COVID-19 and impacts on the higher education sector

Current situation

The impact of the COVID-19 pandemic on Higher Education Institutions will be acute. Universities UK has recognised the serious financial challenges ahead and London Economics is indicating a potential sector-wide loss of tuition fees estimated at £2.6bn next year. With further pressure likely to land on research funding from stretched public, charitable and commercial sources, universities are facing significant financial challenges ahead – even with the 4 May announcement on a proposed Higher Education Government support package.
 

Immediate impacts and challenges

A set of immediate impacts and challenges have emerged:

• Institutions will increasingly see claims from students that are seeking a refund on tuition fees, with 330,000 petitioning Government, as at 29 April 2020. They may also experience a loss of income from unutilised student accommodation, with Unipol indicating that 60 institutions have confirmed they will refund or forego rent with an estimated £395m loss of income, as at 24 April 2020.
• Whilst a large proportion of the student population has been successfully transitioned to the virtual classroom for the short term, some provision with reliance on physical assets – such as those using laboratories or requiring field trips – can’t transition into purely virtual provision. A key focus will be on how to graduate current final year Undergraduate and Postgraduate Taught students.
• Current research grant delivery will be impacted where activity cannot be continued remotely, and the cost of extensions will be an ongoing discussion.
• Additional costs may be incurred due to large scale remote working of both academic and professional services staff. The lockdown has also triggered a loss of commercial income from conferencing, catering and other commercial activities.
• The capacity and capability of university IT infrastructure and systems have been tested like no other time in living memory. Increased reliance and use of these systems has placed the sector in a high risk position in terms of potential cyber incidents.
   

Short to medium-term impact and challenges

A series of medium-terms impacts and challenges are also coming into view:

• As a consequence of the global lockdown occurring in a key recruitment period, there is a clear risk that international student acquisition will be severely impacted for FY20/21 and potentially beyond. Some institutions may consider changing the academic years and allowing cohorts to join later periods in the year, similar to academic years in countries such as Australia. However, this may impact course profitability.
• Home and EU undergraduate students may seek to defer for FY20/21. Universities are under pressure from students to confirm programme delivery and methods of teaching for FY20/21 and the longer universities are unable to do that, the greater the risk of growing deferrals.
• Institutions may consider reducing international fees to attract admissions or reflect remote learning provision.
• The impacts on research give rise to concerns over the viability of funding sources. Charities and industry will be a particular concern, but much of HE research also has EU/UK Government backed funding which may not be available at pre-COVID levels, as competing pressure on the public finance increases. The loss of international student income will also impact institutions own ability to support and maintain their quality and strength of research activity.
• Smaller student cohorts will impact revenues from in-house student accommodation and catering services. However some institutions have also entered into agreements with third party providers that have minimum occupancy covenants, which will have an adverse financial impact.
   

How universities are responding

The pandemic is forcing Higher Education institutions to challenge the status quo of their operations, both to preserve resources in the immediate term and to build financial resilience for the future. Options under consideration include:

Immediate response

• Preservation of resources (cash) and deferral of any/all capital or investment commitments, where possible.
• Creation of rigorous working capital management to protect cash reserves in the short term and minimise the burn of cash moving forward, as universities plan and implement the changes they need in the interests of sustainability.
• Rapid assessment of non-core operations and non-contributory subsidiary company activities, considering the options to either divest or close non-contributory operations through an accelerated M&A process or managed wind-down of activity.

Planning mitigating actions

• Rapid cost reduction or deferral and challenge on all areas of expenditure.
• Reassessment of course contribution and optimisation based on estimated demand, coupled with resource availability and viability of delivery options. This could lead to short to medium term revisions of course portfolios, with the potential for mothballing under-utilised real estate.
• Mitigation of potential additional costs and/or supplier claims as capital programmes are delayed, deferred or stopped.

Stakeholder management

• Demonstrating to key financial stakeholders that institutions have considered and planned prudently for the impacts of COVID-19 and can demonstrate robustly that the institution can and will be sustainable.
• Assessing financial strength of key suppliers and partners, develop contingency plans where concerns exist.

Support considerations

• Identify the options that might be available to stabilise, manage liquidity in an appropriate manner and implement steps to deliver the optimal solution for the institution, its students and for the wider public benefit.
• Consider the institution’s capacity to identify, qualify, approve, implement and deliver tangible results within an appropriate timeframe to achieve sustainability.
• When seeking support from stakeholders or Government through its business support measures, institutions will need to independently demonstrate that they have taken appropriate and proportionate action prior to seeking external support.

With a recognition by key University bodies of potential job losses and damage to the sector as a whole, there is agreement across the sector that immediate and decisive action is required. The 4 May saw the publication of a consultation on further measures to avoid adverse behaviors of institutions in the 2020-21 recruitment of Home/EU students – and with that should come further clarity as to how this will play out. However, the emphasis for now is most certainly on a sustainable way forward in these uncertain times.