Next semester’s tuition must decrease if classes are to stay online

Whether USC chooses to continue online classes through the end of the school year or opts for a hybrid model of teaching, tuition cannot remain stagnant. Paying the full price again for a quarter of the experience (at best) is financially senseless.

Simply put — students won’t accept the exorbitant price tag. 

USC should seriously consider lowering tuition and fees by adapting its pricing model to charge in-person classes differently than online ones. If that is not the case, many students may likely take gap years to work, pursue internships or delay their graduation date and ultimately get back their “lost semester” when things return to normal. 

Current seniors who wish to experience a traditional graduation ceremony and international students, for whom campus is a cultural experience that extends far beyond academics, are the most likely to choose these alternatives. In fact, some students throughout the country and the world have already done it this semester. Newly admitted students will be able to fulfill their General Education requirements (which, unlike most other courses, are transferable to USC) at community colleges, potentially in person.

The issue that USC (and other universities around the country) claim to have with cutting tuition is that they simply cannot afford it or that doing so would weaken their financial position. In a joint statement to the USC community in June, Provost Charles Zukoski and James M. Staten, USC’s Chief Financial Officer revealed that the University had incurred between $300 million and $500 million in losses since the start of the pandemic.

These losses might sound really high if we consider that campus has been inoperational for six months now and will likely be out of commission for at least another semester. But this is because the University’s operating costs are not very flexible. 60% of them consist of personnel costs (salaries, wages and benefits), which the University has resolved to maintain. 

And savings on the remaining 40% of these costs while campus was closed apparently couldn’t compensate for the unexpected costs of transitioning to online learning and containing the spread of the coronavirus on campus.

Unfortunately, despite the University’s efforts to close its budgetary cap — such as cutting salaries in the administration; pausing merit increase, discretionary expenses and capital projects; and asking schools, academic units and administrative offices to review their budgets for potential efficiencies — it seems unlikely that USC’s financial situation will improve anytime soon. Housing occupancy might not go up until Spring 2021 and new enrollments, specifically of international students faced with travel restrictions, could drop. In the current economic climate, private donations and returns from investments could also decline.

That being said, students shouldn’t bear the brunt of USC’s financial complications any more than the University itself. Many are losing their jobs and cannot make loan payments or borrow money. Students are graduating into a precarious job market and will likely struggle to find employment. Current students are losing their work-study opportunities on campus or can only log a fixed set of hours. 

USC should use its assets during this time. Of course, it is important for a university to grow its assets to improve campus buildings and academic programs, and drawing from this precious reserve when the University’s financial position has already deteriorated is risky. 

However, net asset losses are not unprecedented. Between the 2018-19 fiscal year, for example, the University’s financial statements show that the school’s net assets decreased by $81 million (from approximately $9.27 billion to $9.19 billion), as operating expenses exceeded operating revenues and capital appreciations. 

According to the same financial statements, USC has access to a little over $2.3 billion worth of financial assets, meaning they can be converted to cash within a year. These readily-available assets exclude endowment funds that are designated for specific uses (for faculty, academic programs, scholarships or buildings, for example) by donors and the Board of Trustees for specific uses. USC’s $5.73 billion endowment is in fact invested, and only the interests it generates as well as the capital gains it enables the University to realize can be spent. 

As of fiscal year 2019, the University also had access to lines of credit in the amounts of $500 million. However, in a COVID financial FAQ on its website, the University has already made it clear that it isn’t willing to further jeopardize its financial health by borrowing at high interest rates. 

As for the endowment, USC has also indicated it isn’t willing to spend it during the crisis, insisting that this is not how the funds are supposed to be used.  

In any case, it is important to know that a special provision in the notes attached to the University’s fiscal year 2018 financial statements says that the Board of Trustees could modify how the endowment funds (or proceeds from investments of these funds) can be earmarked under exceptional circumstances. 

Of course, making sure that gifts keep on giving by reinvesting them makes sense from a financial standpoint. It even benefits students; indeed, the stable source of income it constitutes allows the University to build outstanding infrastructure and amenities for students, offer world-class academic programs and sponsor research, while only charging students for the cost of day-to-day operations. And drawing on the endowments funds threatens that very source of income. 

Nonetheless, our priorities have changed. Accumulating capital to continuously improve and develop the university makes sense under normal circumstances, but is a financial aberration when it leads the University to charge students the same tuition when campus is open and when it is closed. Not only does it defy the laws of supply and demand, but it is also at odds with students’ current preoccupations. The priority is to make sure all students can get the education they are seeking, which can already be a financial challenge, in addition to being an academic one. Everything else is secondary.