Yahoo Finance 'These places are just devouring money': Colleges are splurging on fancy new buildings, programs to attract rich kids, report shows — and passing the bill on to everyone else
It’s no secret that the cost of an education has been escalating over the last few decades — and it’s landing millions of Americans deep in debt in exchange for their degrees.
But, it turns out, as many students have pinched pennies to get by, their colleges have been blowing through their budgets only to come back to the source for more funds.
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In August, The Wall Street Journal reported that several colleges, including the University of Kentucky, Pennsylvania State University and University of Oklahoma, have coughed up millions of dollars for new buildings and programs.
The Journal looked at financial statements going back to 2002 from 50 flagship universities and adjusted for inflation, revealing that spending has ballooned by 38% within the last two decades at the median institution.
And it alleges these institutions have been able to afford these projects, in part, by drastically hiking tuition fees to students.
“These places are just devouring money,” Holden Thorp, former chancellor at the University of North Carolina at Chapel Hill and current editor in chief of Science, told the Journal.
“Universities need to focus on what their true priorities are and what they were created to do,” he added.
Some pay a steeper price
According to the Education Data Intiative, the cost of college has experienced an annual growth rate of 2% over the past 10 years.
In explaining why college tuition has become so expensive, many experts are quick to point to drastic state funding cuts. Adjusted for inflation, overall state funding for public two- and four-year colleges dropped a staggering $6.6 billion between 2008 and 2018, according to a report from The Center on Budget and Public Policies.
Between 2020 to 2021 alone, state funding for higher education dropped 6% across 37 states, says the National Education Association (NEA).
With fewer funds available, colleges have two choices to make it work: either scale back on amenities and programs or raise tuition.
And instead of scaling back, these colleges chose to scale up. The median flagship received more than double the revenue from undergraduate and graduate tuition and fees compared to 20 years ago — representing a whopping 64% price hike for the average student.
It might seem like a simple solution for these institutions to work within a tighter budget, but they've found that simply creates another problem, as the Journal points out. With fewer amenities and programs, their campuses are suddenly less attractive to wealthier students. And in order to keep drawing from that pool, many colleges are opting to spend billions of dollars on construction projects, leaving them in debt and with no other way to pay it off than to reduce costs or raise fees.
Which means that for every dollar lost in state funding over the last two decades, the median flagship college upped tuition and fee revenue by nearly $2.40, which more than covered the cuts, says the Journal.
“Flagship schools are competing for talented students and families that can pay the sticker price,” Catharine Hill, an economist at education nonprofit organization Ithaka S&R and the former president of New York’s Vassar College, recently told CNN.
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Colleges are competing to attract wealthy students
Take the University of Oklahoma, for example. The school borrowed hundreds of millions of dollars to afford building upgrades and new dormitories. Meanwhile, tuition and fees there have climbed by 166% since 2002 — marking the largest amount spent by any flagship.
The university also spent $14.3 million to buy and renovate an 18th century monastery in Arezzo, Italy, for its study abroad program. The university said it covered the costs with private gifts and university funds.
“We levered up the balance sheet to avoid dealing with [financial] reality,” university president Joseph Harroz Jr. told the Journal, indicating “there was an arms race” across higher education institutions.
The University of Oklahoma failed to hold to budget plans in previous years, Harroz said, but added that since 2018, it has reduced expenses by $143 million at its main campus in Norman.
Students are left with the higher bills
Today, the average cost per year has risen to $42,162 for attending a private college, $23,6320 for attending an out-of-state public university and $10,662 for in-state residents at public universities, according to an analysis by U.S. News & World Report.
These price hikes, the NEA says, are a major factor in what’s driving America’s student debt crisis. And a crisis it certainly is, with over 43 million Americans now on the hook for $1.6 trillion in student loans, which they will have to resume repaying this month, for which many of them are unprepared to do.
“Students do not have the resources right now to continue to foot the bill for all of the things that the university wants to do,” Crispin South, a 2023 Oklahoma graduate, told the Journal.
“You can’t just continue to raise revenue by turning to students.”
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