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Public Colleges and Universities Gorge on Debt–What Will Be the Impact?

An article in today’s Chronicle of Higher Education (registration required) highlights a new report by Moody’s Investor Service. The report is entitled “US Public University Medians for Fiscal Year 2009 Show Tuition Pricing Power Amidst Rising Challenges.” A title only a banker could love. What does it mean?

It means that

  1. Public colleges and universities have been taking on debt in the past five years, despite rises in tuition:  overall debt at the 200 institutions surveyed went up by 31% in the past four years.
  2. At the 200 colleges and universities survey, debt has gone up more than their revenue growth, their total financial resource grown, and their enrollment growth.
  3. The reasons for taking on debt include declines in state, taxpayer funding for public universities, weakened endowments, and higher expenses associated with growing enrollments.

So what does this mean for students?

It means that tuition will continue to go up at state institutions. It means that some public institutions may actually go bust if they keep on taking more debt–remember the housing bubble?  It means that students are going to experience the effects of cost-cutting.  Just a quick read through the higher education press yields myriad examples of department cuts (University of Colorado’s journalism school), faculty dismissals (University of Southern Mississippi), and incredibly long wait times to register for student orientation (UCLA).

It also means that tuition at state universities will continue to rise, which will continue to close the price gap between tuition at public and private universities.

We’re heading for some interesting times.  My prediction:  we’re going to see a lot of consolidation in the “industry.”  Some public institutions are not going to make it.  Some states will get smart and eliminate waste and redundancy in their programs (e.g., why does Colorado need several state-funded music education programs when music teachers have already been cut from the public schools?)

Public colleges and universities are not going to be immune to economic and  market forces any more than those people who fell victim to the mortgage bubble:  if you borrow more than you  can pay back, the piper is going to come to call.

Mark Montgomery
Educational Consultant and Student of Economics

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