An overlooked and yet equally imporant note is that Universities and Colleges were also part of the binge debt purge of the last few years. In a quest to be competitve and modern they built new facilities, hired Managers, grew Endowments and basically did whatever it took to look the part of a first class school with all the bells, whistles and of course the requesite sports teams that accompany this quest.
And like all binges the bills came due and what better way to pay for it then the trickle down philosophy of the last 3 decades. And that now becomes the massive Student debt we see today. The cost of Education rose rapidly much like Medical debt unparalleled to the rise of inflation. That means that costs in comparison to average costs - food, energy and costs of living - were simply higher. Of course to actually calculate that you would need well not higher math just basic math but then again the cost of funding Education declined in the same equal parallel, so if you were in say public schools or Universities your math education might be a tad inferior.
The New York Times has an excellent article below discussing the building boon and what that meant to College deht and how it affected the rising costs of tuition. Additionally the Wall Street Journal this weeked also discusses the costs associated with attending local State Universities and why they are disproportionately higher than just a decade ago.
Their findings were as such:
A number of factors have helped to fuel the soaring cost of public colleges. Administrative costs have soared nationwide, and many administrators have secured big pay increases—including some at CU, in 2011. Teaching loads have declined for tenured faculty at many schools, adding to costs. Between 2001 and 2011, the Department of Education says, the number of managers at U.S. colleges and universities grew 50% faster than the number of instructors. What's more, schools have spent liberally on fancier dorms, dining halls and gyms to compete for students.
In 2011 15 million students were enrolled at the nation's 678 public colleges and universities, nearly three times the number attending private ones, according to the Education Department.
State subsidies for these public colleges and universities fell 21%, on a per-student, inflation-adjusted basis between 2000-01 and 2010-11, according to the State Higher Education Executive Officers Association, a national research and advocacy group. Over that same period, tuition at two- and four-year public colleges rose an inflation-adjusted 45% to $4,774 in 2010-11, according to the association. At public four-year colleges this year, tuition averages $8,655, according to the College Board
Public universities "are creeping toward the private, nonprofit model, where everybody pays market rates rather than subsidized rates," notes Kevin Carey, director of the education-policy program at the New America Foundation, a think tank. The University of Virginia's graduate school of business, for example, now receives no state funding.
Add to that eliminations of faculty positions or graduate students teaching entry classes, larger class sizes and eliminations of some programs furthering a deteroriation of State Universities. But man their football team is great! And our dorm rooms, spectacular.
Now I am not saying that schools should not moderize and offer a series of choices in curriculm and have decent living and working environments but this is overkill. States used to have a few choices and each with specialized focuses. In Washington when I was a kid we had University of Washington for a broader liberal arts education but also a law, medical and dental school. The Eastern half of the state has Washington State University with a focus on Agricultural and Energy options. Scattered throughout were what were once called Colleges and they too had unique focus and options. Costs were parallel to the type of study but all affordable. I had never heard of Student loans nor would have needed them. Going to school was simply just an extension of what was expected and the pressure to find a career and income not part of the learning process.
Today you must by age 17 be sure of what you want to do for the REST OF YOUR LIFE and be prepared to by age 24 have debt equivalent to either a home or luxury car over your head for the REST OF YOUR LIFE. Sounds great! And we wonder why our young are going nuts.
What I also wonder is why these supposted bastions of Education seem so stupid when it comes to financial planning, basic Economics and money management. That does seem to also parallel how America operates on a larger scale - the Quandary Theory I call it; meaning when posed with a difficult situation we do nothing or we do the utter opposite of what is needed.
Add to this the Riches donations to their alma mater and in turn the buildings of great monuments to their name and wealth that have to maintained and upkept to meet the rising costs of energy and modernity that of course only the Riches will have. Actually underwriting student loans, debts and opening the door for more residents of a community to attend at affordable rates not part of the equation. Go Team!
How could this be fixed? State Universities are the responsibility of State Legislators. They should be collaborating and having open and transparent budget and curriculum talks to ensure that they are serving the community by offering a diverse set of needs that would in turn draw students and yet maintain independance but not duplication or redundancy. This in turn allows greater flexiblity and opportunity for all involved - from the Academics to the Students. As for Athletics.. let that be a seperate funded program without taking away from the basics of what Education is really about - Education.
As for Private Universities they should no longer be given tax exempt status unless certain criteria are met, such as 40% of its operational costs go towards Education. And that a certain % of students are from below income levels from the community where said University exists are admitted with discount tutiton rate equivalent to Stat one. Open the doors there are your people.
Building a Showcase Campus, Using an I.O.U.
By ANDREW MARTIN
Published: December 13, 2012
A decade-long spending binge to build academic buildings, dormitories and recreational facilities — some of them inordinately lavish to attract students — has left colleges and universities saddled with large amounts of debt. Oftentimes, students are stuck picking up the bill.
Overall debt levels more than doubled from 2000 to 2011 at the more than 500 institutions rated by Moody’s, according to inflation-adjusted data compiled for The New York Times by the credit rating agency. In the same time, the amount of cash, pledged gifts and investments that colleges maintain declined more than 40 percent relative to the amount they owe.
With revenue pinched at institutions big and small, financial experts and college officials are sounding alarms about the consequences of the spending and borrowing. Last month, Harvard University officials warned of “rapid, disorienting change” at colleges and universities.
“The need for change in higher education is clear given the emerging disconnect between ever-increasing aspirations and universities’ ability to generate the new resources to finance them,” said an unusually sobering introduction to Harvard’s annual report for the fiscal year ended in June.
The debate about indebtedness has focused on students and graduates who have borrowed tens of thousands of dollars and are struggling to keep up with their payments. Nearly one in every six borrowers with a student loan balance is in default.
But some colleges and universities have also borrowed heavily, spending money on vast expansions and amenities aimed at luring better students: student unions with movie theaters and wine bars; workout facilities with climbing walls and “lazy rivers”; and dormitories with single rooms and private baths. Spending on instruction has grown at a much slower pace, studies have shown. Students end up covering some, if not most, of the debt payments in the form of higher tuition, room and board and special assessments, while in some instances state taxpayers pick up the costs.
Debt has ballooned at colleges across the board — public and private, elite and obscure. While Harvard is the wealthiest university in the country, it also has $6 billion in debt, the most of any private college, the data compiled by Moody’s shows.
At the Juilliard School, which completed a major renovation a few years ago, debt climbed to $195 million last year, from $6 million in inflation-adjusted dollars in 2002. At Miami University, a public institution in Ohio that is overhauling its dormitories and student union, debt rose to $326 million in 2011, from $66 million in 2002, and at New York University, which has embarked on an ambitious expansion, debt was $2.8 billion in 2011, up from $1.2 billion in 2002, according to the Moody’s data.
The pile of debt — $205 billion outstanding in 2011 at the colleges rated by Moody’s — comes at a time of increasing uncertainty in academia. After years of robust growth, enrollment is flat or declining at many institutions, particularly in the Northeast and Midwest. With outstanding student debt exceeding $1 trillion, students and their parents are questioning the cost and value of college. And online courses threaten to upend the traditional collegiate experience and payment model.
At the same time, the financial crisis and recession created a new and sometimes harrowing financial calculus. Traditional sources of revenue like tuition, state appropriations and endowment returns continue to be squeezed, even as the costs of labor, health care for employees, technology and interest on debt have generally increased.
Students are requiring more and more financial aid, a trend that many believe is unsustainable for all but the wealthiest institutions.
“We’ve had a lot more downgrades than upgrades in the last five years,” said John C. Nelson, managing director of the higher education and health care practice at Moody’s, which has a negative outlook on all but the top state universities and private schools. “There is going to be a thinning out of the ranks.”
For now, the worst financial struggles are confined to stand-alone professional schools and small, tuition-dependent private colleges. For instance, $63 million in debt has left Mount St. Mary’s University, a small Roman Catholic college in Maryland, with thin financial resources and junk-rated credit, according to a Moody’s rating in March.
“We borrowed a lot of money, but we had no choice,” said Thomas H. Powell, the university’s president, who maintains, despite the credit rating, that it has regained its footing and has no need for additional debt. “I wasn’t going to watch the buildings fall down.”
Allmost no one is predicting colleges will experience default rates on par with those of indebted students and graduates, at least not anytime soon. While payments on debt principal and interest have increased over all, they remain a manageable piece of the expense pie for most institutions, partly because of historically low interest rates, financial analysts said.
Still, higher debt payments and other expenses have contributed to the runaway inflation of college costs, and the impact on students is real and often substantial. New financial realities on campuses are imposing conflicting demands on college administrators: do they make their institution more affordable, or continue to spend money to make their campus more attractive?
Despite a lull in construction after the financial crisis, borrowing has continued to grow, Moody’s data shows. “Schools are behaving like the Greeks, irresponsibly,” said Richard K. Vedder, an economics professor at Ohio University and director of the Center for College Affordability and Productivity. As an example, he cited his own employer, Ohio University, which has proposed spending $2.6 billion on construction projects in the next 20 years, half of it paid for by debt — an undertaking university officials said was necessary to update antiquated buildings.
“The Edifice Complex pervading higher education flies in the face of other trends that call for caution in capital spending,” Dr. Vedder said in an e-mail.
he Law of More
Administrators at Ramapo College of New Jersey, a public institution founded in 1969, have harbored a dream of making it the premier public liberal arts college in the New York metropolitan area.
But one big obstacle has been the state of New Jersey, which has provided little money for capital projects on state colleges and universities in the last two decades.
So Ramapo borrowed, and it borrowed some more, building a new business school, dormitories and a recreational facility that includes a 2,200-seat arena. A new wing that will house the nursing program is under construction.
Ramapo now has $281 million in debt, and its debt payments account for 13 percent of its budget, high compared with most colleges rated by Moody’s.
While the proportion of debt payments to budget at Ramapo is unusual, its story is not.
Amid increasingly intense competition for better students and higher rankings, college administrators across the country during the last decade have deployed a relatively simple strategy borrowed from the movies: if you build it, they will come.
Construction starts on college campuses were 32.6 million square feet in 2008, the highest in two decades and up from 12.1 million square feet in 1990, according to a 2010 study by McGraw-Hill Construction. Construction declined after the financial crisis but is beginning to recover, McGraw-Hill officials said.
The building was often done with borrowed money. Outstanding debt at the 224 public universities rated by Moody’s grew to $122 billion in 2011, from $53 billion in inflation-adjusted dollars in 2000. At the 281 private universities rated by Moody’s, debt increased to $83 billion, from $40 billion, in that period. Rather than deplete their endowments, some colleges borrowed to help pay bills after the financial crisis, but most borrowing was for capital projects.
Since 2000, the amount paid in interest and principal has increased 67 percent at public institutions, to $9.3 billion in 2011, and it increased 62 percent at private ones, to $5 billion last year. Mr. Nelson at Moody’s said the increase was a result not only of increased borrowing but also, in recent years, of a shift from variable- to fixed-rate debt, which typically increases interest costs but is more stable.
A study released in July by Bain & Company and Sterling Partners, a private equity firm, found that long-term debt at the nation’s nonprofit colleges and universities grew 12 percent a year from 2002 to 2008, while interest costs increased 9 percent.
By comparison, the cost of instruction grew 5 percent in that time period. The Bain report estimates that a third of colleges and universities are financially weaker than they were a few years ago.
“Much of the liquidity crisis facing higher education comes from having succumbed to the ‘Law of More,’ ” the Bain report said. “Many institutions have operated on the assumption that the more they build, spend, diversify and expand, the more they will persist and prosper. But instead, the opposite has happened: institutions have become overleveraged.”
Not all borrowing, even an eye-popping amount, is necessarily bad if you are an administrator at the University of Cincinnati, a state university with $1.1 billion in debt.
“The institution has profited mightily from the changes that we have made,” said Mitchel D. Livingston, vice president for student affairs. He noted that enrollment had increased and that the quality of the student body had improved, as had the “quality of life experience on campus.”
“We have gone from a second-choice institution to a first-choice,” he said.
Daniel M. Fogel, who resigned last year as president of the University of Vermont, said that given the lack of state support, many public colleges and universities had to borrow money just to remain adequate. He said that when he arrived at the university in 2002, some of the laboratories were inferior to those at many high schools.
“How do you bring people to teaching facilities that are really subpar?” he said. “It’s not a matter of gilding the lily, in many cases.”
Other schools also stood by their borrowing. John Beckman, an N.Y.U. spokesman, said nearly $900 million of the university’s debt was for its hospital and therefore had no impact on students. He said that N.Y.U.’s revenue increased 100 percent in the last decade, so that while debt also increased, the proportion of interest and principal paid against the overall budget has remained relatively steady.
A Juilliard spokeswoman said that the renovations were needed to update and expand facilities, and that a fund-raising drive would help defray some of the costs.
Picking Up the Bill
David K. Creamer, vice president for finance and business services at Miami University, said the importance of college rankings had pressured administrators to spend more and more. In some rankings, the effect of spending is direct because institutions with “the best dorms” or “the best athletic facilities” are singled out. The effect on other rankings is indirect: better facilities attract better students, and that ultimately raises rankings, Mr. Creamer said.
“There is nothing in there that says if you become more efficient, your ratings will go up. They will probably go down,” he said.
Miami borrowed money to renovate antiquated dorms and a student union, but Mr. Creamer warned that colleges cannot indefinitely spend their way to the top. “It’s not a sustainable approach,” he said. Miami’s debt increased this year to $444 million, a 36 percent increase from last year.
One problem is that the spending can make college prohibitively expensive. In some states, including New York, California and Connecticut, borrowing for public colleges and universities is mostly paid for by taxpayers, so students are not directly responsible for payments on the debt. But at most colleges, there is little question that construction and increased borrowing have contributed to escalating costs and student debt.
Often, though, the costs are not easy to isolate.
With some exceptions, interest and principal payments are paid with general revenue, which includes tuition, room and board, a portion of endowment returns and state appropriations. At smaller colleges that are dependent on tuition for most of their revenue, students shoulder a bigger burden of the debt. (Conversely, at wealthy universities with multiple revenue streams, students may pay very little of the debt.)
Some debt at public universities is paid by specific charges approved by students, for things like new student unions or recreational facilities, and in other instances, colleges have added a specific fee for construction projects and repairs.
At Ramapo College in New Jersey, administrators in 2009 added a capital improvement fee, now $1,000 a year, to pay for repairs. Other public colleges in New Jersey had already imposed similar fees on students.
It costs about $24,500 for New Jersey residents to attend Ramapo and live on campus (excluding books and personal expenses), roughly 30 percent more than a decade ago.
Ramapo’s president, Peter P. Mercer, said debt had definitely added to the costs for students. But he said Ramapo’s options were limited given the lack of state funding and other financial resources. Since the college is only 43 years old, it has a relatively small endowment and alumni support.
“If Ramapo College was going to respond to what students wanted, which was larger, more comprehensive programs and residential housing, then we were going to have to go out and borrow,” Mr. Mercer said.
Harvard may not have to spend lavish sums of money to attract students. But it has spent billions anyway, to maintain and even bolster its position atop the academic heap.
In the six years leading up to the financial crisis, financed by robust endowment returns and debt, Harvard added 200 faculty members (a 10 percent increase) and more than four million gross square feet of buildings (a 20 percent increase). Its grant aid to students grew 80 percent in those years.
But the financial crisis and recession forced a sharp correction. The university’s endowment, whose annual returns provided roughly a third of the operating budget, suffered a 27 percent negative return in fiscal 2009, an $11 billion loss, and Harvard borrowed $1.5 billion to pay its bills rather than selling off assets at a sharp discount. Its interest expense more than doubled from fiscal 2008 to fiscal 2011, to nearly $300 million.
“The financial crisis has acted like a tidal wave that, as it receded, exposed certain vulnerabilities with a new clarity,” Harvard officials said in the November annual report.
That tidal wave struck a broad swath of higher education, forcing university presidents across the country to look at spending, and debt, in a new light.
At Drexel University, a private college in Philadelphia, an ambitious expansion by a previous president, Constantine Papadakis, who died in 2009, transformed it from a 9,000-student university on the brink of bankruptcy 17 years ago to a modern campus with 21,000 students and a spot on U.S. News and World Report’s “up and coming” schools list. But the change has come with a price: $467 million in debt and a net price of attendance that is among the highest in the nation.
Mr. Papadakis’s successor as president, John A. Fry, plans to continue that expansion, but without taking on additional debt anytime soon.
Rather, he hopes to “use other people’s money” to expand the university by leasing Drexel’s land for privately developed projects. Already, developers are building one dormitory on Drexel property, and there are plans for another. Mr. Fry also agreed last year to a merger with Philadelphia’s Academy of Natural Sciences, as a way to bolster both the museum and Drexel’s natural sciences department.
“Holding on to the old ways, I don’t think that is going to work,” Mr. Fry said. “I think the public is tired of that.”
At the Ohio State University, President E. Gordon Gee declared the era of “Taj Mahal-like” dormitories and academic buildings over.
“There is no one who likes to build more than me,” said Mr. Gee, who took over at Ohio State in 2007 and is the highest paid president of any public college. Debt has grown roughly 70 percent since then, to $2 billion. “The reality is, that is what got us in trouble.”
At Ramapo, President Mercer said he planned to focus on marketing the college’s academic reputation, rather than its new buildings. Students, he said, seem less interested in “bells and whistles” now that the costs of college — and the potential debt — have become painfully clear.
“I think the attitude has changed,” he said. “Five years ago, I might have been asked if they had to share a bathroom. Now, I’m asked if my business school is accredited.”