Competition drives the higher-education landscape, particularly at its most selective levels. Administrators eye their peers, while students hope to beat out fellow applicants for an acceptance letter.
But keeping up has costs — one of the dynamics bubbling up at the University of Chicago over the past few months. The institution, with a $3.1-billion operating budget and $10 billion endowment, is running a $239-million deficit and carrying a heavy debt load. “In essence, we transformed ourselves into a shiny bauble,” said Clifford Ando, a classics professor at the university, “but both the process, and also maintaining that, has become parasitic on the university itself.”
We transformed ourselves into a shiny bauble, but both the process, and also maintaining that, has become parasitic on the university itself.
Ando has been near the center of the discussion recently. After combing through publicly available documents — 990 forms, consolidated financial statements, Department of Education databases, even local building permits — Ando cobbled together a picture of Chicago’s financial health last fall and led a campus discussion in November. In his analysis, published this week in the student newspaper, The Chicago Maroon, he speculates on how the university could respond to the financial pressures and how the drive for prestige affects its identity and mission.
In his paper, Ando pegs the university’s liabilities at $5.809 billion in 2022, more than double the $2.236 billion reported by the university in 2006. The annual cost of servicing the university’s debt, he says, has gone from $45.7 million to $200 million in recent years. Ando writes that the university will make $900 million in debt payments in the next five years, and estimates that Chicago will have to borrow $1.2 billion more in the coming years to pay for building projects it has already committed to.
Ando says Chicago has taken on expensive projects to raise its research profile — he points to its affiliation with the Marine Biological Laboratory in Woods Hole, Mass., in 2013. The laboratory was supposed to require a small initial investment before becoming self-sustaining, he says, but instead the university has subsidized the lab with millions of dollars every year. (The university’s latest consolidated financial statement reports a deficit of $12.7 million for the lab.)
University administrators characterized the debt and deficit as “growing pains” necessary to keep up with other elite institutions and ascend national rankings. The administrators argued that Chicago has some competitive disadvantages, being younger and less moneyed than Ivy League and Ivy-plus universities. The institution, founded in 1890 with a gift from John D. Rockefeller, went through a stretch of low-enrollment years in the 1950s, ’60s, and ’70s, while other institutions grew amid the postwar boom. That low enrollment created a smaller alumni base for fund raising and building the endowment, but the university’s fund-raising capabilities have become quite strong more recently, ranking ninth among private institutions, according to the Council for Advancement and Support of Education.
Are we really pursuing the ideal of a university, or are we engaged in status games and revenue management?
In the past 10 years, the university saw a 32-percent increase in undergraduate enrollment, according to its data. Gerald McSwiggan, a spokesman for the university, said in an email that Chicago had “purposefully leveraged a favorable financial environment to make significant investments in academic programs.”
“We chose to operate with annual operating deficits for a period of time, and this proved to be a successful strategy for students and faculty across the university, creating new disciplines even as areas of historic strength were supported,” he wrote. Molecular engineering and quantum science are among the new programs at Chicago, which said it had raised $150 million from Google and IBM last year for the latter. The university has also constructed new buildings for molecular science, the public-policy school, the performing arts, the library, and the residential commons.
The university will control costs with a temporary hiring freeze and retirement incentives, and look for ways to increase revenue through more sponsored research, expanded summer courses and nondegree programs, and new, year-round uses for campus spaces. A budget plan will be finalized in the spring. “We are confident that in the coming years we will continue to thrive while addressing the operating shortfalls,” McSwiggan wrote.
The Pressure to Compete
In recent years, elite institutions have used their deep pockets and stellar credit ratings to take on more debt to play the prestige game — with some risk to cash flow and those ratings. In 2019, for example, Moody’s Investors Service downgraded Northwestern University’s bond rating because of its growing debt load. Last February, Moody’s assigned a relatively strong Aa2 rating to the University of Chicago’s proposal to issue $300 million in bonds. While the university had “significant wealth” and “exceptional fund raising,” its “monthly liquidity still remains modest for its rating category and provides relatively thin coverage for the university’s large and rising expense base,” Moody’s said.
“The university’s elevated financial leverage continues to be its key credit challenge,” the credit-rating agency continued. “While debt issuance has slowed, operating performance remains thin relative to total debt outstanding and provides moderate coverage of annual debt-service obligations relative to similarly rated peers.”
Michael Osborn, vice president and senior credit officer on the higher-education and nonprofits team at Moody’s, noted that elite institutions feel pressure to compete not just in buildings and research programs, but also in how they distribute financial aid. He thinks that many of them still have sustainable business models, despite the strain.
“You might see some chop here and there across those schools, but there’s this consistent, demonstrated ability to fund-raise and find resources for these investments,” Osborn said. Even with talk of alternatives to college and noncollege pathways, “there’s still significant demand for those elite institutions,” he said. “I don’t foresee that changing in the near future.”
Barrett J. Taylor, a professor of higher education at the University of North Texas, emphasized understanding the context of Chicago’s financial hardship. The controversy might sound a bit like the stories of teetering finances and program closures that are roiling public regional and small private colleges, he said, but Chicago is in an entirely different universe.
“They’re the envy of 2,800 colleges and universities in the U.S., right?” said Taylor, a co-author of Unequal Higher Education: Wealth, Status, and Student Opportunity, which examines the stratification of the college landscape. “But Chicago, they don’t care about what’s going on with everybody else in higher education. They’re worried about a small handful of other places.”
And in the race among those elite other places, “fine gradations of status distinction really start to matter,” said Taylor. He cited a section of the Maroon article in which Ando complains that Chicago’s library has fallen from the “mid-teens” in 2006 to “around number 30” in the Association of Research Libraries’ rankings of library investment — “a willingness to settle for mediocrity,” as Ando characterizes it.
“No. 30 is not mediocre for most of us,” Taylor said. “And while those status distinctions are fine, the wealth distinctions are enormous.” Harvard University, with a $50-billion endowment, has more than twice as much money as does the University of Pennsylvania, at $20 billion, which has twice as much as Cornell University and Chicago, at $10 billion each, and significantly more than Brown University’s $6.6 billion.
Managing that reputational game of inches is extremely financially complex and risky, Taylor said, and the opacity of elite, private institutions is partly a strategy to keep a competitive edge. “But anything that invites further mistrust of higher education is concerning for everyone.”
Still, Taylor said, Ando raises an issue that cuts across higher ed: “Are we really pursuing the ideal of a university, or are we engaged in status games and revenue management?”
Ando worries about how the institution will adjust and how Chicago’s values could change. He believes that the university’s borrowing and investments have served professional schools and other programs outside the traditional arts and sciences, and he worries that budget cuts will focus on liberal-arts disciplines, reflecting a broader trend of emphasizing majors and programs seen as closely aligned to jobs. He already sees faculty members in the humanities and social sciences disproportionately supporting general education at Chicago, in service to the professional schools — a situation that could cause administrators to question why they are paying tenured professors to teach gen ed, he said.
In the 1970s, Ando said, Chicago saw plummeting enrollment in fields like chemistry and physics, so it assembled a faculty committee to determine what to do about it. In a report, he said, the panel told the university, “We cannot abandon these fields just because no one’s taking them, because we’re a university.”
“Instead of people ducking their heads between their legs and saying, We too need to assess ourselves based on X enrollment or the five-year-out salary of this or that other person,” Ando said, “I’d like to see somebody stand up and make a distinguished and eloquent claim for what universities do.”
