University funding amid the coronavirus pandemic: lessons learnt from the 2008 global economic crisis

As the coronavirus pandemic impacts the global economy, funding for universities is bound to take a hit. EUA’s Thomas Estermann explains what the crisis means for the higher education sector in Europe, with parallels from more than a decade of experience following the 2008 global financial crisis.

As many European countries introduced lockdown measures in response to the coronavirus pandemic, speculation in the sector quickly grew about the long-term impact. Questions have inevitably emerged about what this will mean for universities regarding their future financial sustainability. The immediate effects of the crisis on teaching and research activities, with a massive switch to online course provision, notably, generate longer-term consequences, including financial ones. But these should be distinguished from the wider effects of slowed down economic activity. While their magnitude will depend greatly on the duration of lockdown measures, it is clear that the looming economic recession will impact the funding of European universities. The current period very much takes us into unchartered territories, but we can capitalise on our common experience from the 2008 global financial crisis. With its Public Funding Observatory, for more than a decade EUA has monitored and analysed the long-term impact of the economic shock on universities across Europe. This data can now help us anticipate and mitigate potential negative effects of the current crisis.

Diverse models, varying impact

Impact will differ across countries and among universities. Universities relying on international tuition fees for a larger part of their income (as in England or Ireland) are the first ones to be affected. In some cases, this has already led to recruitment freezes or staff layoffs. Travel restrictions, reduced family income and continued health risks will result in falling international enrolment, at least for the next academic year, and massively affect university finances and operations. Systems in which university income depends significantly on domestic tuition fees (aside from those mentioned above, like Spain or Romania) will also be impacted by reduced family income and connected corrective measures.

Countries where university income mostly hinges on public funding will be affected in diverse ways and magnitudes but are likely to experience a peak in impact lasting between two and four years from now onward, if the post-2008 period offers any indication. The hardest year in terms of number of countries cutting back on university funding was 2012, that is, nearly four years into the crisis. There are some mechanical effects playing into this: public funding mechanisms like funding formulas reflect (often with a delay) variations in student enrolment, research contracts or philanthropic donations, all of which may be affected when the economy experiences setbacks. Important fluctuations for these variables become problematic as fixed costs (infrastructure, staff, etc.) remain the same. Considering the magnitude of the shock for the wider economy in some countries, it will be important to compensate for these effects with appropriate adjustments of funding mechanisms.

Short-term measures, long-lasting impact

Let us also keep in mind that the short-term measures adopted in response to the crisis may affect the sector for a very long time. Various measures that were introduced following the 2008 crisis as short-term responses to a challenging economic development were retained over the years and even expanded, such as hiring freezes in Ireland. Universities in many European countries have experienced continued effects on competitiveness, recruitment of academic staff and infrastructure. Generally, re-investment has been slow and recovery often modest despite increased economic growth in many parts of Europe. Any focus on enhanced efficiency must also consider the rigid cost structures of universities, what they have achieved so far in this area and where there are potential gains in line with their strategy and profile. Indeed, greater online provision will reduce neither personnel nor campus costs, at least in the medium term. Stepping up digitally enhanced learning requires important resources in staff time and in support infrastructure. It is therefore essential that the response measures are time-bound and implemented in full awareness of possible long-term effects. This will help avoid reproducing some of the effects from the 2008 crisis.

Mind the gap

The robustness of the university sector is at stake across Europe. As we have seen in evidence now for several years, this risk comes with a greater divide between countries in terms of investment capacity. The post-2008 period already saw greater differentiation between the systems that sustained investment in higher education and research and those that cut funding. Despite a turn around in 2013, EUA data shows a persistent gap between those two groups. This is no ground upon which to build flourishing European Higher Education and Research areas. National and European policy makers need to ensure that the effects of the current crisis will not turn into a divide in investment.

Making a difference

The European Union can make a difference. But European funds cannot and should not compensate for budget cuts at country level – there is ample evidence that such strategies do not work. EUA has nevertheless seen promising flexibility in the EU rapid response to the crisis, which in turn should provide a new momentum for impactful simplification. Beyond this, the next seven-year EU budget can help create the enabling conditions for a more resilient society and economy in Europe. Funding research and innovation, as well as supporting the student learning experience, will matter enormously. The debates of the past – basic research versus breakthrough innovation, excellence versus cohesion – must be left behind. Basic and multidisciplinary research will be as crucial, as will the integration of all research capacities across Europe.

The coronavirus crisis is touching all sectors and all areas of life. We must take action and work together, drawing on lessons learned the hard way in the past.

In May 2020, EUA will release a dedicated briefing offering a more detailed analysis of the impact of the coronavirus crisis on university funding in Europe.