Student loan debt is again accruing interest without much reform following a 3.5-year payment pause. Meanwhile, millions of current college students will soon join the existing indebted borrowers that have racked up around $1.8 trillion in debt to date.
University spending sprees are far outpacing enrollment and inflation, fueling the student debt crisis. As colleges spend, students and taxpayers, through government aid, foot a lot of the bill.
According to a recent Wall Street Journal analysis, the median U.S. flagship university increased spending by 38% over the past two decades while enrollment is up just 21% over the same time. The enrollment growth occurred during the first decade of data since undergraduate enrollment has been on the decline since 2010.
In an interview with Straight Arrow News, former Old Dominion University President James V. Koch reveals details behind the governing bodies that approve spending increases at public universities and where the money is going. He also warns of an impending semi-depression set to hit universities in 2026. Koch is an economist and co-author of “Runaway College Costs: How College Governing Boards Fail to Protect Their Students.”
This interview has been edited for clarity.
Q: Your own research showed that public university trustees approved 98% of the cost-increasing proposals that were put in front of them. Most of the time it was unanimous. What does that tell us about the culture of spending at universities?
A: Public university trustees should be fiduciaries; they should be people who are taking care of students, parents and taxpaying citizens. But they tend not to do that very effectively. They tend to buy into institutional narratives that say, ‘We want to be this, we want to be that,’ and they get taken in by that and end up voting for things that probably they shouldn’t.
Q: What are some of the red flags that you see when you look at how universities are spending their money?
A: I have data going back to 2004. Since then, the typical public university has spent 1-2% more annually per year on an average student than the rate of price inflation. So they’re spending more than the CPI and this has gone on year after year after year. So that’s a dangerous signal.
If you look behind that, you see they’re spending money on new buildings, granite tabletops in dormitories, especially on intercollegiate athletics. But there are a variety of other things, exercise facilities and lots of additional administrators.
In fact, I would pick that out as a particular problem. Administrative overhead has gone up in the typical public institution over the last 20 years. And it’s not just a little bit, it’s a huge amount.
Q: What do you think is the motivation behind this type of spending? Do they think that it’s going to be attracting more students to come into their universities?
A: Yes, I think that’s part of it, and higher education enrollments have been going down 11 years in a row now. There are 3 million fewer college students in the U.S. right now than there were in 2011. So that’s caused universities to say, ‘Gee, what are we going to do about this?’
In many industries outside of higher education, the response would be: We need to change our product; we need to improve it; we need to lower prices; we need to become more efficient.
But in higher education, for the most part, that has not happened. Higher education is deciding, ‘Well, we’re going to raise prices and add things to our product; we’re going to have those granite tabletops in the dorms because we think that will attract students; we’ll spend more money on intercollegiate athletics if we think students would like to attend games and do that sort of thing.’
So the reaction in higher education has been different than it would be, let’s say, in the steel industry, or if they were selling computers or automobiles.
Q: There’s a Wall Street Journal analysis that says the percentage of spending increases outpaced enrollment by nearly two to one from the last two decades. Who is footing the bill for these increases?
A: For the most part, it’s students. They’re paying more than they used to and tuition and fees have gone up faster than the CPI. Also, the federal government is paying for a good portion of this through federal student loans.
There is a persuasive economic argument to be made that the federal government is actually enabling the inflation that we’ve seen in higher education by providing so much in the way of student loans.
Now, I think student loans are necessary and I’m entirely in favor of need-based financial aid. But the federal government seems to have gone overboard somewhat in this respect and is granting money to universities that they then loan to students.
Part of the problem is that if a student doesn’t pay back his or her loan, the university bears no penalty. So they’re in favor of granting as much loan money to students as they can because they don’t have to pay for it.
Q: As a former university president yourself, how would you tackle this situation? How would you go about cutting spending to prepare for lower enrollment numbers?
A: I think university presidents are like most people, they respond to incentives. And part of the problem here is that boards reward presidents for doing bigger and better things. They don’t reward them for holding costs down or being more efficient.
What we need, then, is for governing boards to start rewarding presidents who are really making their institution more efficient and controlling prices and controlling costs. But instead, what happens is they get rewarded for more research money and building more buildings and having a bigger athletic enterprise. Mine is not to say that some of those things aren’t good but we’ve simply overdone those kinds of things in higher education.
Q: Who’s making up these boards and what sort of fiduciary responsibility do they have?
A: For the most part, in most states, the governor nominates the people who fill boards and then those individuals have to be approved by the Senate or the House or maybe both houses of the legislature. So it really starts in the governor’s office.
You have to appoint people to boards who recognize that they should be fiduciaries and not fans and advocates of the institution. But the nature of the political beast is, who’s going to get appointed to a board? It’s the individuals who gave the largest contributions to the governor as a major qualification.
These are individuals who want to be on a specific board. To be on the board of, let’s say, the University of Virginia, that ordinarily requires a financial contribution of some significance. As a consequence, when these people get on the board, it’s ordinarily because they are fans and proponents of the institution and not because they’ve been told by the government, ‘You need to pay attention to costs, you need to worry about administrative overhead.’ Those kinds of things fall into the background.
So part of the problem, in addition to what I just mentioned, is we need states to orient and train board members when they join boards so that they understand what the nature of the beast is and how these costs have increased over time. But in many states, that simply doesn’t happen.
Q: Where would you like to see cuts in university spending. Is it in the extracurriculars, in the buildings, in research, in programs for students? Where’s the most logical place to implement these cuts?
A: Nearly all of those qualify but I would pick out in particular administrative costs. We have too many associate deans and directors and the like. That kind of spending has proliferated. Intercollegiate athletics is another area.
In Virginia, for example, at James Madison University, students pay an annual athletic fee that is mandatory of more than $2,300 a year. That’s an astonishingly large amount for a student to pay for the privilege of attending intercollegiate athletic events.
One is hard put to say that really makes their degree more worthwhile and that makes them more competitive after they leave the institution. So administrative overhead and athletics are two major areas.
But in general, I think we have to look at expenditures and say, ‘Is this benefiting students? Is it making them more competitive? Are they learning more?’ And that kind of approach to governance isn’t very common today in public higher education.
Q: Because of the student debt crisis, the idea of the college dream and investing so much money into it seems to have lost its luster in recent years. Do you think fewer and fewer people are going to be enrolling in these expensive four-year universities down the road?
A: Oh, absolutely. I think higher education is in for a semi-depression, if not a recession, in terms of enrollment.
In 2026 begins what many people are terming the enrollment cliff, the absolute number of high school graduates nationally is going to decline and it will decline for 10 or 15 years. We already know because these people are born. And as a consequence, there aren’t going to be as many conventionally-aged students who are available to go to college.
So when I said earlier that college enrollments have fallen 11 years in a row, that might stretch out to 20 years in a row or 25 years in a row. Higher education is headed for some really pretty bad times, and they need to adjust now in order to survive. I think many small private institutions are simply going to go out of business and we are likely to see mergers among public institutions that have simply gotten too small and too expensive to operate.
