Hot Tubs and Luxury Dorms and Climbing Walls, Oh, My!

All is not well on higher education’s financial front. At many colleges, tuition prices have reached record highs, enrollment is stagnant, revenues have flattened or declined, budgets are constricted, and regulatory compliance costs are skyrocketing. It would seem that in such an environment, university leaders would place a moratorium on all lavish spending initiatives—especially those with only a peripheral connection to education. But often that is not the case.

Today, college officials—many of whom claim that their fiscal problems would vanish but for insufficient state funding—find plenty of money to build luxury dorms, recreation centers, and ultramodern campus facilities. Motivated to recruit new students and thereby increase tuition revenue, universities are engaging in a veritable arms race. This ostentatious one-upmanship, however, is driving up costs and is unsustainable in the long run.

Examples of such campus excess abound. In August 2015, North Carolina State University revealed plans to build a $15 million, 62-bed “boutique” dormitory intended primarily to accommodate its men’s and women’s basketball teams. The price tag for each bed will be $240,000—a steep premium over the $50,000 to $70,000 cost per bed at other dormitories.

More recently, the university announced in a press release titled “A Campus Like Nowhere Else” that it’s planning an extravagant new construction project: “Picture the NC State campus as a giant indoor-outdoor museum. Labs are in full public view. Displays and artwork don’t just add beauty; they feature science in action. The landscaping, color choices and lighting highlight the scientific and creative processes. It is a one-of-a-kind campus environment.” There is no cost estimate yet, but the design plans make clear that this will cost many millions of dollars.

Another North Carolina school, High Point University, also has taken on substantial financial commitments to provide an upscale campus experience. Under the leadership of president Nido Qubein, the university has spent more than $700 million since 2005 to upgrade and expand its recreational facilities. These projects—financed almost entirely through increased borrowing and student fees—have provided such necessities as a movie theater, flat-screen plasma TVs in every dorm room, complimentary shuttle service, hot tubs, and weekly massage sessions.

To be sure, this “amenities-industrial complex” is not limited to the Tar Heel State. The University of Missouri-Columbia’s $40 million student recreation center includes a lazy river (with waterfall, of course), hot tubs, saunas, and a “beach club.” And Boston University students lucky enough to afford digs in the school’s new $291 million housing complex enjoy private bathrooms, walk-in closets, and views overlooking the Charles River.

Indicative of this national trend are higher education’s rapidly rising construction costs. Such expenses more than doubled between 1995 and 2006, rising from $6.1 billion to $15 billion. That figure diminished during the Great Recession, but, as of 2013, hovered near $11 billion.

Contributing to the massive uptick in construction costs is increased spending on athletic facilities. A review by the Washington Post sampled 48 schools to compare their spending on such projects from 2004 to 2014. The Post discovered that the colleges spent a combined $772 million on building, maintaining, and operating athletic facilities in 2014 alone—almost double the commitment made toward comparable projects in 2004. Such “investment,” administrators argue, attracts top high school recruits, who in turn help to build winning, profitable programs.

A similar argument is used to justify construction of lavish buildings and amenities for non-athlete students—namely, that campuses need to build them to lure prospective students away from other schools. That claim was corroborated by a 2015 National Bureau of Economic Research paper which found that colleges, particularly less selective ones, receive a greater marginal benefit from investing in amenities than from improving academic quality. In other words, schools seeking to boost enrollment—and their flow of federal tuition dollars—would be better off building another climbing wall than, say, upgrading an IT lab or library collection.

A study conducted by University of Michigan researchers provides insight into why that is the case. The researchers found that students with relatively lower academic aptitude but higher income displayed greater willingness to accept increased tuition and student fees if it meant access to swimming pools and complimentary student seating at football games.

Understanding that dynamic, many schools either shift construction costs to their students through increased fees or delay payments by way of long-term bonds. Because of federal standards on tax-exempt bonds, universities’ lenders can earn a tax-free return on their loan—and the larger the debt, the more generous the exemption. The result is that universities often find themselves with a seemingly endless supply of financial capital.

Not surprisingly, perhaps, many universities have taken advantage of this system. Ohio State University, for example, was able to take out $500 million in century bonds—that is, not to be fully repaid until the next century. The University of California went on a similar spending spree, issuing $860 million in bonds. And the UNC system was afforded nearly $1 billion in bonds—all for construction projects—by the North Carolina legislature in March 2016.

But debt-fueled construction projects can bring about negative unintended consequences. For example, some over-leveraged schools have had to increase the number of wealthier, out-of-state students (who pay higher tuition) they admit in order to raise revenues and reduce debt. That is to say, schools have found that the pursuit of lavish campus amenities and the pursuit of goals such as access and affordability are sometimes mutually exclusive.

Furthermore, in recent years Moody’s Investors Service has downgraded the credit ratings of numerous colleges and universities, noting that many institutions have a negative financial outlook because of unsustainable debt levels and mismanagement. The number of colleges at the low- or below-investment grade ratings rose from a few dozen in 2011 to over 100 by 2015. In the future, universities that try to “keep up with the Joneses” in terms of their amenities may find themselves insolvent.

Considering all of the financial issues faced by colleges today, higher education leaders would do well to reorient their focus. Instead of perpetuating the hyper-commercialization of our universities and the idea that students are customers to be appeased at all costs, school officials should work to compete more along educational lines. Luxury dorms and hot tubs may increase enrollment and revenue streams in the short run, but over time they can impose unnecessary burdens on students, parents, and the public.

  • Glen_S_McGhee_FHEAP

    Moody’s just released a report identifying pension shortfalls, where the pension liability is greater than capital debt.

  • Glen_S_McGhee_FHEAP

    Add credibility to this criticism by following the lead of the Maryland Reporter. This simple data compilation is very illuminating.

  • Glen_S_McGhee_FHEAP

    LOL! Reminds me of Ivar Berg’s famous reference to college as an “aging vat”!

    “The researchers found that students with relatively lower academic aptitude but higher income displayed greater willingness to accept increased tuition and student fees if it meant access to swimming pools and complimentary student seating at football games.”

    Seriously. All the more reason to view this as a hidden system of transfer payments, but without the stigma of welfare.

    From ERIC, “While it has commonly been noted that schools serve as “Aging vats” for young persons with nothing else to do, there is little literature on this topic. It has been determined that young persons tend to withdraw from the labor, force or potential labor force participation as unemployment-increases (Aldrich Finegan and William Bowen, and Stuart H. Garfinkle, “The Outcome of a Spell of Unemployment,” Monthly Labor Review, January 1977, pages 54-57), but there has been scarce literature dealing with whether such lack of employment or any other activity leads to school enrollments.”

  • bdavi52

    Of course!
    Is anyone truly surprised.

    When I’m going on vacation, I always try to pick the best place I can find (given normal budget limits, of course). If Place Two has a swimming pool….complimentary breakfasts….workout facility….and a HD Plasma Screen in every room — damned straight, that’s where we go!

    Money is always a limiting factor….but if, insanely, I’m borrowing to fund my Fun Time (and Bernie tells me I won’t have to pay), well then — the sky’s the limit!

    Wait, you say, this is COLLEGE we’re talking about NOT vacation.

    C’mon now — get serious.
    The entire dynamic has shifted. This is no longer the monastic retreat which is valued NOT for the accommodations but rather the quality of the teaching (the student lucky to find himself or herself permitted to attend, lucky to be given this chance to learn & grow). This is the New Cabo…a northerly extension of Spring Break festivities. Every University Resort wants to retain me! They value my 4 or 5 year presence (let us have the bank count the ways!). If my courses are too tough — if they push me too hard, they’ll back off. If I feel uncomfortable, I’m given a safe space. I can spend years taking self-indulgent vanity classes. I can major in myself, for God’s sake.

    So why should I worry about underpaid faculty or collapsed curriculums or quality erosion if I can get a climbing wall and free transport to & from the bars on Friday night!?? Tell me more about those massages.

  • George

    This has an explanation: campuses must compete for students. Why? Because budget increases (via faculty position $ from the state) come with every N-many freshmen enrolled over what was enrolled the previous academic year. When did this start? During the Viet-Nam war era, when avoiding the draft by going to college worked for awhile. When did enrollment based funding begin the path to disaster? When the Feds started the loan programs. There were loans prior to that. I had one in 1970. From a bank. Had to pay it back in full by the end of the semester. But now, since increasing enrollment grows the budget, since students who cannot afford college (and/or of unwilling or unable to do college work) can borrow and perhaps never have to pay back, the bodies are there to attract. Problem: a finite number of high school grads each year who meet the minimal admissions criteria. Solution – make your campus more competitive. How? Turn you campus into a resort! Choice? No, you have none. If freshmen enrollment decreases r not only do not not get new dollars, you loose dollars (faculty positions) at the same rate increasing enrollment brought them in. This recipe for disaster is fully realized in “competitive” UNC state campuses, as well as in others across the country. When some states cut their funding to 20%, do you think the competitive campuses could eliminate their resorts? No way – those attractions are the only thing that keeps them competitive.

  • George

    North Carolina State is a state run, taxpayer funded school…that concerns me as a taxpayer. High Point University is private, so that is none of my business…

  • Rivka leiner

    Heretical idea: A college with no amenities. Basic classrooms and labs, Basic dorms created by renovating off campus housing. Build on inexpensive real estate. Open only practical departments and keep only basic administration. Make as many support staff – cafeteria, janitor, clerical, security guards, etc work study positions as possible. Do not accept student loans. Open admission the 1st semester, 2nd semester admission based on success and reponsibility duing 1st semester. Continued enrollment based on academic proficiency and demonstrated responsibility. Activities student organized in a open hall for student events. Administration may interfere only if violence, terrorism or lawbreaking is advocated. Students who disrupt free speech face automatic expulsion. My guess is that not a few parents would send their kids to such a school, especially blue collar and middle class families where no debt, quality program an career oriented studies would be a bigger draw than hot tubs..