The virus, varsities & the Canadian conundrum

By Remitbee - Sep 14, 2020

K.T. Jagannathan

Coronavirus has certainly changed the global face. One is still trying hard to fathom the post-COVID world. What does the virus portent for Canadian universities? If one were to buy a new report published by Moody's Investors Service, the Canadian higher education sector faces a series of key credit challenges as the new academic year begins.

"Fall 2020 enrolment is expected to be below 2019 levels, but preliminary projections are more robust than the severe declines forecast at the start of the pandemic," says Moody's Vice-President Michael Yake in a statement.

This encouraging sign is based on a couple of factors. For one, the Canadian varsities have a high share of international students. For another, these international students are in Canada. So much, they don’t need to worry about restrictions related to travel.

There is a flip side to the coin, however. How will they manage the revenue shortfall? The deficit will put them under pressure. High fixed costs will be a drag on them.

“Direct government funding is expected to support universities' operating revenue through 2021. Still, funding levels for higher education are at risk once the pandemic eases as provinces will look to reduce spending across the public sector,” the report said.

According to Moody's, the credit quality of Canadian universities in the coming years will largely hinge on the ability of management to adjust to pandemic-related pressures as universities adapt to the “permanent effects” of this shock.

Since the outbreak of the deadly virus, the universities in Canada have extended early offers and expanded outreach activities to address the concerns of students and provided clarity on whether courses would be offered online or in-person. “A number of key policy changes by the Canadian government also helped to incentivize enrolment among first-year international students,” the report said. Nevertheless, the revenue forecast remains weak and uncertain. “We still expect a year-on-year fall in tuition revenue for the sector this year and there is a high risk that the actual enrolment figures could fall below universities' estimates if students are unsatisfied with online options,” Moody’s said. The social-distancing norms and the weak economy will weaken their effort to beef up other revenue streams such as auxiliary services, investment income, and donations.

“Efforts to boost domestic enrolment numbers to offset any fall in international numbers are unlikely to be very effective in insulating tuition revenue because international students pay much higher fees. In some jurisdictions, such as Ontario where domestic funding is fixed if enrolment levels are within a certain band, the additional increase in domestic students will fail to result in additional government funding,” the report said.

One thing is sure, however. The evolving situation demands mindset change. Horses for courses, it is often said. The onus is on the universities to satiate the preference of students.

“If students' preferences shift towards online course delivery, universities will need to invest more in building out IT infrastructure and strengthening themselves against cyber risk,” the report said. There is a rider, though. Online teaching will expose universities to new competitive pressures from non-traditional providers that may alter plans to increase tuition fees. ``The ability to update and adjust long-term strategic plans will be critical to maintaining credit quality,” Moody’s put it matter-of-factly.

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