Ohio public university debt hits $6.7 billion

By Emily Williams, Senior Staff Writer

Miami University has more than doubled its amount of outstanding debt over the past five years, but it is not the only university relying on deficit spending to fund construction projects. A phenomenon referred to as the Edifice Complex, colleges have spent the past several years in intense competition, fueled by reduced funding from state governments and a need to attract students with increasingly modernized and elaborate residence halls, dining facilities, student unions and recreational centers.

Richard Vedder, professor of economics at Ohio University and director of the Center for College Affordability and Productivity, thinks this massive debt accumulation calls for major reform in the way colleges are borrowing and spending money.

"There's an Edifice Complex that universities have that ties into the academic arms race going on in higher [education], where every school feels compelled for competitive purposes, in other words, to get students, to have to have the latest and coolest facilities," said Vedder.

From 2004 to 2014, Ohio's 14 public universities have more than doubled their debt, reaching a combined total of about $6.7 billion. Of those universities, Miami ranks third in debt accumulation, trailing only behind Ohio State University's (OSU) $2.6 billion and the University of Cincinnati's (UC) $1.2 billion in debt.

Bruce Guiot, Miami's Director of Investments and Treasury Services, said Miami's outstanding debt balance now stands at $619.8 million after principal payments made on Sept. 1, 2014. Guiot confirmed that there are no plans to take on any further debt at this time.

"The bond that we issued in 2014 will provide the funding that we need for the next couple of years' worth of projects," Guiot said.

Just as Miami has been investing in building costly projects, Ohio's other public universities have been doing the same.

UC's new $80 million athletic center includes an eight-story facility, a boathouse and a sports museum. OSU's 320,000 square foot student union took three years and $118 million to construct.

The Baker University Center at Ohio University boasts a theater, game room and the only escalators in southeast Ohio, for a total of $45 million.

With the cost of higher education consistently rising and the number of students enrolling in college declining for the past three years (the National Student Clearinghouse Research Center reported a 1.3% decrease in total enrollment for the fall of 2014), Vedder questions whether continuing to invest in these elaborate amenities will be worthwhile.

"There's a notion that kids want to go to these schools with country-club-like facilities that are getting more and more expensive," Vedder said. "That that model will persist indefinitely might be a questionable assumption."

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However, relatively selective schools like Miami, said Vedder, will not likely see a drop in enrollment. In fact, Miami has seen a 49 percent increase in applications for admission from 2010 to 2015.

Moody's Investors Service, a top bond credit rating business, issued Miami a credit rating of Aa3 in its 2014 evaluations, distinguishing the university as financially stable. However, the report identified some financial challenges the school faces.

"MU's credit challenges include weak revenue diversity with a high concentration in student charges revenue coupled with a fiercely competitive market that has driven substantial increases in debt," the report stated.

Miami receives 51 percent of its revenue from student tuition and fees according to data from the State Higher Education Executive Officers Association, ranking Miami second in the nation for net tuition as a percentage of total revenue. Other sources of revenue include investment earnings, endowments and research funding. Since Miami relies so heavily on payments made by students, it has increasingly recruited out-of-state students whose tuition fees are more than double those of Ohio residents.

"It has been part of our strategy to bring in more out-of-state students because the net tuition is, on average, higher than the net tuition of in-state students," said Guiot.

According to Susan Schaurer, Miami's Interim Director of Admission, the percentage of Miami students who are not Ohio residents has risen from 32.7 percent in 2010 to 43 percent in 2014. The number of applications from domestic out-of-state students has also risen by over 60 percent from 7,010 applications in 2010 to 11,310 in 2014.

The increasing pursuit of out-of-state students has also been a result of the decrease in Ohio residents graduating from high school, prompting Miami to search outside of the state in order to steadily improve the academic credentials of incoming classes.

"There are a host of reasons and the financial [reason] is just one of them," Guiot said.

Vedder argued the current system of high tuition and high financial aid that dominates higher education in the U.S. is indirectly responsible for perpetuating the massive accumulation of debt.

Student loans are made to cover the cost of attendance, said Vedder, and although some states have imposed limits on raising tuition, the schools ultimately decide the cost and are free to drive up fees for room and board and other amenities. Vedder said reform can only come from an outside source, not the individual schools.

"It would be like trying to unilaterally disarm in an arms race," he said.

Vedder suggested implementing regulations at the state or federal level that would remove funding or deny student loan money for institutions where the debt per student exceeds a particular amount.

"The only way to get universities to change their behavior is to threaten them financially," said Vedder.

If such legislative actions are taken, Vedder said he hopes universities will slow down their spending and focus on providing safe but modest facilities and quality education at a reasonable price.