Thursday, July 10, 2014

Wall Street to blame for sky-high tuition and student debt

One out of every ten dollars spent on higher education in the United States now goes to Wall Street, according to a new report by Debt and Society, a blog about debt.

The report notes higher education costs in the United States are twice as much per student as they are in other industrialized countries. Part of that cost is interest on student debt (which goes to Wall Street). Part of that cost is the institutions' reliance on debt (the interest on which goes to Wall Street) to fund sports stadiums, luxury dormitories and dining halls. A third cost is the profit that goes to investors in for-profit colleges.

The report's authors note instructional costs haven't increased over the 10 years they studied. But financing costs skyrocketed. By 2012, per-student financing costs grew 53 percent, to $2,861 per student from $1,865 in 2002.

Wall Street skims profit from educational institutions when their capital investments don't pay for themselves. Here's one example:
Financial losses on University of California at Berkeley’s new Memorial Stadium provide a high-profile example of bond agreements requiring tax and tuition payers to cover payments on excessive debts for amenities. The UC Board of Regents, which governs the UC system, planned to pay off $445 million in bonds for the stadium by selling the rights for 2,900 luxury seats for up to 50 years.43 In June of 2013, however, UC officials acknowledged that sales of these rights had fallen $120 million short of their targets, increasing the odds that UC will use other revenue like tuition and tax dollars to pay off the bonds.
Rising student debt, of course, is another way Wall Street is increasing its profit. In the past 10 years,student debt rose an average of 14 percent a year, to $966 billion in 2012 from $364 billion in 2004, Bloomberg reported.
No other country imposes the kind of costs on college and university students that the U.S. does, and nowhere else do loans cover so much of those costs. Experts think that the $1.2 trillion in outstanding education debt in the U.S. is more than that of the rest of the world combined. 
Lately there's been some pushback (no doubt financed by Wall Street) about student debt. 'Studies' claim it isn't really a problem. But as Mike Konczal wrote in The New Republic,
Student debt chips away at the ability to be a risk-taking entrepreneur, a homesteader who has amassed enough wealth to be self-sufficient, or someone who has dedicated their craft to working in our rich civil society. These are three very real versions of the American Dream, and ... they are all being weakened by the way we saddle young people with student debt burdens. 
Read the whole study here.