This report examines the role of interest rate swaps in the University of California’s massive expansion of borrowing from Wall Street over the last decade. The report highlights the costs to students and taxpayers of UC’s interest rate swaps and debt-driven profit strategies. Such strategies have been called into question for Wall Street banks, let alone for public universities. Based upon our findings, we offer recommendations regarding renegotiation of UC’s interest rate swaps and the governance practices for UC’s overall borrowing program. …
…In recent years, students’ families and colleges have increasingly sought capital from three main financial markets. Public colleges faced declining state appropriations, and the average cost of tuition, room, and board increased much faster than grant aid for needy students. This pushed families to borrow increasing amounts from student loan markets to pay for college costs. Private and public colleges increased institutional borrowing, particularly from municipal bond markets for capital projects. And the rapid growth of for-profit colleges was fueled by equity investors that provided them with capital. All of this financing comes at great cost, in the form of either interest payments or profits earned to satisfy equity investors.
In this report, we estimate – for the first time – the total cost to the American higher education system of reliance on capital from each of these markets. The report covers the years for 2002 to 2012 – the only years for which adequate data are available. For student loans, we estimate the total interest paid annually on all outstanding student loans — both private and federal. For institutional borrowing, we describe total interest payments on college and university debts — the largest share of which went to funding amenities. In the case of for-profit colleges with capital from equity markets, we estimate the costs to students and taxpayers of profits made by these institutions —and the vast share of revenue they brought in from federal student aid programs — to satisfy stock shareholders and private equity investors. Except where noted, our estimates cover all colleges that received federal Higher Education Act Title IV funds and granted two-year, four-year, or graduate degrees between 2002 and 2012….
From the abstract:
The school finance reforms (SFRs) that began in the early 1970s and accelerated in the 1980s caused some of the most dramatic changes in the structure of K–12 education spending in U.S. history. We analyze the effects of these reforms on the level and distribution of school district spending, as well as their effects on subsequent educational and economic outcomes. In Part One, using a newly compiled database of school finance reforms and a recently available long panel of annual school district data on per-pupil spending that spans 1967–2010, we present an event-study analysis of the effects of different types of school finance reforms on per-pupil spending in low- and high-income school districts. We find that SFRs have been instrumental in equalizing school spending between low- and high-income districts and many reforms do so by increasing spending for poor districts. While all reforms reduce spending inequality, there are important differences by reform type: adequacy-based court-ordered reforms increase overall school spending, while equity-based court-ordered reforms reduce the variance of spending with little effect on overall levels; reforms that entail high tax prices (the amount of taxes a district must raise to increase spending by one dollar) reduce long-run spending for all districts, and those that entail low tax prices lead to increased spending growth, particularly for low-income districts. In Part Two, we link the spending and reform data to detailed, nationally-representative data on children born between 1955 and 1985 and followed through 2011 (the Panel Study of Income Dynamics) to study the effect of the reform-induced changes in school spending on long-run adult outcomes. These birth cohorts straddle the period in which most of the major school finance reform litigation accelerated, and thus the cohorts were differentially exposed, depending on place and year of birth. We use the timing of the passage of court-mandated reforms as an exogenous shifter of school spending across cohorts within the same district. Event-study and instrumental variable models reveal that a 20 percent increase in per-pupil spending each year for all 12 years of public school for children from poor families leads to about 0.9 more completed years of education, 25 percent higher earnings, and a 20 percentage-point reduction in the annual incidence of adult poverty; we find no effects for children from non-poor families. The magnitudes of these effects are sufficiently large to eliminate between two-thirds and all of the gaps in these adult outcomes between those raised in poor families and those raised in non-poor families. We present several pieces of evidence to support a causal interpretation of the estimates.
From the summary:
Studies continue to indicate that higher education is frequently a worthwhile investment for individuals and that it raises the productivity of the workforce as a whole. While the rising cost of post-secondary education has not eliminated this “college premium,” it has raised new questions about how growing numbers of students can make these investments. One solution to this problem is student loans, which have come to play an increasingly important role in financing higher education. Yet, despite its importance, educational debt is not well understood. Among the reasons is that there exist few central repositories of information on the characteristics and performance of all student loans, which currently include loans made by both government and private lenders. In this paper, we bring a new data set to bear on this important issue and present a brief analysis of the historical and current levels of student debt and how those loans are performing. We also briefly discuss the implications of student loans for borrowers and the economy.
The three highest-paid public-college leaders in the nation have something in common: They earned hundreds of thousands of dollars on their way out the door. The size of the parting packages given to these men—two who resigned amid long-churning controversies and one who quit unexpectedly—demonstrates just how expensive it can be for a college to end the presidency of a well-paid chief. E. Gordon Gee, the popular and gaffe-prone former president of Ohio State University, earned more than $6-million in 2012-13, making him the nation’s top-paid college leader for that period, a Chronicle analysis has found. Mr. Gee has maintained that he resigned of his own accord last summer, but the decision came as trustees expressed impatience and disappointment with his often-ill-considered jokes….
From the summary:
New report finds that student debt and low-wage faculty labor are rising faster at state universities with the highest-paid presidents.
State universities have come under increasing criticism for excessive executive pay, soaring student debt, and low-wage faculty labor. In the public debate, these issues are often treated separately. Our study examines what happened to student debt and faculty labor at the 25 public universities with the highest executive pay (hereafter “the top 25”) from fall 2005 to summer 2012 (FY 2006 – FY 2012). Our findings suggest these issues are closely related and should be addressed together in the future.
Since the 2008 financial crisis, executive pay at “the top 25” has risen dramatically to far exceed pre-crisis levels. Over the same period, low-wage faculty labor and student debt at these institutions rose faster than national averages. In short, a top-heavy, “1% recovery” occurred at major state universities across the country, largely at the expense of students and faculty.
• The student debt crisis is worse at state schools with the highest-paid presidents. The sharpest rise in student debt at the top 25 occurred when executive compensation soared the highest.
• As students went deeper in debt, administrative spending outstripped scholarship spending by more than 2 to 1 at state schools with the highest-paid presidents.
• As presidents’ pay at the top 25 skyrocketed after 2008, part-time adjunct faculty increased more than twice as fast as the national average at all universities.
• At state schools with the highest-paid presidents, permanent faculty declined dramatically as a percentage of all faculty. By fall 2012, part-time and contingent faculty at the top 25 outnumbered permanent faculty for the first time.
• Average executive pay at the top 25 rose to nearly $1 million by 2012 – increasing more than twice as fast as the national average at public research universities.
Source: Diane Rehm Show, May 15, 2014
This week marks the sixtieth anniversary of the landmark Supreme Court decision Brown-versus-Board of Education. The court ruled that school segregation was unconstitutional. By the 1970s, many schools were integrated. But over the last twenty years, judges have released hundreds of schools from desegregation orders. Now many African-American children attend majority-black schools at levels not seen in four decades. And civil rights lawyers say black and hispanic students are disadvantaged in other ways – such as being disproportionately suspended. In the next hour we’ll discuss racial integration and equal opportunity in public schools today.
Dennis Parker director of the American Civil Liberties Union’s Racial Justice Program
Catherine Lhamon assistant secretary, Office of Civil Rights, U.S. Department of Education
Jesse Register director, Metropolitan Nashville Public Schools
David Armor professor emeritus, School of Public Policy, George Mason University
In the wake of a report that found state expectations for teaching the civil rights movement remain woefully inadequate, the SPLC’s Teaching Tolerance project today issued a guide designed to help teachers and school leaders ensure their lessons about the movement are robust and meaningful to students. The March Continues: Five Essential Practices for Teaching the Civil Rights Movement is a best practices guide intended to provoke thought and innovation in teaching the movement. It offers guidance and resources that help teachers talk about race, tell a complicated story and connect it to the present, among other goals. … Recently, Teaching Tolerance issued Teaching the Movement 2014: The State of Civil Rights Education in the United States, a report evaluating how well each states’ standards and resources address the civil rights movement. A majority of the states received a “D” or an “F” on the importance they placed on teaching about the movement. Twenty states received grades of “F,” including five – Alaska, Iowa, Maine, Oregon and Wyoming – that neither cover the movement in their state standards nor provide resources to teach it. The report compared the requirements in state standards to a body of knowledge that reflects what civil rights historians and educators consider core information about the movement, and explored the additional support and resources that states provide to teachers. It encourages states to take a comprehensive approach to civil rights education with their K-12 history and social studies standards….
This guide has emerged from our decades of experience and research into teaching the civil rights movement. In it, we present five essential practices designed to provoke thought and innovation:
Practice 1. Educate for empowerment.
Practice 2. Know how to talk about race.
Practice 3. Capture the unseen.
Practice 4. Resist telling a simple story.
Practice 5. Connect to the present.
These practices work well for many classes and topics, but in this guide, we apply them specifically to teaching the civil rights movement. The topic opens a special window for you to use all of these practices, engaging diverse students in constructive consideration of the present in light of our past and preparing them to continue the work that the civil rights movement began. …
Earning a four-year college degree remains a worthwhile investment for the average student. Data from U.S. workers show that the benefits of college in terms of higher earnings far outweigh the costs of a degree, measured as tuition plus wages lost while attending school. The average college graduate paying annual tuition of about $20,000 can recoup the costs of schooling by age 40. After that, the difference between earnings continues such that the average college graduate earns over $800,000 more than the average high school graduate by retirement age.
From the abstract:
We evaluate the effect of highly salient disclosure of private college and university president compensation on subsequent donations using a quasi-experimental research design. Using a differences-in-discontinuities approach to compare institutions that are highlighted in the Chronicle of Higher Education’s annual “top 10” list of most highly-compensated presidents against similar others, we find that appearing on a top 10 list is associated with reduced average donations of approximately 4.5 million dollars in the first full fiscal year following disclosure, despite greater fundraising efforts at “top 10” schools. We also find some evidence that top 10 appearances slow the growth of compensation, while increasing fundraising and enrollment, in subsequent years. We interpret these results as consistent with the hypothesis that donors care about compensation and react negatively to high levels of pay, on average; but (absent highly-salient disclosures) are not fully informed about pay levels. Thus, while donors represent a potential source of monitoring and discipline with respect to executive pay in the nonprofit sector, significant agency problems remain. We discuss the implications of these findings for the regulation of nonprofits and for our broader understanding of the pay-setting process at for-profit as well as nonprofit organizations.