Graphic by Ashley Mowreader
Sixty million dollars is a big deficit, even for a university with $1.4 billion in assets.
When the school year began, the University faced a $60 million to $80 million budgetary shortfall due to the COVID-19 pandemic, President Jim Gash told the Pepperdine community during the Aug. 11, President’s Briefing. During the pandemic, students have questioned the high price of remote instruction offered by Pepperdine, with a student petition from summer 2020 still unanswered. A June class-action tuition lawsuit remains unsettled and the University remains silent on much of its financials.
Like many organizations, Pepperdine faced considerable financial losses due to COVID-19 prevention expenses and government regulations restricting in-person, revenue-generating services. Pepperdine’s externally audited financial forms, however, reveal overall financial strength due to the University’s large investments and endowment funds during the 2020 fiscal year — Aug. 1, 2019 to July 31, 2020.
“We have managed our margins well in dealing with the effects of COVID for 2020,” wrote Chief Financial Officer Greg Ramirez in a Sept. 2, email to the Graphic. “However, we have strong headwinds that we will have to continue to work through and plan for such that Pepperdine is positioned for long-term financial sustainability.”
The Cost of Remote Instruction
Pepperdine has provided only online classes since its transition to remote learning in March, generating new expenses for the University.
“[…] our commitment to providing each student a premier educational and residential experience of his or her choosing during the pandemic has required significant institutional investment beyond a normal academic year,” Seaver Dean Michael Feltner wrote in a July 9, email to students.
Feltner did not elaborate in his email on what qualified as “institutional investment,” but Pepperdine’s FY 2020 audited financial forms reveal a $13 million increase in professional service expenses as compared to 2019, for a total of $60 million. Professional services, while not defined in the audited financial forms, relate to costs associated with delivering online graduate programs, consulting and other forms of outside services, Ramirez wrote in a Jan. 20 email to the Graphic.
“The increase in professional services is due to the increase payments to our online education partners, resulting from the growth within online graduate programs, particularly at the Graduate School of Education and Psychology,” Ramirez wrote in a Jan. 11, email to the Graphic.
During remote instruction, Seaver students and faculty utilize online tools such as Proctortack that would not be used in an in-person learning environment, which could qualify as professional service expenses. Pepperdine also paid for licensing to library tools like Adobe Creative Suite, which are not provided to students in a typical year.
Pepperdine’s FY 2020 forms reveal new construction expenses, which resulted in an increase of $55 million from FY 2019. These expenses include COVID-19 space conversions — like modifying apartments for single occupancy — and social distancing classroom modifications, Ramirez wrote.
Public construction projects from 2020 include renovations to Brock House and Lovernich Apartments, the construction of a new parking structure to replace Rho and a temporary fitness center in preparations for a new student center and restoration of the Chateau d’Hauteville, the new International Programs facility in Vevey, Switzerland.
President Gash shared in a Dec. 15, Seaver Town Hall that Pepperdine has also purchased COVID-19 prevention resources such as testing kits, Plexiglas and new signage. Each of the International Programs directors also confirmed their programs are making similar upgrades to their facilities.
To combat some of these losses, the University received federal funding from the Higher Education Emergency Relief Fund to cover expenses due to remote instruction, according to the FY 2020 audited financial forms.
“This fund was established for emergency aid grants to students for expenses related to the disruption of campus operations due to COVID-19 and direct aid to higher educational institutions to cover certain costs associated with the significant changes to the delivery of instruction due to COVID-19,” according to the FY 2020 audited financial forms.
The federal government granted Pepperdine $3,620,832 in two installments, with no less than 50% to be given directly to students as emergency financial aid grants.
“In an effort to adhere to the spirit of the requirements [of the grant], Pepperdine implemented a hybrid approach that was designed to benefit as many students as possible, but also target those that are in the greatest need,” Ramirez wrote. “The Student Care Team and each school’s student financial aid department worked together in close coordination.”
Pepperdine used the institutional portion of the fund — $1.8 million — to cover a portion of the $8 million spring 2020 room and board student refunds, Ramirez wrote.
To reduce expenses, Pepperdine published the COVID-19 Expense Optimization Measures in March 2020, which were extended through spring 2021. The measures contain eight categories — new employee hiring, emergency pay, supplemental compensations, student employment, consulting agreements, capital projects, remote work-related expenses and other measures — five of which relate to personnel.
In FY 2020, Pepperdine spent $219 million on personnel-related expenses, $12 million more than in FY 2019.
While Pepperdine has not furloughed or laid off any domestic staff since March 2020, all bonuses, pay increases and emergency pay have been suspended, remote work-related expenses other than technology will not be reimbursed and overtime work is not permitted for staff. The University will also not pay for virtual conferences (with the exception of faculty academic conferences and recruitment events), staff awards, gifts and meals provided for virtual meetings, office furniture and non-essential business travel. Student employment is limited to only those performing essential work.
“The focus of the strategy related to personnel costs is to control escalation to the greatest degree possible while preserving the University faculty and staff workforce,” Ramirez wrote.
The Expense Optimization Measures also call for a hiring freeze for all new faculty and staff hires through fall 2020. However, a July 22, email to Seaver students from Feltner states Pepperdine added more professors to teach remotely for fall 2020.
“In the current semester, Seaver College has decreased average course enrollment and added faculty to provide all students a first-class education — one that fulfills the learning outcomes in each course and prepares students for success,” Feltner wrote.
The University’s strategy was to retain faculty and staff to the greatest extent possible, Ramirez wrote, meaning Pepperdine did not fill vacant positions unless they were deemed “critically essential through a rigorous review process.”
Tuition Rate Debate: Student Perspective
Pepperdine announced its 2020–2021 tuition rates July 9 in an email detailing plans for fall 2020 classes. In this email, the administration detailed three modality options for students — online, in-person or a hybrid of the two — with the same tuition rate for all delivery methods.
Seaver College’s fall 2020 tuition, as shared by Feltner in the July 9, email, was $28,875 — a 3.8% increase from spring 2020.
Pepperdine updated students July 22 that all classes would take place online in accordance with local COVID-19 guidelines. Some students, however, did not believe tuition should remain the same with the change of delivery method.
In a July 2020, survey by the Graphic, senior Olivia Reins wrote that Pepperdine should offer different tuition rates for students based on their chosen modality as the resources required for each delivery method varies. Pepperdine also discounted all summer course tuition rates due to remote instruction but raised tuition for fall 2020, despite classes still being online, Reins wrote.
“Not a very well thought out plan and makes us students feel like money bags. There’s a reason students created a petition about this but I doubt Pepperdine will even look at it,” Reins wrote.
Sophomore Amalia Irodotou created a Change.org petition in July 2020 asking Pepperdine administration to lower tuition costs for students for the 2020–2021 school year, which gained 1,531 signatures.
“This petition was originally made to achieve one goal: to lower tuition. I felt that after all the time, money, and energy we put into being students there, none of it was taken under consideration by Pepperdine,” Irodotou wrote. “Clearly, discounting tuition is the moral thing to do as a “Christian” university, but instead they are choosing to profit from their students during a national pandemic and economic crisis.”
A Jan. 8, survey by the Graphic of 39 Seaver students found 85% of students believed they did not receive the full value of their tuition and fees for fall 2020.
Tuition Rate Debate: Administration’s Perspective
In the July 22, email, Feltner addressed community members’ concerns regarding tuition for remote instruction, explaining student tuition does not cover Pepperdine’s operating costs.
“Pepperdine’s commitment to providing each student a premier educational experience during the pandemic has required significant institutional investment beyond a normal academic year,” Feltner wrote. “The cost of delivering Seaver College’s premium academic experience arises from its small class sizes, outstanding faculty, and robust support services. All of these factors are unchanged by the mode of course delivery.”
Pepperdine student tuition, fees and net student aid increased by $26 million compared to FY 2019 for a total of $290 million, according to the FY 2020 audited financial statements. Gross student receivables — meaning any kind of student tuition, room, board, fees, outside financial aid or grant payments — between the University’s five schools also increased by $400 million.
“Based on the decrease in enrollment at Seaver College and the increased fall discount rate, the loss in net tuition revenue can be estimated at $2.5M,” Ramirez wrote. “However, aggregate net tuition revenue will likely increase due to the continued growth within our online graduate programs. The data are still coming in, and we should receive clarity soon.”
A total of $44,095,000 was allocated from the endowment to support operations, covering the entirety of Pepperdine’s 2020 operating expenses, meaning no student receivables were allocated to operational costs.
Because of Pepperdine’s nonprofit model, the University does not profit off of student tuition, fees, student aid or other receivables. The majority of Pepperdine’s income comes from donor gifts and the endowment fund. Pepperdine received $18 million from private gifts and grants in 2020, according to the FY 2020 audited statements — a $5 million increase from FY 2019.
“Support from the University endowment covers approximately 11% of overall operating costs, resulting in a high level of tuition dependency,” Ramirez wrote. “However, the undergraduate discount rate (i.e. student aid as a percentage of gross tuition) was 39% in fall 2019, which means that for each dollar of gross tuition recorded, $0.39 was awarded in student aid. The discount rate has also increased each year over the last three consecutive years.”
While Pepperdine earned more in student receivables for FY 2020 as compared to FY 2019, the University will face further losses major losses due to a lack of in-person revenue-generating services.
The University has not provided exact numbers regarding International Programs revenue. Based on fall 2019 abroad participant numbers and program fees, International Programs earned almost $2 million in fees for the 2019-2020 academic year, prior to program refunds due to COVID-19.
Pepperdine has not hosted students abroad since March 15 and the next cohort of students abroad will not arrive until June 2021 at the earliest, resulting in millions of dollars of lost potential revenue.
“Much of these types of revenues are pass-through that will have corresponding decreases in operating costs, with the exception of Malibu housing revenue,” Ramirez wrote.
The Malibu campus can house 3,000 students at maximum capacity, Housing Director Robin Gore said in a July 22, interview. Housing rates, as posted by Pepperdine Housing and Residence Life range from $6,215 a semester for first-year students to up to $8,000 a semester for graduate student apartments.
As of early August, 5% of the typical number of students who live on campus lived in student housing, resulting in “major budgetary implications due to housing revenue shortfall,” President Gash said at the Aug. 11, President’s Briefing.
Pepperdine earns about $16 million a semester in housing revenue, Ramirez wrote, but with closer to 220 students on campus for fall 2020 and 300 expected for spring 2021, Pepperdine is estimated to receive about $4 million for housing for FY 2021 if it is unable to reopen campus for residential living.
Further, Pepperdine faced loss in its endowment, with the endowment fund reduced to $908 million at the end of FY 2020, a $9 million loss from 2019. Pepperdine’s investment returns lost $8 million as well, according to the FY 2020 audited financial statements.
Despite the University’s losses during the FY 2020, Pepperdine remains financially healthy and ended the year with $1.4 billion in net assets, a 2.5% decrease from FY 2019.
“The University entered the pandemic with a solid financial position and has taken a proactive approach to preserving financial resources to mitigate future disruptions, while planning for exciting initiatives that will significantly enhance the student experience for years to come,” Ramirez wrote.
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