Still unconvinced higher education is driven by business interest rather than academic best interest of its students? Consider this. Immediately after the U.S. Census released figures documenting a drop in college enrollment, one of the country’s biggest credit rating agencies issued a special report warning their investment customers colleges that and universities are headed towards a major financial crisis.
Moody’s Investors Service “found that nearly half of colleges and universities that responded [to the firm’s survey] expected enrollment declines for full-time students, and a third of the schools expected tuition revenue to decline or to grow at less than the rate of inflation.” This spells bad news for poor students who count on investment backed money to pay for college.
The following week a New York Times article stated, “The growing financial challenges for colleges and universities come as students and graduates have amassed more than $1 trillion in student debt, and many are struggling to pay their bills. Nearly one-in-six people with an outstanding federal student loan balance is in default.”
The Times reports, “Before the financial crisis of 2008, colleges and universities routinely raised tuition with little effect on the number of prospective students who applied.”
In a claim that speaks directly to the greed of higher education administrators, raising the tuition was an effective marketing tool. The article states, “some private colleges said that applications actually rose when they increased prices, apparently because families equated higher prices with quality.”
Well, now it seems the party is over. Emily Schwarz an analyst and lead author of the Moody report said, “The cumulative effects of years of depressed family income and net worth, as well as uncertain job prospects for many recent graduates, are combining to soften student market demand at current tuition prices.”
What she is not acknowledging is, that for years the cost of higher education continuously rose far beyond the means of the average family. While at the same time thousands more students were able to attend college by taking on bigger loans to finance their over-priced education, earning millions of dollars for investors.
Make no mistake Schwartz is giving investors a heads up that a drop in enrollment threatens the money made off the higher education aspirations of America’s youth. The profits banks and lending institutions reaped financing college educations for poor and middle class student is about to dry up. She is advising investors to get their money out before the market collapses like the housing industry.
Anyone who knows a family who lost a home or is stuck in a house with an upside down mortgage can understand how rising college costs fueled predatory lending practices designed to meet the price of higher education. This recent drop in enrollment clearly signals to the business and banking world that the days of students taking on crushing debt to pay for college are coming to an end.
There is a local connection to the Moody report. St. Mary’s College Maryland, a nationally ranked public honors college was in the news over the summer after a “precipitous enrollment decline for fall 2013.” Schwartz says the school’s credit worthiness has taken a hit as a result of its inability to attract more incoming students.
“Enrollment declines in higher education are credit negative,” says Schwartz “because they heighten competitive pressure for all universities. This limits opportunity to grow tuition revenue, now the primary revenue for the majority of public and private universities.”
Funds for college could become limited to students for other reasons.
The Moody report states congressional negotiations may “lead to cuts in student aid programs while the share of students that depend on government help continued to rise. At public universities, federal loans finance a median of 40 percent of student charges; at private schools, the median is 21 percent.”
Bottom line, higher education is no longer a lucrative financial move for smart investors. This spells trouble ahead for poor and minority students who plan to seek a college degree. These reports raise the question of what black families can do to get ahead of the college finance bubble and avoid relying funding sources soon to become unavailable.
Jayne Matthews Hopson writes about education matters because “only the educated are free.”