Colleges Are in Debt Just Like Their Students. Guess Who Will Pay?

Mighty timely New York Times story this morning about colleges, institutions created to set bright young people on a course of lifetime penury. What with all the attention paid to the fact that students are drowning in debt due to student loans, we often overlook the financial situations of the schools themselves. How are they doing?

Overall debt levels more than doubled from 2000 to 2011 at the more than 500 institutions rated by Moody's, according to inflation-adjusted data compiled for The New York Times by the credit rating agency. In the same time, the amount of cash, pledged gifts and investments that colleges maintain declined more than 40 percent relative to the amount they owe.

To recap: colleges have doubled their own debt, while their on-hand resources are declining, and they presumably intend to repay that debt with the repayment of debt incurred by students to attend these colleges. I.O.U.'s financed by I.O.U.'s! Could not be a more solid financial foundation! Particularly when the ability of students to repay their own debt is very much in doubt. Ah, well. Colleges can always just raise their prices in order to load more debt onto incoming students, who will then be ejected into a job market in which they are competing with the other indebted, hungry, and desperate students who came before them. (It's the same sort of conservative, fail-safe financial strategy employed by mob bosses who squeeze their underlings more and more to finance increasingly lavish spending, until they are dissuaded via car bomb.) And if those students can't repay, well, then, I mean, theoretically you would have a domino effect of defaults on debt, from students up to schools up to financial institutions, which would look a whole lot like the popping of a bubble. If you consider the rapid cost inflation of higher education to be a bubble. And why would you, since knowledge is priceless?

No cost is too high for a new student center!

[NYT. Photo of NYU's absolutely vital octillion-dollar expansion plans: AP]