According to researchers with University of California–Berkeley’s Debt & Society Project, a project of the Center for Culture, Organizations, and Politics with research support from the American Federation of Teachers, the a key factor in the rising cost of college is driven by expenditures largely unrelated to either the quality of the education, teaching or maintaining campus facilities. Rather, college is getting unimaginably expensive for both institutions and students because it costs so much to finance the business of education, thanks to Wall Street lenders. While there are many controversial budget items in higher education—critics lament bloated administrations and the cost of sports teams and flashy amenities—the report focuses on debt itself, and the massive volume of borrowing, as a major overlooked burden on institutions.
Even among graduates of public colleges, the average debt burden has more than doubled between 2001 and 2009, from about $9,440 to $21,100, mirroring the debt trendlines for graduates of private non-profit institutions. That means that for a typical poor single parent, the projected cost of her student loans may well have doubled in the years it takes to earn her degree as she juggles a job and night classes. And she’s likely facing other crushing debts on top of that: a recent Pew study links high student debt burdens among households of adults younger than 40 with higher total debt, including mortgage and credit card costs, which in turn aggravates the lifelong wealth gaps that higher education was supposed to help alleviate.
But the more shocking findings of the study are on the institutional side, where “colleges and universities also have a debt problem,” the researchers say. Since 2002, both public and private nonprofit colleges and universities have seen their debts soar, in large part through municipal bonds, and interest payments on those debts nearly doubled to $11 billion in 2012.
So the rising total cost of higher education stems not only from massive borrowing by low and middle-income students, who are largely doing so out of economic necessity, but from the heavy borrowing of colleges, often for questionable purposes.
Should we care that our college experiences are being funded by borrowed money? Here’s why: in recent years, the machinations of financial markets have become increasingly entangled in budget decisions, and often those decisions have little to do with educating students. The spike in borrowing costs isn’t just reflecting trends in interest rates, enrollment or the cost of professors’ salaries—the study found neither the interest rate per se nor instructional costs alone to be the primary factor. In many cases, schools are just borrowing for huge capital investments that help the college market itself, such as gleaming new football stadiums and shiny dorm buildings.