Wall Street as cause and beneficiary of skyrocketing university tuition

A deep, carefully argued, carefully research report from Debt and Society makes a strong case that sky-high tuition (and brutal, lifelong student debt, up 1000% in 15 years) is not primarily caused by bloated administrations or high professors' salaries. The explanation is a lot more banker-y.

Cuts to public spending drove universities to hike tuition, and the students made up the difference through loans, which benefit financial institutions. The university-as-business ethos that followed drove administrators to float lucrative (for the financial sector) bonds to create showy physical plant for their campuses, further driving up the cost of tuition and the finance-sector revenues from student debt. It's even worse in the for-profit university sector, where all of these financial shenanigans and the attending lifetime of debt are accompanied by "dismal graduation rates."

The spending on actual education -- classrooms, faculty, etc -- has held steady through this period, but ten percent of America's $440B annual post-secondary education spend goes into investors' pockets.

When capital investments do not pay for themselves, tax and tuition payers can be left on the hook. Since 2002 public college and university systems such as the University of California have increasingly secured new bond issues by using pledges of all available institutional revenues, including tax dollars and tuition proceeds should project revenues prove to be insufficient.42 Under these indenture agreements, called general revenue bonds, if a university cannot secure sufficient revenue from dormitory, dining hall or recreation center fees, it is required by bond contracts to increase revenues elsewhere.

Financial losses on University of California at Berkeley’s new Memorial Stadium provide a high-profile example of bond agreements requiring tax and tuition payers to cover payments on excessive debts for amenities. The UC Board of Regents, which governs the UC system, planned to pay off $445 million in bonds for the stadium by selling the rights for 2,900 luxury seats for up to 50 years.43 In June of 2013, however, UC officials acknowledged that sales of these rights had fallen $120 million short of their targets, increasing the odds that UC will use other revenue like tuition and tax dollars to pay off the bonds.

On the other hand, bond markets can reward behaviors that generate greater revenue but are at odds with the goals of public higher education. Bond investors are willing to accept the lowest interest rates from the safest prospects for investment and not necessarily from colleges and universities most capable of fulfilling their core missions. Moody’s ratings methodology, for example, accounts for a higher education institution’s “pricing power” in terms of high student demand and statutory flexibility to increase tuition, its “operational performance” in terms of the diversity of its revenue streams and control over expenditures on faculty, and its “capital investment” in facilities that draw in additional revenues. It also encourages colleges and universities to offer security provisions for bondholders that provide the broadest possible revenue pledges.44 By these mechanisms, the increasing costs of borrowing have been passed on to tax and tuition payers even when the borrowing is not for educational priorities.

Debt and Society | Borrowing Against The Future [Charlie Eaton, Cyrus Dioun, Daniela García Santibáñez Godoy, Adam Goldstein, Jacob Habinek and Robert Osley-Thomas]

(via Sociological Images)

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  1. Sure, wall street has its hand in the till, as usual, but right in Cory's post is the real primary reason for the rapid increase in tuition rates for most Americans:
    "Cuts to public spending drove universities to hike tuition"

    The cost of providing education is up, for various reasons, but the main driving factor in 'average' tuition is that state support for state universities and colleges per student has gone down quite a lot in real terms. This funding squeeze also makes whiz-bang financial deals more appealing.

    Tax revolt.

    If the states were still financing the vast majority of the majority of college degrees Wall Street would not have so many opportunities to skim.

  2. Financial losses on University of California at Berkeley’s new Memorial Stadium provide a high-profile example of bond agreements requiring tax and tuition payers to cover payments on excessive debts for amenities.
    The UC Board of Regents, which governs the UC system, planned to pay off $445 million in bonds for the stadium by selling the rights for 2,900 luxury seats for up to 50 years.43 In June of 2013, however, UC officials acknowledged that sales of these rights had fallen $120 million short of their targets, increasing the odds that UC will use other revenue like tuition and tax dollars to pay off the bonds.

    Yes...Wall Street forced UC Berkely to spend hundreds of millions of dollars on a goddamned football stadium (Memorial Stadium is the largest football-only stadium in California.)

    This is the real problem, IMO. Universities don't spend more on faculty or classrooms because they're not competing for students on those. Rather they spend hundreds of millions on things like football stadiums because that's where they perceive the real action is.

  3. At my public university the state used to pay close to 100% of our budget. Currently the state pays about 10% of our budget, yet retains 100% control over our fiscal decisions. Public disinvestment in education, sold by means of a "higher education is a jobs training program"-trope (as opposed to, say, an investment in a public good: a generally educated population).

  4. Point by point:

    Investing does not necessarily connote returns measured in direct financial terms. For example, by making a conscious series of decisions about hard drugs, exercise habits and diet in my teens and early 20s, I am now reaping returns in terms of my health and the kind of life I am able to enjoy compared to my age peers who made different decisions. Of course, we could also value such returns financially, but the motivation was not based on financial concerns, but on experiential ones. What kinds of returns can a society expect from investment in education? A healthier population, less crime, and greater (macro) productivity. All of those benefits (and others) can be measured in financial terms, both for the state (rates of public expenditure on emergency services, imprisonment, recidivism, etc.), and for society, but motivations are not only financial. So that's what I mean by "invest."

    I am not at all sorry: an educated populace, even "fluff" degrees (like CS engineering degrees for currently marketable skills that are obsolete within 4 years) produce a populace of educated individuals. If you defined "never gets used" as "what job description is defined by the marketable skills detailed in your transcript" I see your point. However, I reject that notion because I see and value public goods like an educated populace. Both the creative and innovative and the merely boring everyday intelligent. Also: marketable creativity is boring as fuck: the risk takers are not generally rewarded by the market (e.g. Van Gogh? In the university this is part of what we mean by "academic freedom" which pertains to freedom of thought, expression and association). And I do not want to live in a gated exurb with 12 other families who can afford my level of education while the vast majority of the populace live in uneducated ghettoized penury (which is where the student debt-spiral is taking us): that kind of world is an utter failure of a society by my metrics.

    And as to public investment: I am old enough to remember when education across the life course was largely subsidized as it ought to be (and it still is in some countries) because it is a public good. I agree that there are a lot of problems in how we invest in primary/secondary public education, but we can and ought to do more and better for all education across the life course.

  5. Ygret says:

    You've drunk the neoliberal cool-aid so deeply you don't realize the definitions you use for words have been hijacked. Investing is not necessarily a finance term, there are a lot of investments societies make that don't return a direct profit -- in fact I'd say the vast majority of investments societies make don't "return a profit" in the mentally-challenged definition you are using.

    If we had followed the neoliberal definitions you rely on during the earlier eras of the nation we would've never built roads, let alone the massive infrastructure that allows our society to function so efficiently. Roads, schools, waterworks, electrical utilities, telephone networks, the internet, hospitals, shipping terminals, passenger rail, semiconductors, the space program, the sciences generally... the list of what we wouldn't have if we lived and died based on the definitions and ideology you espouse in that one sentence is far greater than the list of what we would have. It reminds me of the libertarian fools who completely ignore all of what it took to build the physical and intellectual commons we all rely on so they can demand we put an end to all that foolish public investment. We'd all still be living on feudal estates (most of us would never have been born of course) if your mindset ruled the past two centuries. Amazingly, shockingly ignorant comment, yet par for the course in todays shockingly selfish and shortsighted neoliberal stupidfest.

    P.S. And I'd like to add that its this same ahistorical, sociopathic denial of the public good, the commons, that is responsible for the constant degradation of our national infrastructure: a fragile and failing electrical grid, roads, public utilities, state infrastructure, the vast public education system all deteriorating at accelerating pace; no buildout of the infrastructure that will make us successful in the 21st century and beyond, and no addressing the clear and present facts of capitalism's failure to provide for the needs of the people and society. After all, the capitalists sell capitalism as the system best able to provide the most happiness. Or at least they pretended that when they had to answer the criticisms of the communists. Now the story is everywhere yet somehow unstated, but goes something like "to the victors go the spoils", which is as anti-commons as one can imagine and sociopathically ignores the existential public acts that made the spoils possible in the first place. That whole "I made this"/"you didn't make this" silliness only served to obfuscate the obvious, undeniable fact that we are nothing without the communities we are part of. Without them we'd have an almost impossible task everyday, like living out on the prairie in 1830: doing everything for oneself. The neoliberal pretensions of self-creation and individuality only avoid shocking us because they're so common. The "great man theory" of journalistic and historical analysis are commonplaces in our media from Hollywood to (lesser) historians to the everyday claims of self-righteous business douches, and yet it is utter horseshit. Even the great "wiz" behind Apple, Steve Jobs, was technically weak and relied on his less photogenic partner Steve Wozniak for the technical knowhow.

    The insufficiency of what is termed "free market capitalism" but is really oligopolistic, rentier-dominated lemon socialism is everywhere apparent. The denial of the commons, indeed of our common humanity, flowing in a constant shit stream from the power-elite and their ocean of lackeys and buttlicks shocks the conscience. Neoliberalism is at heart denial of conscience. It preaches the "disutility" of the conscience. Neoliberalism is the cruelest of the capitalisms as it preaches that selfishness is the truest morality, totally eviscerating the need to feel for one's fellow human. No longer must we dehumanize our underling in order to abuse him. The primary neoliberal "moral" principle is denial of mutual human obligation and thus in one move attempts to turn morality into its opposite.

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