Richard Vedder warns that American universities are on a “tax-exempt debt binge” that will only end in disaster. “A decade ago, no one seriously predicted cities would go bankrupt, forcing municipal bondholders to absorb large losses,” he writes. “In a few years, we will probably be hearing similar stories about some universities”:
Schools are exuberantly borrowing, in some cases issuing 100-year (century) bonds. Some bond offerings are justified, even wise, as schools are taking advantage of low interest rates to reduce future debt-service obligations. But a lot of this activity is financing construction of high-end student housing, faddish “centers” and stadiums. … Ohio State University borrowed $500 million for 100 years, mostly to build new dormitories. Will the buildings last as long as the debt used to pay for them? Not likely. The University of California issued $860 million in century bonds last year and, as an encore, an additional $2.39 billion in conventional debt recently. (If that sounds like a huge amount, consider that Harvard University, which has about 22,000 students compared with the UC system’s more than 225,000, is more than $6 billion in debt – about $300,000 for every student.) These debt-financed building sprees are increasingly troublesome at a time of unsustainably rising college costs.
Update from a reader:
I got super excited when I saw that post. Then I realized it was just about universities that couldn’t pay their bills. Yawn. Update me when I can attend Marianas Trench Tech.
The Dish 