Permanent Budget Cuts Are Coming

The last eight months represent perhaps the most painful period in the history of American higher education. Colleges and universities employed 337,000 fewer people in August compared to February, with adjuncts and staff members working in housing and dining taking the biggest hit. Full-time faculty and staff members in other positions have borne less of the brunt of the pandemic and ensuing recession to this point, even though many of us across the country (myself included) have taken cuts to salary and benefits while being expected to do more work.

So far, most of the layoffs in higher education have been viewed as temporary in nature; as soon as students can safely return to campus, the positions will return. But there are growing signs that colleges will make permanent cuts to their entire work force. Two recent examples are the University of Akron, which recently laid off 97 unionized faculty members after invoking a force majeure clause in its collective-bargaining agreement, and Ithaca College, which is planning to lay off nearly one-fourth of its faculty members.

The pandemic has placed college budgets under incredible stress, and these stresses will continue for several years barring a large federal bailout package for states and colleges. As a result, the cuts seen at Akron and Ithaca are likely only the beginning for higher education. The truth is that the future was already looking grim for colleges because of a pending enrollment cliff, and the pandemic has just made things worse.

Nathan D. Grawe, an economics professor at Carleton College, brought the coming enrollment crisis to the attention of college leaders through his book Demographics and the Demand for Higher Education (Johns Hopkins University Press, 2018), in which he highlights a “birth dearth.” Beginning in 2026, the number of high-school graduates nationwide is expected to begin a long decline. This decline has been underway for many years in the Northeast and Midwest, which makes recruiting for colleges like Akron and Ithaca even more difficult.

Colleges facing a decline in their core-market demographic have a couple of options to consider before resorting to cuts, but these options have been constrained by the effects of the pandemic.

The first is to go beyond the traditional market of 18- to 22-year-old undergraduates. While recent high-school graduates attending college full time are no longer the typical college student in American higher education, older adult students are less likely to live on campus or be able to pay full sticker price to attend. Because of the expected lingering economic impact of the pandemic, even fewer potential students are going to be willing or able to pay full price. For colleges that rely on housing dollars and tout the residential-college experience, voluntarily switching to evening, weekend, and online classes is a difficult sell. It’s also a hard sell to board members, who are resistant to changing a model they remember fondly as students themselves decades ago.

The second option is to create new programs at both the undergraduate and graduate levels in an effort to increase enrollment. This has probably been the most common response by colleges, and this model worked well to stabilize institutional finances during the Great Recession. It is also a politically popular choice, as growing the faculty ranks is a good way to get faculty support.

But even though graduate enrollment looks to be much stronger than undergraduate enrollment this fall, the pandemic has changed the extent to which colleges are willing to take on financial risk by starting new programs. Many colleges were caught in a difficult financial position in the spring when they had to quickly refund millions of dollars in housing and dining payments while taking on additional pandemic-related expenses. Colleges are going to be risk averse for years to come, making it difficult to justify the upfront costs of starting new programs with uncertain returns.

So the only option left is the one that Akron and Ithaca are pursuing: permanent budget cuts while seeking maximum financial flexibility. Ithaca is notably seeking to eliminate programs with low enrollment, which allows it to fire tenured faculty members. Board members and legislators are increasingly asking small programs to justify their existence as they seek to reallocate resources toward more popular programs. The institution of tenure is rapidly decaying at all but the wealthiest colleges, as a combination of a buyer’s market for talented faculty members and concerns about long-term financial obligations makes tenure increasingly hard to justify.

I expect many residential colleges serving the traditional market of college students will begin making long-term budget cuts instead of trying to grow their way out of financial problems or changing their missions to appeal to adult learners. As 2026 looms and a full economic recovery may be several years away, the default position of these colleges will be to not fill open positions while using targeted retirement incentives or program eliminations to get the rest of the way to their budget targets. These cost-cutting efforts should prevent widespread closures, but the next several years will still be painful ones for higher education.