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.

Stimulus Law Offers Breaks for Public-College Bond Issues

A lesser-known part of the stimulus package:

Tucked into the economic-stimulus package signed into law last month by President Obama is a new financial tool, Build America Bonds, that could help public colleges and public academic medical centers save money when borrowing for capital projects.

The bonds, which are available to government issuers but not private colleges, would be taxable securities subsidized by the federal government.

The subsidy would come in one of two ways. In some instances, buyers of the bonds would receive a tax credit equal to 35 percent on the interest payments they received; in other cases, the issuers of the bonds would receive a subsidy from the federal government equal to 35 percent of the interest they are paying.

Beyond the Bond Campaign

Subtitle: "Public relations efforts should continue after a bond passes. Once the votes are counted the real work begins." Read it here. It's all too easy to assume that since you know what's getting done and what's not, and why, that everyone else does, too, including the voters. Not so! "Communication is key, according to Jennifer Aries, district director of public information and marketing for the Chabot-Las Positas Community College District in California's East Bay. "The work really begins the day after the bond passes. Both internal and external communications are critical, so it's important to have a communication plan in place that will serve both audiences." She points out that faculty, staff, and students are emotionally invested in an institution and the future results of the bond measure, making it important to keep them informed of all that is happening around them."