Borrowing Against the Future – The Hidden Costs of Financing U.S. Higher Education

Source: Charlie Eaton, Cyrus Dioun, Daniela García Santibáñez Godoy, Adam Goldstein, Jacob Habinek and Robert Osley-Thomas, Debt & Society, 2014

…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….