Will NYC's College Building Boom Bubble Pop?

New York's universities have grand expansion plans, but could the economy--and online courses--doom them to failure before they've even begun?

Real estate development was the first casualty of the Great Recession, but a half-dozen New York City colleges are in the midst of an unprecedented building boom.

St. John’s University in Queens has already spent almost $160 million on a new student center and classroom upgrades during the past two years alone. Fordham, the New School, and John Jay College of Criminal Justice are all betting on big campus expansions. And over the next three decades, NYU and Columbia are preparing to shell out nearly $10 billion for academic and administrative buildings, dormitories, research labs, and even unrelated commercial ventures like a hotel and a jazz club.

Yet just as some of these schools get ready to send shovels into the ground, a weakened economy threatens to undermine even the best-laid plans. Students and their parents are increasingly reluctant to take on debt, especially at a time when job security is in doubt, says Joseph Marr Cronin, a longtime university administrator and former Massachusetts secretary of education. It’s a trend that’s reflected in the growth of community colleges—which now account for nearly half of undergraduate enrollment—and online schools.

New construction under way at Columbia
New construction under way at Columbia
Buildings in the works for John Jay
Buildings in the works for John Jay

“Today, there are four million students taking one or more courses online,” Cronin says. “You don’t need a building for that. All of a sudden, the market for the most expensive colleges could really stall.”

Cronin is part of a Greek chorus warning of a higher education “bubble,” brought on—like the subprime mortgage crisis—by easy credit and inflated price tags. One of the most prominent Chicken Littles is Steve Eisman, the hedge-fund manager whose bet against the housing market played out in the pages of Michael Lewis’s bestseller The Big Short. At a Manhattan investment conference in May, Eisman noted rising default rates on student loans—up to 6.7 percent this year from 5.2 percent last year—and predicted that stocks of for-profit colleges could drop by as much as 50 percent: “It’s just like subprime, which grew at any cost and kept weakening its underwriting standards to grow.”

But there’s a big difference between publicly traded colleges and prestigious four-year universities like Columbia and NYU, right? Don’t be so sure, warn skeptics. The amount the average family pays for college has ballooned by more than 440 percent over the past 25 years, notes the National Center for Public Policy and Higher Education. That’s more than four times the rate of inflation, and the only thing keeping the bubble from bursting may have been easy credit. Over the past two years, the number of student loan accounts has gone up by nearly 30 percent to 69 million, according to the credit rating agency Equifax, while balances have exploded five-fold to $527 billion. At the same time, the value of a sheepskin actually declined during the first four years of this decade, according to a 2006 report by the White House Council of Economic Advisers, with average wages for college grads dipping a bit more than 5 percent.

All of this could spell bad news for the campus expansions planned by New York City universities. With the exception of John Jay, a CUNY college that charges only $2,300 a semester, “they’re all expensive, which means they depend on students borrowing lots of money to fund their expensive tuition,” observes Glenn Reynolds, the University of Tennessee law school professor and conservative commentator best known for his blog Instapundit.com. The five private schools charge between $31,250 (St. John’s) and $39,900 (Columbia) a year for tuition alone.

When you include room and board, NYU costs $53,600 for nine months, and is among the nation’s most expensive colleges. Its average student graduates with more than $33,000 in loans. Doomsayers like to trot out the story of Cortney Munna, a 26-year-old NYU graduate who owes more than $100,000 for her degree in religious and women’s studies. She lamented to The New York Times that she’ll be “slaving away” the rest of her life to pay for a diploma she would “happily give back.”

Reynolds has little sympathy for Munna—and even less for NYU. He thinks colleges with expansion plans might be building a house of cards.

“If students become less willing or able to borrow a lot of money, will the expansion still be economically viable?” he asks. “And, more significantly, have [the schools] even given that possibility serious thought as part of their planning?”

Will They Come?
Even as some universities have put campus expansions on hold—Harvard, for example, shelved a $1 billion science complex last December after seeing a 30 percent drop in its endowment—New York City’s colleges paint their bold plans as necessary bids to stay competitive.

Some are simply catching up. John Jay College, for example, plans to maintain its full-time enrollment at around 11,400 students even after it completes the $557 million facility that’s currently rising between 58th and 59th streets along Eleventh Avenue, says project coordinator Ynes Leon. “We’ve already run out of room.”

Similarly, Fordham’s Lincoln Center campus was built for 3,500 students in the late 1950s, but now serves 8,000. “We’ve needed new facilities for a while,” says Fordham spokesman Bob Howe. After the addition of a new $1 billion building to house dormitories and the graduate schools of law, business, social work, and education, Fordham hopes its enrollment there will increase to slightly more than 11,000 students by 2032.

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