The bubble now includes universities
While it has been widely known that the student loan debt is affecting graduates, the effects that it has on universities is starting be get attention as well. According to a study by Richard Kneedler many colleges have more debt than cash, with one even having a balance of negative $400M. The universities are insolvent and over time will have to close their doors.
"Inadequate-capital institutions are less prepared to absorb potential revenue losses from drops in enrollment, alumni giving or investment income. They are less able to meet increased demands for financial aid for students or higher interest payments on variable rate debt. From whatever direction trouble arrives, these colleges may lack resources to weather the crisis, and their difficulties will tend to compound faster than will those of their better-off peers because they have less cash to spend, fewer assets to sell, and less budget "fat" to trim.
It was found that colleges that have financial issues attract and admit financially at risk students. More than half of these colleges have 25% of the student body that is eligible for financial aid under Title IV of the Higher Education Act. Many universities will have issues providing even partial financial aid to students that require it and will lead to a decrease in incoming class sizes.
When these institutions are no longer able to stay open should they just be closed down? Is it more important for Congress to take action to help the universities or the students that are struggling?