Failing businesses

Colleges, like hospitals, have become businesses. And, like businesses they borrow money. That's not necessarily a bad thing, but the question is whether it is a smart investment in an economy where the number of 18- to 24-year-olds is declining and students older than 24 are being drawn back into the workforce as the economy improves. This year there were 2.4 million fewer people enrolled in higher education in the academic year that ended this spring than there were in the fall of 2011, and the supply of potential customers continues to fall.

But borrowing by colleges increases. According to Moody's, colleges and universities collectively owe $240 billion. Public universities are the largest borrower at $145 billion, which is up 18% in the last five years. Private universities were less active as their debt it went up 3 percent, to $95 billion.
Colleges like municipal bonds best. Last year they borrowed a record $41.3 billion. That’s up from $28.7 billion a decade ago. Interest on the debt has gone from $21 billion in 2003 to $48 billion in 2012.  These interest payments come to the equivalent of $750 per student per year at public universities and $1,289 at private colleges. A lot of the borrowed money has gone to building costs, which are up 10% this year.