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J. Wade Gilley: Building sprees, large debt taking toll on universities

May. 17, 2013 @ 12:18 AM

Dark clouds are forming over America's public universities as the Wall Street mind-set spreads across more of our institutions. A decade of excessive spending based largely on unlimited student loans is looming dangerously over a major national asset.

In January 2013, Moody's, the nation's premier credit rating organization, issued a report titled "U.S. Higher Education Outlook Negative in 2013." Moody's evaluation was based on the hundreds of billions of dollars in institutional debt incurred by America's public universities, including exotic non-traditional financial schemes.

And Moody's evaluation did not include the trillion dollars of debt currently owed by college and university students and former students. Today, more than 35 million Americans owe an average of $28,000 in college loans, and half have not earned and are not likely to earn a four-year degree.

On Dec. 13, 2012, the New York Times published an article, "Building a Showcase Campus; Using an IOU." The Times reported, "Some call it the Edifice Complex. Others have named it the Law of More, or the Taj Mahal syndrome." A decade-long building spree to construct non-academic buildings, coffee shops, spas, dormitories, and recreational facilities -- some of them inordinately lavish to attract students -- has saddled colleges and universities with large amounts of debt.

According to inflation-adjusted data compiled for the New York Times by Moody's, institutional debt levels more than doubled from 2000 to 2011 at the more than 500 institutions rated by the agency. At the same time, according to Moody's, the amount of cash, pledged gifts and investments that colleges maintain declined more than 40 percent relative to the amount that these institutions owe.

Then, in a Jan. 14, 2013, article in the Wall Street Journal, former U. S. senator and former president of the University of Colorado Hank Brown noted that of all our college graduates, only 31 percent were classified as proficient in reading in 2004, down from 40 percent in 1992. This decline is coming at a time when the nation has been flooded with college graduates who apparently are not prepared to work in the emerging 21st century economy. In the words of a recent article in the Chronicle of Higher Education, "Is the ROI (return on investment) worth it?"

Why is the cost of going to college soaring? A splurge in building non-academic facilities and exploding administrative costs as compensation for presidents, coaches and athletic directors has jumped by some 20 percent per year over the past decade. (The president of one public university is paid $2.1 million per year, up from $299,000 12 years ago, or a 700 percent increase -- same institution, same person. Non-academic costs and recreation-oriented costs have also exploded.)

All this happened while state governments cut higher education budgets, knowing that easy credit would entice students and their families to borrow seemingly easy money to pay more. In addition, new generations of trustees, accustomed to the Wall Street and Washington, D. C., mind-sets, have encouraged such extravagance.

Some are now thinking about change as the Wall Street Journal, New York Times and Chronicle of Higher Education articles describe American higher education as having reached a crossroads. Three states -- Florida, Texas, and California, encouraged by Bill Gates -- are looking carefully at the potential of a $10,000 four-year degree.

Just recently, the New York Bar Association convened a meeting of academics, lawyers and judges to discuss the potential of a two-year law degree, the norm in all other English-speaking countries. The idea of a three-year bachelor's degree is being renewed even as some college presidents still insist that the five- and six-year bachelor's degree is necessary to stimulate "intellectual curiosity."

Even with these and other reforms going forward, the huge debt incurred by state universities and their former students will cast a shadow over generations to come.

The only real solution to cost control is radical restructuring of non-academic endeavors and expenditures and a refocus on a 21st century fundamental learning environment. Costs cannot be cut by cutting faculty and graduate assistants. Institutions are not paying full-time faculty more than normal inflation-adjusted amounts but most have switched to adding as many adjuncts as possible. (On April 8, 2013, the New York Times reported that 76 percent of American university faculty members are adjunct professors.) Such endeavors have lowered the cost of instruction and saved money for non-academic endeavors; this is an area that needs correction, not more cuts!

Unfortunately, not enough academics, trustees or political leaders are realistically assessing today's challenges and options. However, those who do think ahead will be ahead of the curve when we face the next financial meltdown.

J. Wade Gilley, retired president of Marshall University and former Virginia secretary of education, lives in Reston, Va. He is the author of more than a dozen books on higher education.

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