COVID-19 and Financial Sustainability of Academic Institutions

Oleg V Pavlov,Evangelos Katsamakas

doi:10.2139/ssrn.3832341

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 tui-tion-dependent college. We find that different combinations of the pandemic mitigation protocols have vary-ing 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 sys-tem, 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.

Highlights

The COVID-19 pandemic has had a significant impact on higher education
When COVID-19 hit the global economy in Spring 2020, academic institutions responded to the health emergency in several ways [1], including switching from in-person classes to online instruction, implementing health and safety measures such as installing plastic shields and sanitizing equipment, and testing for COVID-19
We demonstrate how scenario analysis and stress testing using computational models can assist with the complex task of steering a campus through the pandemic by helping to identify effective and financially sustainable pandemic mitigation approaches

Summary

Introduction

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. The goal of this article is to study the short-term and long-term effects of the pandemic on the financial condition of a representative college using scenario analysis and stress testing with a simulation model. We demonstrate how scenario analysis and stress testing using computational models can assist with the complex task of steering a campus through the pandemic by helping to identify effective and financially sustainable pandemic mitigation approaches.

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Discussion

Conclusion