Planned classroom and office tower at Virginia Commonwealth University, part of an $83 million project announced April.
How serious is the predicament of higher ed today? Wade Gilley, a former Virginia secretary for education, laid out the particulars in an op-ed this morning in the Times-Dispatch.
In January bond-rating agency Moody’s shifted its outlook for U.S. higher education from “stable” to “negative.” (That outlook, said Moody’s in “U.S. Higher Education Outlook Negative in 2013,” applied even to “the sector’s market leading diversified colleges and universities.” Universities face diminished prospects for revenue growth and “have only recently begun examining the cost structure of their traditional business model.”)
Meanwhile, the higher-ed sector is coming off a binge of borrowing. Gilley quoted the New York Times as reporting that institutional debt levels doubled from 2000 to 2011 at the 5000 institutions rated by Moody’s at the behest of the newspaper. Over the same period, the amount of cash, pledged gifts and investments maintained by colleges increased only 60% as much.
As has been widely publicized on this blog and elsewhere, students have been racking up record levels of debt as well. 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.
Indeed, there are growing grounds to question the value of sending so many Americans to college when it is evident that millions are gaining little from the experience. As Gilley notes, only 31% of college graduates were classified as proficient in reading in 2004, down from 40% in 1992.
Social and political pressure to increase enrollments, all funded by easy credit from Uncle Sam, has allowed colleges to grow without seriously watching costs. Much of the increase in spending has gone to non-academic facilities and exploding administrative expenses, Gilley writes, even as state legislatures have pruned their financial support for higher ed.
Now serious competition is emerging. Florida, Texas and California are talking about creating $10,000 four-year degrees. The New York Bar Association is discussing the potential for a two-year law degree.
Bacon’s bottom line: Elite universities with huge endowments, like the University of Virginia, no doubt will be able to ride out the coming storm, catering to the brightest kids and/or students with the wealthiest families. But what of the lesser institutions? How long can they continue jacking up tuition and fees? How long until Massively Open Online Courses (MOOCs) or inexpensive, hybrid online-in person courses rip their guts out?
Gilley doesn’t address that last question but he does conclude with this dispiriting observation: “Unfortunately, not enough academics, trustees or political leaders are realistically assessing today’s challenges and options.”
What’s happening in Virginia? I know of no one who has examined indebtedness at state institutions. The Joint Legislative Audit and Review Commission (JLARC) or some other appropriate state agency should dig through the balance sheets to determine the extent to which Virginia’s public universities have strengthened or undermined their balance sheets over the past decade. How vulnerable are they to competition from new business models? How much of their debt is back-stopped by the state? And what is the commonwealth’s exposure if things turn ugly?
— JAB
