For the first time, national data reveals the hidden costs of financing U.S. higher education…and it’s horrifying

higher-education-debt They’re the kind of statistics, spanning a decade and across the entire U.S., that as you read them, your jaw takes on additional gravity—dropping lower and lower—as you set your coffee cup down and yell to your coworkers that “you won’t believe this.”

Most of us in education know that there’s a debt problem happening in higher education: student loans are insane, debts can’t be repaid, for-profits are pretty much the scourge of the Earth, and the price of traditional four-year colleges is becoming less and less justifiable in today’s economy.

But these are blanket ideas—worrying but without substantial depth; think of it as knowing that the weather is changing but not actually standing on a melting ice shelf.

Welcome to the ice shelf, otherwise known as “Borrowing Against the Future: The Hidden Costs of Financing U.S. Higher Education,” an American Federation of Teachers (AFT) sponsored report “…expos[ing] the ‘Wall Street skim’ on higher education and to call for corporate accountability on student debt, higher education institutional debt and abuse by for-profit institutions.”

The report, conducted by The Center for Culture, Organizations, and Politics (CCOP), estimates, for the first time, the total cost to the American higher education system of reliance on capital from student loan markets, municipal bond markets, and equity investors. The report covers the years for 2002 to 2012—the only years for which adequate data are available.

For student loans, the report estimates the total interest paid annually on all outstanding student loans—both private and federal. For institutional borrowing, the report describes total interest payments on college and university debts—the largest share of which went to funding amenities.

In the case of for-profits with capital from equity markets, the report estimates the costs to students and taxpayers of profits made by these institutions—and the vast share of revenue they brought in from federal student aid programs.

(Next page: 10 stunning facts from the report)

Stunning data

1. For 2002, the three financial costs (student loans, institutional borrowing and for-profit costs) totaled $21 billion in 2012 constant dollars. These costs began to rise steeply in 2005, reaching $40 billion in 2009.

2. In 2009, more than $3 billion of these costs were operating profits for for-profits owned by equity investors. More than $8 billion was spent on interest for colleges’ institutional debts. More than $28 billion was spent on interest for student loans.

3. As student loan interest payment growth slowed, overall growth in the 3financial costs slowed as well until reaching $45 billion, or 9 percent of all higher education spending in 2011, up from just 5 percent in 2004. Overall growth was flat in 2012 due to a dramatic decline in earnings by for-profits capitalized by equity markets.

4. Financing costs totaled $1,865 per currently enrolled student in 2002 in constant 2012 dollars. By 2012, these costs had grown to $2,861 per student, an increase of 53 percent in real terms. Neither inflation nor the growth of higher education enrollment accounts for the growth of these financing costs.

5. Spending on instruction has remained flat.

6. The 15 largest for-profits received between 66 percent and 94 percent of their revenue from the federal government.

7. At both public and private four-year institutions, the largest share of their borrowing costs were for investments in amenities like recreation centers, dining halls and athletics.

8. Interest spending at community colleges is more weighted towards debts for instructional investments and borrowing to make up for state funding cuts.

9. Public and private university debt has nearly tripled from $54 billion to $151 billion over the last decade. Comparable data is not available for private universities, and for-profit data begins at 2010; in 2012, their debt amounted to an additional $95 billion.

10. Annual spending on interest payments per enrolled student nearly doubled at public four-year colleges from $488 in 2002 to $909 in 2012. Interest costs per enrolled student at community colleges increased from 273 percent of their 2002 level, from $166 to $452. Interest costs for private four-year colleges increased to 161 percent of their 2002 level from $990 to $1,589.

For more information and data on the history of higher education financing, the costs of colleges’ institutional borrowing, Wall Street profits on for-profit colleges, the cost of student loan interest payments and recommendation from the report and the AFT, read the report.

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