Stimulus Relief Won’t Be Enough to Fill Institutions’ Budget Gaps, Ratings Agency Warns

By Owen Daugherty, NASFAA Staff Reporter

Institutions of higher education will face significant challenges brought about by budget shortfalls due to the ongoing pandemic, and the recently passed federal stimulus package will fall far short of being enough to offset the impact, according to Fitch Ratings.

The ratings agency said the nearly $23 billion set aside for higher education in the Consolidated Appropriations Act, 2021 will provide some support for colleges and universities, but won’t be enough to fill the gaps in many institutions’ budgets this year.

"Federal funds will help provide crucial revenue, but these funds will only address a portion of short-term needs," Fitch said

While the $22.7 billion in support is significantly more than the $14.3 billion allocated for higher education in the Coronavirus Aid, Relief and Economic Security (CARES) Act, it’s still well short of the roughly $120 billion higher education leaders have said is needed to help the sector mitigate the challenges that students and institutions are facing amid the COVID-19 pandemic.

Fitch cited declining incoming and international student enrollment, tuition affordability and discounting pressures, and flat or reduced funding for higher education from states as challenges that are likely to persist for the sector beyond this academic year. 

“Enrollment volatility and declines in key student-driven revenues are expected to worsen in 2021, following significant declines in new student enrollment in fall 2020 across the sector,” the ratings agency noted, also predicting that institutions will likely continue to cut expenses despite the federal support.

The federal stimulus package passed in late December differs from the CARES Act beyond just the price tag. The allowable uses of funds are more flexible than in the CARES Act, with institutions permitted to use their funds to defray expenses associated with COVID-19, including lost revenue, reimbursements for expenses already incurred, technology costs associated with the transition to distance education, faculty and staff training, and payroll.

The ratings agency also pointed to the new funding allocation formula, which differs from the CARES Act in that it is based on both full-time equivalent and headcount enrollment, as a boon to community colleges in particular since they serve a higher proportion of part-time students.

Many in the higher education sector are hoping this is not the last installment of support from the federal government. Democrats are expected to have control of both chambers of Congress following apparent Democratic victories in both Georgia Senate runoff elections as well as holding the White House, which could set the stage for another — potentially larger — stimulus package including additional aid for higher education. 

 

Publication Date: 1/11/2021


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