The hidden problem: when universities, not just students, take on debt

Stefanie Botelho's picture
Thursday, March 20, 2014

Last week, the University of California got downgraded. Not in the U.S. News or other college rankings, where six of its campuses rank in the top 15 public colleges in the United States; nor in College Prowler’s list of schools with the most attractive men on campus (where flagship UC-Berkeley clocks in at a measly number 1185). Rather, the UC system has been downgraded in the credit markets: ratings agency Moody’s lowered the UC system’s general revenue bonds from Aa1 to Aa2.

People like to talk about student debt – read, for example, my five part series on the topic. (Ok, I know you’re busy. How about at least one part of it? Do it for me.) But university debt, although rarely discussed, is arguably more important. Schools across the country are borrowing more money, and the increasing reliance on debt-financing at universities is adding logs covered in lighter fluid to an already flammable higher education system. The University of California system, for example, has $14.5 billion in outstanding debt, more than double its level in 2005. The total volume of debt across colleges of all kinds has increased so much that interest payments per student have increased 86% since a decade ago despite low interest rates.

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