Tuesday, May 15, 2012

Borrowing 101 ... Lessons From College "Educators"

Recently we wrote about burdensome student loans for college students and a feature story in the New York Times related thereto. Today we'll update that with another story from the Times this morning.

Slowly, as Student Debt Rises, Colleges Confront Costs is a sobering tale about college costs and the views of college administrators about living within a budget. Suffice it to say it's not long been, if at all, on their list of top concerns.

Here's a brief excerpt from today's article:

"There is a dispute about why college costs have risen so much. Before the economic crisis, some critics argue, both public and private colleges participated in a costly “arms race” to provide better amenities to lure the best students and faculty: new dormitories with one student to a room, frequent sabbaticals for professors, upscale cafeteria food, expanded counseling services and gymnasiums that rival the fanciest health clubs in Manhattan. . . .

Here at Ohio State, where tuition has increased by nearly 60 percent since 2002, there is a gleaming new student union, climbing walls that can accommodate 50 students at a time and $2 billion in construction projects under way.

Mr. Gee’s (Ohio State University President) compensation package this year, moreover, is worth about $2 million, and The Chronicle of Higher Education has called him the highest-paid public university president. The Dayton Daily News recently reported that Mr. Gee had billed Ohio State for $550,000 in travel in the last two years. . . .

"Mr. Gee acknowledges that college affordability and student debt are growing problems that university presidents long ignored. He said they now needed to address them quickly.

“We have not been as conscious about costs as we should be, and that has now come home to roost,” he said."

Wow. That's a really big mouthful.

But now let's turn our attention to what the chief financial officer for Ohio State says about the university's history regarding budgeting and cost management:

“When I got here, I asked to see their long-term financial model, and they brought me a paper for one year, and I said, ‘What?’ ” said Geoff Chatas, a former banker whom Mr. Gee hired in 2010 as chief financial officer. “Now we have a 15-year plan.”

 Summing Up 

What college borrowing 101 would teach us, if there were such a course, would be that students should realize the full extent of the financial obligations they're assuming when they take out student loans. Rather than take the money and not worry about it, they would know at the outset how much of a future financial burden it would represent over time.

To my knowledge, however, there is no "Borrowing 101" course that college students are obligated or even allowed to take, prior to or after entering college. For that matter, it appears that college presidents are not required to take one either.

Except there's one big difference between the role of the student borrower and the college administrator. It's the MOM versus OPM factor.

Whereas the student will be required to pay back the money borrowed with interest, the college president won't. He'll just spend it on climbing walls, recruiting, travel and such. He'll then let the indebted students and taxpayers worry about paying it back.

That, my fellow Americans, is an example of a structural as opposed to a cyclical problem we have to solve.

I believe that Borrowing 101 should be a required course for all Americans, college bound or not.  

After all, when the student's college days are over, it's on to Borrowing 102 and securing money for things such as new cars and new homes.

Thanks. Bob.