Colleges laden with debt after construction binge
By ANDREW MARTIN
The New York Times | December 16,2012
Some call it the Edifice Complex. Others have named it the Law of More, or the Taj Mahal syndrome.
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. Often, 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 period, the amount of cash, pledged gifts and investments that colleges maintain declined by more than 40 percent relative to the amount they owe.
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 in higher education has focused on students and graduates who have borrowed tens of thousands of dollars and are struggling to keep up with their payments.
But some colleges and universities have borrowed with similar abandon, 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.
Debt has ballooned at schools 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 school, the data compiled by Moody’s shows.
The pile of debt — $205 billion outstanding in 2011 at schools rated by Moody’s — comes at a time of increasing uncertainty in academia.
Almost 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 overall, they remain a manageable piece of the expense pie for most institutions, 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.
“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.