No Way Out of Ocean of Debt for US Colleges

A financial magazine's look at the credit and debt burden crisis for US institutions, with an eye toward enrollments, and using specific examples from Simmons' College' School of Management, which is characterized as "all but deserted."

Simmons followed suit as US colleges jacked up tuition by an average of 3 percent above inflation every year. It counted on a rising endowment, parents' bull market-fed wealth and burgeoning private loans that more than doubled student debt from 1998 to last year.

It raised annual tuition and living expenses to $41 500 last year, 22 percent above the $34 132 average for private colleges. Sarah Lawrence College in Bronxville, New York, the costliest US school, charged $53 166 last year.

Then credit markets collapsed. Simmons - and even better-known schools such as nearby Boston University - felt the aftershocks.

Like many now-struggling companies and municipalities, Simmons had sold variable rate bonds and hedged against rising interest rates through swap agreements, which fixed interest costs for the school.

When rates fell, Simmons owed more than $10m on the swaps. When it refinanced the bonds, it had to accept more than triple the interest rate it had been paying before the credit crisis.