U-T San Diego. November 20, 2013. Attorney General Kamala Harris last month filed a lawsuit against a chain of for-profit colleges that allegedly target vulnerable students with aggressive marketing campaigns. Critics say these schools convince people to run up massive college debt to gain degrees that may have little value.
Those allegations are troubling, but they have some eerie parallels in the broader higher-education system. Increasingly, students – even at the state’s elite public universities – worry about the enormous debt loads they carry upon graduation, about their job prospects and about the ultimate worth of some of the degrees they receive.
Some point to the misplaced spending priorities at for-profit schools, and at high salaries paid to those schools’ executives. But education reformers level similar complaints at traditional universities, including the University of California system, which held its first meeting of regents earlier this month with former Homeland Security Secretary Janet Napolitano as president.
“This is a pivotal moment for California public higher education,” concluded the Little Hoover Commission, a state oversight agency, in a report last month. “California’s leaders must use this opportunity to reframe spending decisions in terms of what the state wants to achieve … and what investments will best produce those results.”
Unfortunately, Napolitano didn’t outline any broad new university vision, nor did she propose reforms in a university system plagued by overcrowding and a number of spending scandals. She did promise to keep tuition rates down, but that’s hard to do if spending keeps going up.
Instead of looking at ways to revamp its structure and stretch its budgets, Napolitano called for more state funding – even though the state recently increased the system’s funding by $142 million this year and approved additional funding increases for the following two years. In late September, the UC regents announced that they are floating an additional $2.6 billion in tax-free bonds to invest in the system’s infrastructure.
One of the key reasons for Napolitano’s additional financial “ask”: to help gain control of the growing unfunded liabilities, or debt, to prop up a pension system that is more generous than the ones found at many other public universities.
“The money would not pay for smaller class sizes, or even higher faculty salaries, but rather escalating pension costs,” opined the Sacramento Bee, which noted that UC officials embraced overly optimistic pension predictions that have led to a large liability. Now, the newspaper fears, UC wants taxpayers and students to pay for its mistake.
Richard Vedder, of the Center for College Affordability and Productivity, noted in a Bloomberg article from July, that most of the $100,000 per-year, per-student that UC spends is unrelated to teaching. “The university’s bureaucracy is famously monumental, centralized and costly,” he added, explaining that just its central, administrative office in Oakland employs 2,358 people.
Attorney General Harris complained that students often receive degrees from for-profit schools that can leave them with $40,000 in debt. But students increasingly are completing their four-year university stints at UC and elsewhere with double that amount in loan debt, and research shows that non-technical and non-scientific degrees are predominant.
This goes on at all the major institutions in the country. The New York Times reported that universities are now saddled with debt following a decade of lavish spending on buildings, including fancy dormitories. Students and taxpayers ultimately are funding this via subsidized loans.
“Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis,” according to Federal Reserve officials in 2012. In other words, the same type of easy credit that artificially inflated home prices in the mid-2000s may be artificially inflating tuition costs and propping up unnecessary college spending. That bubble, too, can burst if education leaders don’t find a way to reform the educational bureaucracy and not just borrow more money to fund it.
“The state has finite resources for higher education,” according to Little Hoover. “The state has to figure out a way to achieve better outcomes for more students without adding more money.” It’s a lesson every higher-education institution, for profit or otherwise, needs to learn.