The University Debt Crisis: It’s Not Just Students Facing a Financial Headache (Guest)

Linda Forshaw is a Business Information Systems graduate from Lancaster University in the UK. A contributor to DegreeJungle.com, she is a full-time writer and blogger specializing in education, social media and entrepreneurship. Contact Linda on Twitter @seelindaplay.

While there has been much talk of the extent of the university debt crisis, in recent months it appears to have reached fever pitch. Tyler Kingkade at The Huffington Post points to new analysis carried out by Bain & Company. Their research, conducted in collaboration with Sterling Partners, found that the financial crisis affecting American universities and colleges has a significant reach with a third of the 1,700 higher education institutes surveyed on an “unsustainable financial path” and a further third at risk of joining them.

You might ask how they got there. It’s a good question. According to The Economist, “universities have been spending like students in a bar who think a Rockefeller will pick up the tab.” Andrew Hacker and Claudia Dreifus, writing for The Atlantic, offer a similar opinion. In their article “The Debt Crisis at American Colleges”, they point to examples like Vanderbilt whose president picks up an annual salary of $2.4 million. How about the professors at Stanford who enjoy a paid sabbatical every four years? Then there is the University of Chicago, who in the past two years alone has installed a state-of-the-art robotic library, hospital building, and arts center, not forgetting a brand new Beijing campus.

How are they are paying for all this? Undoubtedly many of the bigger universities use endowment earnings and alumni donations to cover at least some of the costs, but for the most part, these veritable spending sprees are funded by tuition fees. Therein lays the problem. USA Today reports that, according to the U.S. Department of Education and the Federal Reserve Bank of New York, student loans taken out in 2010 exceeded $100 billion. The total loans outstanding exceeded $1 trillion. These startling figures should come as no surprise considering the relentless climb in tuition fees. Mark Whitehouse, writing for The Wall Street Journal, states that the graduating class of 2011 started their post-university lives with an average debt of $22,900. That is 8% more than the graduating class of 2010 and, after adjusting for inflation, 47% more than 2002. Undoubtedly the bubble will burst at some point and that point is probably not that far in the future. With President Obama himself asserting that “we can’t just keep subsidizing skyrocketing tuition,” the burden is increasingly falling on parents or the students themselves. It is a burden that in the current economic climate is increasingly unmanageable. It seems that the point at which a degree fails to become an investment for the future is rapidly approaching.

Bain provides an in depth look at how to create a financially sustainable university, primarily focused on the need to develop a clear core strategy, to reduce administrative costs, to free up capital, and to strategically invest in innovative models. Higher education marketers will undoubtedly play a fundamental role on the road to a debt-free future with a combination of effective public relations, student recruitment, and fundraising.

One thing is effortlessly clear. It is clearly unsustainable for tuition fees to continue to rise faster than the student’s ability to pay them. Universities need to act and they need to act now.

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  1. The University Debt Crisis: It’s Not Just Students Facing a Financial Headache (Guest)

    In some states, recent changes have been particularly dramatic. Average tuition and fees for in-state residents at public four-year colleges soared 16% to 21% last year in Arizona, California, Georgia and Washington, according to a report released last week by the College Board. (The average increase at public colleges over the same period was 8.3%; none of the figures in the report were adjusted for inflation.) What’s more, students in some of those states may see more hikes in the upcoming year: Washington recently approved a tuition increase at several of its public universities, while California students may face another double-digit increase in the second semester of this academic year. “The potential for this to get worse is very real,” says Rich Williams, higher education advocate at U.S. Public Interest Research Group.

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