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Universities must brace for financial crisis, says Moody’s

Ratings agency sounds alarm over ‘weaker financial outcomes’ for 2021

Universities must prepare for a looming cash squeeze in the year ahead as the coronavirus pandemic shrinks incomes forcing intense competition for students and leads to staff layoffs, according to credit agency Moody’s.

The global ratings analyst outlines stark challenges facing universities around the world as the coronavirus pandemic causes a widespread drop in student demand over the next 12 months. Lower domestic and international student enrolment is expected, while campus closures will squeeze incomes and cause a “balance sheet erosion”, they say.

If universities can reopen their campuses before the start of the next academic year in September, Moody’s said universities can expect a “more manageable” dip in demand. But if the pandemic drags on, lower income from tuition fees, student halls and conference facilities will force universities to cut staff levels and cancel lab-based teaching and research.

“We expect some universities to also consider cost-cutting measures, including permanent and temporary layoffs of non-essential university staff, and to scale back some of their research activity, especially those that require physical space,” said Moody’s. “There may be some cost savings from campus closures, but we expect a net effect of higher expenses and weaker financial outcomes for the next financial year.”

Western universities’ dependence on students from China could cause trouble next year, as they make up 23 per cent of the international student market. If China were to keep its borders closed while other countries reopened theirs, it would result in a “significant negative impact on international student enrolment” for universities, Moody’s said.

UK universities are in a better position overall than their US counterparts, which vacuum up around 25 per cent of the global international student market. The ratings agency said a prolonged coronavirus outbreak in the US could see more students choosing the UK or Australia instead.

Some of the financial damage will be offset by the rapid switch to online learning and many universities will receive “full or near full tuition fee income” for the rest of the academic year, while most have been “proactive” in trying to cut costs. But value for money concerns around online courses could increase competition for domestic students, which will “exacerbate adverse demographic challenges” as universities fight for fewer 18 year olds.

Moody’s said the “underlying strong demand” for university education “will support a recovery” once the coronavirus pandemic is under control. “However, considerable uncertainty remains surrounding the severity and duration of coronavirus and the likelihood and trajectory of recovery,” it added.

The Moody’s report appears on the same day as UK universities minister Michelle Donelan writes for Research Professional News urging universities to take advantage of government schemes to prevent redundancies during the pandemic.