Magazine article Diverse Issues in Higher Education

Seeing Red: Report Reveals Increasing Debt Further Threatens the Financial Security of U.S. Colleges and Universities in the Aftermath of the Recession

Magazine article Diverse Issues in Higher Education

Seeing Red: Report Reveals Increasing Debt Further Threatens the Financial Security of U.S. Colleges and Universities in the Aftermath of the Recession

Article excerpt

A little more than a year after Atlanta's water department most shut off cash-strapped Morris Brown College's water supply, the historically Black institution has mustered enough support from students, alumni and the African Methodist Episcopal Church to buoy hopes for a comeback.

"We haven't had anything that dramatic since," spokeswoman Bunnie Jackson Ransom says of the scramble by officials and alumni to raise $150,000 to keep the faucets working. But she says the school's debt of about $30 million is "a big part" of the reason it hasn't regained the accreditation it lost in 2002.

While not facing consequences as severe as Morris Brown's, many American colleges and universities are grappling with increasing debt, yet another threat to the financial security they face in the aftermath of the worst recession since World War II.

American higher education is in debt to the tune of $109.7 billion and that's just according to a survey in which only 654 of 842 participating institutions reported owing money. In fact, the average long-term debt load at American institutions jumped to $167.8 million as of June 30, 2009, up $22.2 million from a year earlier, according to a January report by the National Association of College and University Business Officers and Commonfund Institute.

"It's a triple whammy," says William F. Jarvis, managing director of the Commonfund Institute, which houses the education and research activities of Commonfund--a Connecticut-based investment group that manages approximately $25.5 billion for about 1,600 nonprofit institutions. University debt builds because students "can't pay tuition so they come asking for financial aid, which is down because of (declining revenue from) endowments."

The financial strains from the recession are acute at institutions such as many HBCUs that "are hugely dependent upon tuitions" and didn't have sizable endowments to begin with, Jarvis adds.

Debt increases rapidly as endowments drop and deficit-racked state governments slash spending. The NACUBO-Commonfund survey noted that public schools carried the highest average debt of $616.8 million, more than five times that of smaller schools ($121.1 million). This added debt load stems from borrowing to meet short-term obligations and operating revenue needs as well as to finance long-term capital programs to build buildings and acquire equipment.

Hard data is available only for a few HBCUs. Facing a deadline to repay $30 million to the Bank of America, Shaw University restructured its loans with help from the U.S. Department of Education and U.S. Rep. Bob Etheridge (D-N.C.). The new deal announced in late March allows Shaw to stretch out repayments over 20 years, reduces collateral and drops the interest rate by 2 percentage points to 4. …

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