Why America's Public Universities - And Not Just Their Students - Have a Debt Problem

Charlie Eaton and Jacob Habinek:

With growing student debt in the headlines, Washington DC policymakers have focused on the interest rates students pay on the loans they take out to cover college costs. But student loan interest payments are a symptom more than the underlying cause of rising student debt. Colleges have steadily hiked tuition, to heights that now make attendance unaffordable for many students from families of modest means.

Tuition increases have been especially sharp at public research universities that once provided an affordable world-class education. The increases have been going on for a long time, but they have accelerated recently. Average tuition and fees at public research universities increased 56% between 2002 and 2010 from $5,011 to $7,824 a year. As the cost of going to college has escalated, so has student indebtedness. According to data from the Institute for College Access and Success, student debt at graduation from public four-year colleges increased by 32% between 2004 and 2010, when it hit an average of $21,605 per student.

Why are tuition and fees at public universities rising so sharply? Universities face higher costs to pay for all of their activities, while the public funding they receive has plummeted. Tuition hikes help make up the difference. Yet there is another factor at work, especially recently - because public universities are going into debt. Working with major Wall Street players like J.P. Morgan Chase, Deutsche Bank, and Bank of America, they issue bonds and make substantial interest payments to investors, many of whom also trade in university debt. Like their students, in short, public universities have developed a debt problem - indeed, the rising burden on the students is partly driven by the indebtedness universities have taken on.

Posted by Jim Zellmer at September 10, 2013 12:25 AM
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