan for selected scenarios?

Colleges and universities are facing unprecedented challenges and substantial operating and balance sheet risk. Through structured conversations, supported by sound long-range financial projections and scenario analyses, CFOs can enable their institution to remain nimble, navigate the risks, and continue to advance their mission.

Produced in collaboration with Kaufman Hall, our strategic alliance partner.