University of Minnesota bracing for up to a $300 million hit from COVID-19

The University of Minnesota could take a $300 million hit because of the COVID-19 pandemic, which has shuttered campuses across the country and forced schools to switch to online learning for the foreseeable future.

Under the best-case scenario, U administrators told the Board of Regents Tuesday that the university could lose $75 million in revenue if the pandemic subsides this spring. If it extends through the summer, the loss in revenue could reach $160 million. The pandemic could cost the U $315 million in revenue in the most severe case if it were to last into the fall — amounting to 7.5% of the school's $4.2 billion budget.

The U joins a growing list of public universities across the nation that are bracing for big budget hits and enrollment declines. U President Joan Gabel laid out the potential impact to the regents and shared measures the school is taking to soften the economic blow.

"We have been challenged before. We have emerged stronger, and we will do that again," she said.

In the worst-case scenario, preliminary estimates show the U losing nearly $90 million from tuition, $75 million from athletics, up to $60 million from event cancellations and as much as $40 million from student housing and dining fees.

The worst scenario assumes students would not be allowed to live in campus housing when the fall semester starts, said Julie Tonneson, associate vice president of university finance.

That scenario also forecasts notable drops in student enrollment, with the incoming freshman class and incoming transfer students each potentially decreasing by 20%, Tonneson said. Student retention rates could also be affected, with graduate student retention potentially dropping as much as 10% and international graduate student retention decreasing as much as 50%.

"The best case is becoming a more unlikely case each day," said Brian Burnett, the U's senior vice president for finance and operations.

Gabel is already taking precautions to prepare as the virus worsens. She has frozen hiring and salary increases. And she and almost 200 other senior leaders across the U's five campuses will take a pay cut equivalent to a one-week furlough; Gabel and members of her cabinet will also take an additional 10% salary cut starting next fiscal year.

During the Board of Regents discussion, Gabel told members she will soon propose a tuition freeze for the next academic year to "support students and make sure they are able to continue their education."

The U will receive some assistance from the federal coronavirus relief package known as the CARES Act. U administrators estimate the school will receive $36 million in aid, but at least half of that must be spent on assisting students.

If government aid doesn't cover the entire cost of COVID-19, the U could turn to philanthropy, cost savings and eventually its central reserves. Budgetary steps the school could take include staff furloughs, salary freezes, head count reductions and internal budget cuts.

Regent Michael Hsu said the university should consider cutting administrative costs and potentially furloughing some employees. He also recommended admitting all students who are on admissions waiting lists to offset potential dips in enrollment.

The estimated revenue losses of $75 million to $315 million were projected before the regents approved a revised room and board refund for students who had to move off campus because of the pandemic.

The new room and board refund model approved Tuesday will give Twin Cities, Duluth and Rochester students full refunds for unused housing and dining services prorated from March 16 through the end of the semester. Crookston and Morris students will receive full refunds for these services from March 23 through the end of the semester.

The U estimates it will lose $35.4 million by issuing these refunds, as opposed to a projected $27.8 million loss that was tied to an earlier refund proposal with a proration start date of March 28 for all students. Tonneson said the projected revenue losses detailed Tuesday will likely increase because of the new refund structure.

"This is a virus that hit us with lightning speed. It has required lightning-fast decisions to be made," Regent Janie Mayeron said. "I am happy that at the end of the day, we all know how to get to the right place."