Winter for Higher-Ed
College Debt Woes Point to Grim Future

Bad news for higher ed: The turmoil affecting the industry has those in the bond market wary of buying from certain kinds of colleges. The WSJ reports:

Moody’s Investors Service Inc. in September warned investors to expect closures at public and not-for-profit colleges to triple by 2017 from an average of five a year over the past decade, concentrated among the smallest schools. Some small schools have experienced several years of shrinking class sizes, which leaves fewer students paying for their relatively high fixed costs, and have lost market share to larger universities, Moody’s said.

Yet as many colleges and universities are eager to tap the bond market to take advantage of low interest rates, bond investors have grown wary of their debt […]

“You can’t just buy bonds from your alma mater anymore, because you might end up getting the short end of the stick,” said Hugh McGuirk, head of the municipal bond team at T. Rowe Price Group Inc. He said his firm is generally avoiding small liberal-arts colleges and is sticking with schools that have national brands and strong student demand, either public or private.

The problems detailed in this article are real and important, but there’s a big one that’s not mentioned: Sooner or later, interest rates will go up generally, and that’s likely to price some colleges out of the bond market completely.

This should remind us that America is locked into an educational model, that, like our health care system, rests on foundations that drive prices up faster than inflation year by year by year. Education is important to Americans, and we do what we can to keep up, but ultimately we need to figure out how to deliver the education we need at a price we can actually pay. Sadly, it remains the case that the people who know the system best are, for the most part, less interested in helping think through and implement creative reform than in perpetuating the privileges that come with their jobs in the current, outdated system.

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