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Rising Debt Engulfs Colleges as Well as Students

President Obama took aim last week at rising levels of student borrowing, but two graduate students in sociology say the real culprit for growing college debt is Wall Street.

In a report posted last week on the Web site of the Scholars Strategy Network, Charlie Eaton and Jacob Habinek, doctoral candidates at the University of California at Berkeley, assert that the expanding burden of tuition debt is “partly driven by the indebtedness universities have taken on.” Public research universities have passed along their own debt to students by raising tuition and fees by an average of 56 percent from 2002 to 2010, say the authors, who work in the branch of sociology known as financialization.

“Public research universities have increased their institutional debt dramatically over the last decade, and the money is not being used to make up for shortfalls in instructional budgets caused by reduced public funding,” the report says. “Instead, many universities borrow to invest in ‘auxiliary services’—the umbrella term for expensive facilities like dorms, dining halls, stadiums, and recreation centers.”

Using the federal government’s Integrated Postsecondary Education Data System, or Ipeds, the authors examined data from 155 public research universities and found that their debt-service payments had risen 86 percent from 2002 to 2010.

The fierce competition for students drives the pricey construction, and credit-rating agencies like Moody’s Investors Service fuel the process by awarding better bond ratings to amenity-rich institutions that can attract higher-paying students from out of state, Mr. Eaton said in an interview.

“There is definitely a systemic problem here,” he said. “There may be a reason for borrowing to bump your U.S. News rankings so that you can get more top applicants to your college, but that may well be in conflict with this other priority that some folks have laid out of trying to keep college costs down both for students and taxpayers.”

States should take new approaches to limit colleges indebtedness, the report says, such as a New York rule that prevents university executives from issuing bonds without legislative approval. The authors also cite federal lawsuits that the University of California system’s Board of Regents filed in June against 20 Wall Street financial institutions that are accused of manipulating interest rates.

On the federal level, the report makes a suggestion that may sound familiar but that Mr. Eaton says he wrote well before Mr. Obama embarked on last week’s college-cost bus tour: Federal grants and loans for low-income students should be tied to a requirement that colleges cut tuition and costs.

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