COVID-19 and Financial Sustainability of Academic Institutions

Abstract

The COVID-19 pandemic has had a significant impact on higher education. Steering academic institutions through the pandemic is a complex and multifaceted task that can be supported with model-based scenario analysis. This article studies the short-term and long-term effects of the pandemic on the financial health of a college using scenario analysis and stress testing with a system dynamics model of a representative tuition-dependent college. We find that different combinations of the pandemic mitigation protocols have varying effects on the financial sustainability of an academic institution. By simulating six individual components of the COVID-19 shock, we learn that due to the causal complexity, nonlinear responses and delays in the system, the negative shocks can propagate widely through the college, sometimes with considerable delays and disproportionate effects. Scenario analysis shows that some pandemic mitigation choices may destabilize even financially healthy institutions. The article concludes that higher education needs new sustainable business models.