As student debt soars, colleges stockpile cash

As student debt soars, colleges stockpile cash

As America’s $1.4 trillion student-loan debt balloons like the 2008 real-estate bubble, here’s a modest proposal: Use multibillion-dollar college endowments to reduce tuition.

Or how about scaling back the billions in federal loan subsidies that artificially inflate college fees?

Or deflate those administration compensation packages and perks?

Or all of the above.

The House Ways and Means Oversight Subcommittee heard last week that tuition costs rose 46% between 2001 and 2012, in inflation-adjusted dollars. Student debt is now the largest non-mortgage debt in the nation.

New York Federal Reserve researcher David Lucca likens the situation to conditions that spawned the late mortgage crisis. Universities sit on piles of cash while their students accumulate ever-growing mounds of debt.

“About 90 schools have endowments of more than $1 billion,” noted subcommittee chairman Peter Roskam (R-Ill).

Rep. Tom Reed (R-N.Y.) is drafting legislation to require the schools with the highest endowments to use them to lower fees. Currently, elite colleges will selectively waive tuition for needy — mainly minority— students, while middle-class students spend their way into the poorhouse.

Rep. George Holding (R-N.C.) blamed rising college costs on the spread of federal subsidies and financial aid. As in health care, the larger the government’s role, the higher the bills.

The Daily Caller cited a study by Lucca, who linked federally subsidized loans to tuition increases.

 

“It’s all indefensible,” says Alan Collinge, president of StudentLoanJustice.org. “Not only are endowments exploding, the ‘unreserved assets’ have risen massively. This is essentially ‘rainy day’ money colleges have been stockpiling since the financial crisis hit.”

The University of Wisconsin, for example, has amassed up to $1 billion in cash taken from excess tuition income, most of which was supplied through the nation’s federal student loan program, Collinge said.

“It’s a federal government protectionist racket,” says Wallace Hall, a regent at the University of Texas. “The student loan program has been nationalized. How’s that working out for you?”

Colleges are sure to push back against any cost-saving efforts. On the endowment disbursement plan, Georgetown University law professor Brian Galle said most schools prohibit spending more than 5 percent of donations in any year.

Meantime, colleges exercise little restraint in administrative outlays. A record 42 university presidents were paid more than $1 million last year. And we’re not just talking about the nation’s top-rated schools.

Watchdog.org reported last week that Texas A&M’s president pulled down $1.129 million. A&M’s system president made a mere $708,435. A&M tied with Virginia Tech for 70th place on the 2015 collegiate rankings by U.S. News & World Report.

Even community colleges run gravy trains. Watchdog found the president of Alamo Colleges in San Antonio made $429,229 last year, making him the 11th highest paid college leader in Texas. Forty-six of his administrators had salary packages topping $100,000.

While Alamo has not raised tuition for 3½ years, other schools jack up fees every year, far outpacing inflation. The student-loan default rate in Texas stands at 14.3%.

Nationally, student-loan debt has soared 325% in the past decade, while all other categories of non-housing debt decreased by 5%.

Diana Furchtgott-Roth, director of Economics21 at the Manhattan Institute and coauthor of “Disinherited: How Washington Is Betraying America’s Young,” says prospects are bleak for many who bought the line that a college degree is an essential ticket for upward mobility. She notes:

  • The number of student-loan borrowers owing between $50,000 and $75,000 has doubled since 2004.
  • Those owing more than $200,000 has tripled (a figure driven largely by graduate students).
  • 54% of recent graduates are underemployed or unemployed.

“I think we are in the midst of a bubble,” said Roskam, a father of four. “Writing these [tuition] checks just takes your breath away.”

And what did Democrats on the Ways and Means panel have to say about this? They complained that states were cutting back on higher education funding.

Perhaps they could enroll in a remedial business math course, or Economics 101.

Read more by Kenric Ward at Watchdog.com.

Kenric Ward

Kenric Ward

Kenric Ward is a national correspondent and writes for the Texas Bureau of Watchdog.org. Formerly a reporter and editor at two Pulitzer Prize-winning newspapers, Kenric has won dozens of state and national news awards for investigative articles. His most recent book is “Saints in Babylon: Mormons and Las Vegas.”


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