Crisis on Campus_ A Bold Plan for Reforming Our Colleges and Universities - Mark C. Taylor [35]
To compound the problem, many educational institutions have been living beyond their means for almost two decades. Colleges and universities, like the rest of the country, went on a spending spree and debt mounted. As endowments rose, schools became more ambitious, and competition for students increased. To make themselves more attractive to students and improve their place in the U.S. News & World Report rankings, administrators engaged in a construction race. In some cases, new construction was for legitimate academic purposes; most of it was not. To attract students, especially those who do not need financial aid, colleges and universities built expensive athletic facilities and student centers as well as five-star dorms with big entertainment and recreational amenities. They borrowed heavily on credit markets that had become less and less stable to finance these projects. In the past, most responsible institutions did not begin the construction of a building until they had raised the money for it as well as funds for an endowment to cover future maintenance. But following the lead of the banks from whom they borrowed millions, ambitious administrators borrowed money with little or no collateral, thereby leveraging their institutions. To make matters worse, they borrowed most of this money at variable interest rates and so could not be sure about the extent of their exposure. When rates went up, colleges and universities had to either pay more or draw on already depleted endowments to pay back the principal.
A. Richard Kneedler, a consultant on higher education and former president of Franklin & Marshall College, underscores the magnitude of the problem when he concludes that an astonishing two thirds6 of the seven hundred private colleges he examined are at risk of financial failure. By the spring of 2009, the financial condition of 114 private colleges was so fragile that they failed to meet the financial-responsibility guidelines that the Department of Education uses to measure the health of colleges and universities.
As of July 2009, Harvard’s debt had risen to $6 billion. Munk reports, “Servicing this debt alone will cost Harvard an average of $517 million a year through 2038, according to Standard and Poor’s.” That is a figure considerably greater than the total endowment of most colleges. Other elite institutions are in a similar bind. Since 1987, Middlebury College’s debt has ballooned from a manageable $5 million to an onerous $270 million. On May 29, 2009, The Wall Street Journal carried an article reporting that Dartmouth College was stripped of its triple-A rating7 as a result of investment losses in the endowment. Moody’s Investors Service had already downgraded twenty other universities and recorded a negative outlook for the credit rating of fifty-five additional schools. During the first half of 2009, twelve schools with double-A or triple-A ratings collectively borrowed $6 billion to meet financial obligations and operating expenses. Such short-term tactics are bound to lead to more difficulties because they violate a simple maxim: you cannot borrow your way out of debt.
At the same time that the value of assets (i.e., endowments) is going down and liabilities (i.e., debts) are going up, costs for colleges and universities continue to rise. Most of these costs are fixed and leave very little room to maneuver. The increase in the cost of maintaining the physical plant and providing food and housing for students, faculty and administrators shows no signs of slowing down. The size of administrations and staffs has grown at a significantly higher rate than the size of faculties for more than a decade. In some cases, these new positions were created to meet perceived demands from consumers; in others, they are unjustified and increase an already top-heavy bureaucracy. During the same period that the number of employees has been growing,