Helping Colleges and Students Through Tough Times

12/7/2020

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Executive Summary

A postsecondary degree or credential remains a valuable investment for both individuals and states. Workers who complete a postsecondary education have access to a vastly improved labor market with higher earnings and lower unemployment. In turn, states benefit from the more robust economic growth an educated workforce helps provide. Yet, while a degree or credential has never been more important, the institutions that provide them have never been more imperiled. The long-term challenges of declining enrollment and dwindling funding, combined with the widespread disruptions created by the COVID-19 pandemic, have threatened higher education institutions’ ability to effectively serve an increasingly diverse student population.

As institutions confront these obstacles, state legislators will play an important role in efforts to ensure continued success for postsecondary students. This brief examines several of the common issues lawmakers have addressed in the past and will face in the future. As a growing number of colleges and universities face financial uncertainty, states have created oversight and financial monitoring for vulnerable institutions to prevent sudden, unexpected closures. States have led efforts to effectively reorganize and merge institutions for both financial reasons and to improve student outcomes. State programs remain important resources for supporting students as they navigate the financial and academic obstacles in the aftermath of a closure. By protecting institutional viability and helping students continue their education goals, state legislators will assure they remain on track to meet statewide attainment goals that will expand economic opportunity and growth for their constituents.

Background

Economic growth and prosperity depend on a well-educated workforce with the knowledge and skills to compete in the global economy. In coming decades, a growing number of workers will need a postsecondary credential or degree to fully participate and thrive in the workforce. Recent international testing data confirms that U.S.students continue to lag behind students in other countries.

Despite rising costs and persistent equity concerns, colleges and universities remain important drivers of economic opportunity for both individuals and states. A postsecondary credential or degree provides a considerable earnings advantage over only a high school diploma. Workers with bachelor’s degrees are half as likely to be unemployed and earn an average of $30,000 more each year than a high school graduate. Data from the past several months during the COVID-19 pandemic has consistently found that adults with a college degree have fared drastically better in terms of retaining employment or finding a new job. The Georgetown University’s Center on Education and the Workforce found that 95% of jobs created since the Great Recession have gone to workers with at least some college education. A recent report from the Brookings Institution found that public colleges and universities, in particular four-year institutions, are key engines of economic mobility in the middle class.

States and localities receive significant benefits from colleges as well. The Brookings Institution found the average bachelor’s degree holder contributes $278,000 more to the local economy than the average high
school graduate. A McKinsey Global Institute report predicted that “college-centric” towns may see 11% employment growth over the next decade and found that counties with higher levels of education are positioned for stronger job growth.

Unfortunately, the institutions responsible for this growth are facing significant challenges. From shrinking enrollments to tightening budgets, colleges and universities are confronting a widespread set of obstacles
that in some cases threaten their very survival. The strained financial outlook for colleges and universities is one of the most pressing concerns for states and the legislators that serve them. Leveraging postsecondary education into economic growth will be particularly vital as states continue to navigate the ongoing challenges of the COVID-19 pandemic.

Higher Education Funding Background

Enrollment 

Higher education institutions face significant headwinds in efforts to drastically increase enrollments. Decreasing birthrates, lower numbers of high school graduates and a strong economy have led to steady enrollment declines since the number of college students peaked just after the Great Recession. The most recent data from the National Student Clearinghouse Research Center shows that postsecondary enrollments declined by 1.3% between fall 2018 and fall 2019. Since 2011, enrollments have declined by 11% overall (2.3 million students) and across all types of institutions.

The economic recession and uncertainty caused by the COVID-19 pandemic may eventually lead to some increases in enrollment, as college attendance levels typically increase during a recession. However, in
these historic instances, campuses were able to fully offer in-person instruction—something that may not be possible in the current environment. New surveys also show that more than half of current college students believe they can no longer afford tuition due to economic impacts of the pandemic, and many students are unlikely to pay full price for online-only courses. Estimates from the American Council on Education (ACE) forecast that enrollments for the next academic year will drop by 15%. Through the end of June, new Free Application Federal Student Aid (FAFSA) completions among high school seniors were down 3.7% compared with 2019, according to data from the National College Attainment Network.

The pandemic is also likely to seriously affect international enrollment. Prior to the pandemic, a record number of international students were studying at U.S. colleges and universities. These more than 1 million
students make up about 6% of the total higher education student population. Should travel and in-person instruction continue to be limited, many international students may be hesitant or unable to enroll
in or return to U.S. institutions. The NAFSA: Association of International Educators estimates that institutions will lose at least $3 billion due to international student enrollment declines in fall 2020. While federal
spending under the CARES Act provided resources to higher education institutions, recent estimates show that in a majority of states, the funds were not enough to cover reported COVID-induced revenue losses or
budget cuts and shortfalls.

State Funding

Since the Great Recession, state funding for higher education—which has historically been a major source of revenue for institutions—has drastically shrunk. While higher education remained the third-largest area of state general fund spending behind only K-12 education and Medicaid, funding was reduced substantially. Between 2008 and 2018, states spent an average of 13% less per student, after adjusting for inflation. During this period, 41 states spent less per student and six states reduced their funding by more than 30% on a per-student basis, according to the Center on Budget and Policy Priorities.

While some states have worked to reduce these cuts in recent years, overall funding levels remain below pre-recession levels when adjusted for inflation. According to data from the State Higher Education Executive Officers Association (SHEEO), education appropriations in 2019 remained 8.7% lower than pre-recession spending when adjusted for inflation.

The COVID-19 pandemic is likely to prompt a return to a challenging fiscal landscape for higher education funding. As both income and sales taxes have taken major hits, governors in several states have already begun trimming higher education funding as part of attempts to balance state budgets this year. Many cuts were largely reduced in scale by using funds from the federal CARES Act. Higher education funding for the next fiscal year (2021) has already been reduced in at least a dozen states.

Tuition

To make up for lost state revenue, institutions have increasingly relied on tuition. In over half of states, tuition revenue now covers more than 50% of total revenues at public institutions. As tuition became a more important source of revenue, it increased significantly. Between 2008 and 2018, average tuition costs at four-year public colleges increased by more than 35%. These tuition increases create negative effects on affordability and access to postsecondary education. A 2011 study found that each $100 increase in tuition would lead to a .25% decline in enrollment on average. Another study from 2018 suggests that tuition increases at public four-year institutions lead to a negative impact on the racial and ethnic diversity of the student body.

Tuition hikes also mean that students will graduate with higher levels of student loan debt. More than half (54%) of students enrolled in postsecondary education took on some form of debt to pay for their education in 2018, and total student loan debt held by U.S. borrowers is over $1.6 trillion. Reports from the Federal Reserve have found that student loan debt has created significant negative economic consequences, ranging from lower homeownership among young adults to less small business formation.

Impact of Funding Challenges

The strained funding landscape for higher education has significant ramifications for students and their families. Facing declining enrollments and dwindling support from state governments, institutions have few options aside from raising tuition or cutting academic supports and programs. These cuts affect students in ways that endanger improving graduation and completion rates. One study from the Federal Reserve
Bank of Boston
found that community colleges in New England granted 21,388 fewer associate’s degrees between 2002 and 2012 than they would have if per-student appropriations held constant at 2001
levels. The study also found that these cuts led to negative effects on the region’s economy and at least 117 fewer patent applications from public doctoral institutions over 10 years. Reductions in completion rates or credential attainment for low-income and minority students threaten to hold states back from achieving postsecondary attainment goals.

College Financial Health and Disclosures

The funding challenges facing higher education also have the potential to lead to even more severe consequences. If cuts to staff, programs and facilities are insufficient to resolve financial woes, many institutions and systems are forced to consider more drastic options. These options include reorganizations, mergers and, in some cases, institution closure.

Financial uncertainty leading to closures is not new across the higher education landscape. In March, Moody’s Investors Service downgraded the higher education sector’s outlook from stable to negative. More than 85 colleges and universities have closed since 2016, according to Education Dive. Before the COVID-19 pandemic, experts had predicted that about 100 private liberal arts colleges were at risk of closing in the next five years, and new estimates warn that number could double. Recent data suggests for-profit colleges are far more likely to close than nonprofit institutions. Between 2014 and 2017, 86% of colleges that closed were for-profit institutions.

The Hechinger Report created a Financial Fitness Tracker for all public colleges and universities as well as nonprofit four-year institutions. The tracker uses enrollment, retainment, average tuition and appropriations to rate the financial health of institutions. The database found that more than 500 colleges and universities showed warning signs in two or more metrics before the pandemic.

Financial challenges and closures are not equally spread across the higher education landscape. Some institutions with large endowments and wealthy donors are relatively insulated from monetary strife. However, the vast majority of institutions do not have these safety nets. Recent research has found that financial inequality between higher education institutions has grown.

Closures are also more likely to negatively affect certain student populations. Nearly 70% of undergraduates at recently closed institutions received Pell Grants and 57% of students at closed schools are Black or Hispanic. The Government Accountability Office (GAO) found that thousands of military veteran students are impacted by college closures each year. Sudden closures often derail these students’ academic plans and create significant financial challenges that can take years to overcome.

State Policy Issues

College closures can have significant effects on both individual students who are working to attain a degree or credential and a state’s postsecondary education system as a whole. While the closure of an institution creates the most serious consequences, other governance changes such as mergers, reorganizations and realignments can also lead to dramatic shifts in educational outcomes. For state policymakers, it is important to note that any fundamental change in an institution’s operations or academic offerings are likely to amount to a major disruption for students. While shifts in governance can provide cost savings and, in some cases, improve outcomes, these positive outcomes only occur after a carefully planned and thoughtfully executed transition. This section aims to provide an overview of some of the most significant issues that warrant consideration in this process.

Institutional Oversight and Financial Health

Preventing the impacts of sudden closures begins with a focus on eliminating surprise shutdowns. Sudden closings offer students little to no warning before a school begins the process of closing its doors, creating significant challenges for students and their families. Preventing and mitigating this process includes a robust push for institutional oversight and monitoring the financial health of schools.

State legislators play an important role in raising policy questions and drawing attention to potential concerns related to institutional viability. States also play a role in authorizing, licensing and approving postsecondary institutions that operate in each state. In 2019, SHEEO published a report on how states can improve state authorization to promote consumer protection and quality assurance for students. Institutions that are on the verge of closing often have similar warning signs that include issues with compliance of state or federal rules, increases in student or other whistleblower complaints, declines in enrollment or increased faculty turnover.

In recent years, legislators have begun to focus more explicitly on college financial health. After the abrupt closure of Mount Ida College in spring 2018, Massachusetts lawmakers sought to increase monitoring of colleges’ and universities’ financial health. A Senate report recommended that additional oversight so that “negative impacts on affected students, parents and faculty may be mitigated and future negative impacts related to prospective higher education institution mergers and acquisitions may be avoided.”

In 2019, lawmakers unanimously passed HB 4099, which included provisions requiring the Board of Higher Education to establish a process to annually assess each institution of higher education’s financial strength. If an institution is determined to be at risk of an imminent closure, that school would be required to provide additional information to the state board and develop proper contingency plans. This information would be exempt from public disclosure; however, public institutions must post financial reports and a summary online. If institutions fail to comply with these requirements, they can be subject to fines or revocation of degree-granting authority. The bill also requires board members of public higher education institutions to undergo trainings that cover fiduciary responsibilities, public records laws and fraud prevention. Board members must complete the training every four years. Lawmakers in New Jersey introduced a similar bill in July 2020.

Mergers and Reorganizations

Given the financial challenges and desire to improve outcomes and institutional viability, many schools and systems turn to mergers as a tool to consolidate operations and create larger campuses to serve students. In the past two decades, more than 100 colleges and universities have merged or consolidated operations. Since 2010, about half of mergers nationwide have involved at least one public college.

While many states and systems consider mergers to save money, there are many challenges to this approach. Merging schools can be a difficult process that takes years to fully complete. Even when mergers are completed, evidence regarding cost savings is not completely clear. One study from an MIT graduate student found that the average merger increases tuition and fees by 7% relative to non-merging institutions in the same state.

Mergers often generate strong resistance from faculty and staff. The University of Alaska Board of Regents recently announced plans to backtrack a proposed merger between the University of Alaska Southeast and the University of Alaska Fairbanks. The idea led to tough opposition from professors, community members and several state legislators. Regents also rejected a broader campus consolidation plan in late 2019 after facing significant budget cuts.

As systems evaluate a range of options to consolidate and merge operations, leadership and staff, legislators play an important role in holding governing boards and institutions accountable for these proposed changes. Specifically, legislators can consider the following issues related to mergers and reorganizations:

  • How such changes will affect the state’s postsecondary landscape and attainment goals. Do the proposed changes strengthen or weaken efforts to meet these goals?
  • Proposed reorganizations or mergers can also have significant economic and community impacts among regions and communities across the state. Will the proposed changes have adverse effects
    on local areas or groups?
  • It is also important to review how long it will take for reorganizations to be implemented and when cost savings will begin. What will be the precise financial impact of the reorganization or merging?

A report from TIAA found that successful college mergers shared many common traits. According to the report, positive mergers must be part of a larger strategic plan that includes “a compelling unifying vision
… strong project management system … robust and redundant communication.” Legislators can consider whether proposed mergers meet these criteria. Sometimes mergers involve campus-wide consolidations, while in other cases they only call for combined leadership, which many experts consider to be a highly difficult change to implement.

State legislators face choices over the involvement and role they will play in the merger or consolidation process. One option available to states is to provide systems and institutions with more individual autonomy over governance decisions. In 2020, Pennsylvania passed HB 2171, which allows the Pennsylvania State System of Higher Education board three years to implement mergers and consolidations between
some colleges and universities that would otherwise require authorization by the General Assembly. Legislatures can also move in the other direction and require stricter oversight and forewarning before closures.
Connecticut HB 5113, which did not pass, would have required legislative approval before state colleges and universities could merge or close.

State Examples 

Georgia

In recent years, Georgia has merged several colleges and universities across the state. In 2015, Georgia State University, a public four-year institution with 31,000 students, merged with Georgia Perimeter College, a public two-year college with 21,000 students. Unlike many mergers, this consolidation was not driven primarily by financial concerns. The Georgia State Board of Regents aimed to expand the success of Georgia State University to Georgia Perimeter College, which had just a 6.5% three-year graduation rate in 2014. After the merger, Perimeter College’s graduation rate improved to nearly 15% by 2018. In the same time frame, the completion rate, which measures both graduation and transfer to four-year institutions, increased from 41% to 58%. The merger also saved money that has been used to invest in additional supports, such as advisors and counselors.

New York

The State University of New York (SUNY) announced plans in 2011 to consolidate campus leadership and have one college president oversee two campuses. The plan generated significant opposition from both institutions and lawmakers. A bipartisan group of legislators introduced SB 5881A, which would have stopped the proposed leadership consolidation and required all SUNY campuses to employ their own president. Subsequently, SUNY reverted back to plans to maintain separate presidents at each campus.

Contingency Plans

Even with more stringent institutional oversight, closures are still likely to occur. All higher education institutions that participate in Title IV federal student aid programs must submit a “teach-out plan” if they intend to cease operations. Teach-out plans are written plans to provide students with an educational program of similar content. These plans are overseen by accrediting agencies but do not have a standardized format. Gaps in teach-out plans fall to the accrediting body and state agencies that are responsible for helping students complete their postsecondary education.

A growing number of states are placing more emphasis on incorporating college closure preparation into state agency planning and strategy. These plans can help both institutions and state systems more effectively navigate college closures while minimizing disruptions for students.

States have frequently considered legislative remedies to address the challenges that emerge in the wake of college closures. These includes bills that work to develop preemptive plans for potential institutional
closings. In 2015, New Jersey enacted SB 2165, which requires the Secretary of Higher Education to adopt a comprehensive master plan, including provisions related to the closure of existing institutions and consolidation of institutions. In 2019, West Virginia considered but did not pass HB 2021, which would have required an economic and educational accessibility impact study provided to the state prior to closure or
transfer of the physical presence in an existing location. A recently introduced bill in New Jersey, SB 2588, would require a private career school or an institution of postsecondary education to provide a close-out plan to the education commissioner.

Student Impacts After a Closure

In the event a college or university does close, state officials play a key role in managing the closure and aftermath. These efforts include addressing both the financial and academic ramifications of the closure to ensure that students have minimal disruptions to their postsecondary education.

Loan Discharge 

When an institution of higher education closes, currently enrolled students face difficult decisions about how or if they will continue their education. One of the biggest factors influencing this choice is a student and his or her family’s ability to pay for another school.

Students who took out a loan to fund their education may be eligible for a loan discharge, which would cancel their loan. Under current discharge criteria, borrowers with a federally held student loan may be eligible for a discharge if the student is unable to complete a program due to a closure. However, students are not eligible for discharge if they continue their education through a teach-out agreement or transfer to another institution. Borrowers with privately held student loans generally do not qualify for discharge under these conditions.

In recent years, some states have passed legislation to provide further relief to students affected by closures. In 2019, Minnesota legislators approved HB 2849, authorizing the commissioner of the Office of
Higher Education to make direct financial aid payments to eligible former students of Argosy University-Twin Cities that closed on March 8, 2019. The bill also provides the authority to reverse eligible disbursements of Minnesota Student Education Loan Fund (SELF) loans for some students. In 2015, California passed SB 150, which removes the tax liability on discharged or forgiven debt for students affected by the closure of Corinthian Colleges.

Tuition Recovery and Financial Aid 

Another area of consideration for state officials is the transfer and filing of student records after a college closure. In many cases, the primary responsibility for maintaining student records will fall to a state higher education agency. Ensuring the integrity of these records and students’ access to them is essential to avoiding disruptions for students and their families.

In 2020, Maryland passed SB 446, which includes several requirements and regulations pertaining to student records. The bill allows students at closing institutions to request a complete academic record and an official transcript at no cost to either the student or the state. Under the law, student record requirements cannot be discharged in bankruptcy. If institutions merge, the state Higher Education Commission will approve a plan to file the institution’s essential records of all former students with the successor institution. Vermont also considered but did not pass SB 164, which would have required other private colleges in the
state to step in and maintain student records if another institution shuts down.

In the aftermath of a closure, many policymakers consider it essential for states to help students continue their education. Entering postsecondary education and failing to obtain a degree or credential can be a
financially detrimental outcome for many students. More than 36 million Americans have some postsecondary education but no degree or credential and are not actively enrolled. Research from the Center on Education and the Workforce at Georgetown University found that students who do not complete a postsecondary degree or credential are likely to earn about $1 million less over their career compared to a college graduate. Data has consistently found that the student loan default rate is significantly higher for students who do not finish college.

States have several strategies to help ensure students continue with their education after a closure takes place. In 2016, Connecticut passed SB 26, which allows the executive director of the Office of Higher Education to issue a certificate of completion to students who have completed a program of study at a private occupational school that has closed or failed to meet certain requirements. After the closure of several for-profit colleges owned by Education Corporation of America (ECA) in 2018, lawmakers in South Carolina passed HJR 3697. It provided the commissioner of higher education the ability to grant additional flexibility to institutions navigating teach-out agreements related to the closures of ECA campuses in the state. In these cases, flexibility for both students and institutions can be an important tool to help students continue their education.

Conclusions and Implications

The COVID-19 pandemic has exacerbated nearly every challenge that existed in postsecondary education across the U.S. This extends to the grave financial situations already facing many higher education institutions. As schools navigate these uncharted obstacles, some will struggle to survive. Questions around institutional viability will create the potential for major disruption for millions of students. If these disruptions are not actively addressed by state policymakers, state educational attainment goals could suffer. State lawmakers can play an important role in ensuring these goals remain on track and students can continue their postsecondary education even in the face of institutional uncertainty and closures. Specifically, legislators can evaluate the financial health and oversight of schools, both public and private. Lawmakers can carefully consider what mergers, realignments and closures may be necessary to preserve institutional viability and support students. When institutions do close, elected officials can help mitigate the myriad challenges students face, from financial challenges to continuing their education. Proactively addressing these issues will allow states to promote positive postsecondary education and workforce outcomes as states work to recover from the COVID-19 pandemic and beyond.

Enacted State Legislation

Institutional Oversight and Financial Monitoring 

  • Massachusetts HB 4099 (2019)- Requires the state Board of Higher Education to establish an annual process to assess each institution of higher education’s financial strength. Requires board members of public higher education institutions to undergo trainings that cover fiduciary responsibilities, public records laws and fraud prevention.

Mergers and Consolidations 

  • Pennsylvania HB 2171 (2020)- Provides the Pennsylvania State System of Higher Education Board expanded authority to implement mergers and consolidations without the approval of the legislature. Provides an exemption for institutions with enrollments over 10,000 students.

Contingency Plans 

  • New Jersey SB 2165 (2015)- Requires the secretary of higher education to adopt new comprehensive master plan for the establishment of new institutions, closure of existing institutions, and consolidation of institutions.

Loan Discharge 

  • California SB 150 (2015)- Removes the tax liability on forgiven and discharged federal student loan debt after the Corinthian College closures in 2015.
  • Minnesota HB 2849 (2019)- Authorizes the Office of Higher Education to take specified measures to distribute funds directly to eligible students and write off loan debt the students incurred after the closure of Argosy University in spring 2019. Authorizes the commissioner of the Office of Higher Education to make direct payments of state financial aid amounts to eligible former students of Argosy University-Twin Cities that closed on March 8, 2019, as well as reverse eligible disbursements of Minnesota SELF loans for eligible students.

Tuition Recovery and Financial Aid 

  • Iowa SB 501 (2015)- Creates within the state treasury a tuition refund fund.
  • Maryland HB 741 (2016)-Creates the for-profit institutions of higher education fund to provide a full refund of tuition and fees incurred by a student that have not been reimbursed or discharged in the event of a school closure by a for-profit institution of higher education or a private career school. To provide a refund, as determined by the secretary of higher education, of tuition and fees incurred
    by a student that have not been reimbursed or discharged, if a for-profit institution of higher education or a private career school fails to: A. Perform faithfully any enrollment agreement or contract with
    the student; or B. Comply with any provisions of this article; or C. For any other reason directly related to the original purpose of the fund deemed appropriate by the secretary.
  • New York AB 5500 (2020)- Provides for the eligibility for tuition assistance program awards for certain undergraduates who must transfer to another institution as a result of a permanent college closure.

Student Records and Continuing Education 

  • Connecticut SB 26 (2016)- Allows the executive director of the Office of Higher Education to issue a certificate of completion to each student who, in the executive director’s determination, has successfully completed the student’s course or program of study in which the student was enrolled at a private occupational school that has closed or fails to meet certain requirements.
  • Maryland SB 446 (2020)- Requires institutions of postsecondary education and private career schools to meet specified requirements regarding school and program closures, including having close-out and teach-out agreements. If an institution does not file all essential records, the secretary of higher education may require the institution to refund all tuition and fees paid by the former student whose records
    were not properly filed.
  • South Carolina HJR 3697 (2020)- A joint resolution to provide that notwithstanding the provisions of regulation 62-6-(d), South Carolina code of regulations, relating to the requirement that at least 25% of curriculum requirements for certain academic programs must be earned through instruction by the institution awarding the degree, the commission on higher education may grant alternate program completion options to students impacted by the closure of six Education Corporation of America Inc. higher education providers in South Carolina in 2018.

Additional examples of state legislation relating to postsecondary education are available in the NCSL Postsecondary Bill Tracking Database.

Additional Resources & Acknowledgements 

NCSL Education Program staff Sunny Deye and Emily Ronco also contributed to this report.