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As Lawsuits Ensue, Refunding Tuition May Be In Universities’ Best Interest

November 17, 2021
May 20, 2020

At last count, there are more than twenty-seven class-action lawsuits against various universities and university systems. Unlike the earliest lawsuits which were limited to the refund of room, board, and fees, the majority of class actions now seek a partial or full refund of tuition.

According to complaints, lawsuits seek the refund of tuition because students are not receiving what they bargained for. More specifically, they are not receiving the benefit of the campus experience. They do not have access to their professors, and the teaching product offered through distance-learning is widely reported to be inferior to that provided on campus. Some students complain that the professors are not doing a good job of conveying the material, thus jeopardizing the student’s future studies. Others are pointing out that their university has abdicated its responsibility to provide quality education by making the classes pass/fail. In any event, distance learning is not what was contemplated when the student signed their enrollment contracts. Students, now several months of experience with the new model, are becoming more vocal in their criticism. At the University of Chicago, students are threatening to withhold spring tuition unless they receive a tuition refund or a discount.  

Like other businesses hit by the Covid-19 shut down, universities are facing significant financial stress. Despite the difficulty the virus presented, universities have generally acknowledged that a partial refund of campus fees if the fair thing to do. If tuition is also refunded, universities may lose half of their annual budget, leading to increasingly difficult decisions about their operations. Understandably, they are resisting the request for a refund, even in the case of individual lawsuits. Any concession relative to tuition refunds would open the flood gates for claims from the remainder of the student body.

Some universities involved in lawsuits have confidently asserted that class action lawsuits have little chance of success. They argue that they are supplying a product that is close enough to the one that they promised, thus protecting them from a breach of contract claim. Others are suggesting the class certification must fail. In the end, one suspects that universities are counting on the unique circumstances of Covid-19, and the traditional goodwill of courts to excuse their performance, under the contract. Perhaps they will be successful.

They may be missing the point. Universities sell a very special service in the form of education. To differentiate themselves from their competition, universities consistently market the fact that they provide much more than simple academic instruction. Web sites, brochures, and other forms of collateral highlight the student to faculty ratio, a supportive environment, access to professors, outstanding facilities, and a learning experience that cannot be duplicated in any other setting. As evidenced by the ever-increasing tuition, universities have been very successful in building the brand and promoting the model of a highly personal, on-campus education. The buying public has been convinced that experiential learning on a leafy campus is the ideal model for their education. Most importantly for the university, students and their families are willing to borrow and pay, tens of thousands of dollars each year in tuition and fees because they believe that face to face instruction is the best way to learn in their chosen field of academics.

In their effort to avoid tuition refunds for a single spring semester, universities may be doing permanent damage to their brand and threatening the long-term viability of their service/product. By insisting that distance learning is the equivalent of the on-campus experience, universities are inviting the buying public to do a cost-benefit analysis of an on-campus education to online education. Some may decide that a return to campus is not worth it. Others may accept the value of distance learning and enroll in a cheaper education option.

Universities are already reporting a decrease in applications and many have extended their acceptance deadlines. These decisions reflect the hesitancy of students to commit to the traditional model. In a survey of college presidents, the most common concern was enrollment numbers for the Fall.

The ongoing refusal to refund or discount tuition for the 2020 spring semester presents multiple risks. There is certainly a chance that courts will rule in favor of the class action litigants. Even if the cases are settled before trial, universities will pay fees and costs in addition to the tuition refund. Assuming the university wins the lawsuit, they will spend significant amounts of time and money during the litigation process. It must also be acknowledged that litigation will inevitably entail the exposure of university financial practices to the public. This is not an ideal option.

Regardless of the outcome of legal cases, universities are likely going to lose much more than the cost of tuition. The seeming inability to empathize with students and their families will do lasting damage. Universities are leaning heavily on the goodwill of current students to get through this crisis. In the short term, they need these students on their side when planning for the 2020 fall semester. Longer-term, they need these same students to exit the system with a positive recollection of how the university dealt with the crisis.

Will alumni forget that universities took Covid-19 relief dollars and laid off maintenance staff? Can universities explain why they are denying refunds while maintaining tens of millions, or even billions, of dollars in their endowment funds?  Like all other businesses in difficult times, universities must focus on those things that are essential to the delivery of their services. Costs must be cut, and peripheral elements of the business must be pared away. Universities cannot conduct business as usual while asking their customers to absorb the fallout from Covid-19. As a general business proposition, the current model must be protected while future changes are enacted.

Many articles have been written about societal changes being wrought by Covid-19 and the “new normal.” If universities hope for a return to near normalcy, they must accept short term financial consequences in order to protect the traditional on-campus model, for the future delivery of their services. The growth in class action lawsuits does not speak well to university response thus far.