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InsiderOnline Blog: December 2012

There’s Another Government-Induced Bubble to Worry About

Higher education has a big debt problem, reports the New York Times. The story here is consistent with the theory that increases in student aid don’t help students, but rather are captured by colleges and universities. That theory holds that, because of the unique non-profit set-up of higher education, colleges and universities compete not to provide a better product but to increase their prestige:

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. […]

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. […]

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. [New York Times, December 13]

Posted on 12/14/12 11:52 AM by Alex Adrianson

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