Tony Dejak/AP Photo
In July 2020, the University of Akron decided to eliminate dozens of tenured (and unionized) faculty positions, pleading “catastrophic circumstances.”
Despite federal pandemic aid of $69 billion, over 650,000 jobs were lost in higher education last year, amounting to 1 out of every 8 workers. This was the most extreme decline ever witnessed in the 60-plus years that the Labor Department has tracked specific industry numbers.
In typically cruel neoliberal-managerial fashion, most of those cuts were directed at the lower ends of the pay scale, affecting already vulnerable service and support workers and adjunct professors, rather than tenured or tenure-track faculty and administrators. Some cuts were even deeper. In July 2020, the University of Akron decided to eliminate dozens of tenured (and unionized) faculty positions, pleading “catastrophic circumstances.” That October, Ithaca College announced it was “right-sizing” its faculty by eliminating 130 of its 547 teaching positions.
In July, the American Association of University Professors (AAUP) annual report painted a grim picture of the general state of higher education. Between COVID-19 and years of austerity, the report warns of “an existential threat” to shared governance and academic freedom. The persistent growth in number of adjunct faculty, who work for exceedingly low pay, few to no benefits, and no job security, has been particularly alarming. Fully two-thirds of faculty across the country are now contingent, as are 51 percent of faculty at doctorate-granting institutions. The situation is even worse at community colleges, where as much as 79 percent of the faculty may now be contingent. And in the often shady and exploitative for-profit sector, contingent labor makes up as much as 93 percent of the teaching workforce; to the best of my knowledge, there is no such thing as tenure. Despite the pervasive deterioration, tuitions continue to rise.
Leaving for-profits aside, administrations and trustees in nonprofit public and private universities increasingly run their institutions as private, top-down corporations that manufacture “education” and “student experiences” much like the companies in econ textbooks that manufacture the ubiquitous “widget.” At many institutions, faculty and staff were not consulted about mandated in-person fall reopenings, despite the delta variant continuing to ravage the country. Even the vast disparities between lowest- and highest-compensated employees on display at large corporations have been mimicked; top university administrators now can make seven-figure salaries.
Administrations and trustees increasingly run their institutions as private, top-down corporations that manufacture “education” and “student experiences.”
One of the worst examples of COVID-era managerial fiat comes from McGill University in Canada, which is mandating in-person teaching. Its provost threatened retaliatory measures against faculty who refused to teach in person, stating that even concern about putting relatives and spouses at risk of exposure was “not [a] valid reason for granting permission to teach remotely.” In classic agency-theory fashion, faculty were also preemptively suspected of falsifying information and malingering.
There have been a few bright spots amidst all the hardships. When Rutgers University’s administration directed proposed pandemic cuts at low-wage workers and adjuncts (many of whom are women and people of color), several employee and faculty unions banded together to preserve jobs and benefits and institute a work share program to protect their most vulnerable colleagues. Similar coalitions at the University of Pennsylvania, UC Berkeley, and Cornell are pushing back against decades of imposed austerity, seeking a greater measure of faculty governance and control.
But serial job losses and loss of control over working circumstances within higher ed match with a long-term trend of imposed “austerity” and “efficiency” logic from administrators, trustees, and the corporate consultants they rely on for advice. Such logic has a history that is intertwined with what Mike Konczal, Charles Eaton, and many others are now calling the financialization of higher education, which has gradually entangled many institutions with external, private finance interests that end up having much more say in how these institutions are run than faculty and staff.
Exuberant Endowments, Institutional Austerities
In a piece from earlier this year, I wrote about Oberlin College’s decision, despite substantial protest, to fire or outsource union employees. One key question was why, given the college’s substantial endowment (which recently soared over $1 billion), did such a drastic and damaging move need to be made in the midst of a deadly pandemic in order to save just $2.5 million per year? Isn’t this the kind of “rainy day” scenario endowments are there for?
After all, as head trustee Chris Canavan admitted during a March Zoom meeting with faculty, Oberlin routinely pays out more than that in investment management fees, more even than the $3 million per year average reported on its 990s. As he said to a gathering of faculty who’d had their pension contributions frozen for a year, you have to pay for talent.
The financialization at Oberlin and within higher education more broadly pits the abstruse world of finance, with its metrics and measures of shareholder “value,” against the character, needs, and values of workers and their communities. One way this process has taken hold is through the ever-expanding world of alternative investments—private equity, hedge funds, venture capital, REITs, and others. These funds often lock up investor money for years, preventing investors like universities from accessing it during a crisis.
Cover detail of a 2020 Preqin report
Barely regulated and not at all transparent, alternatives are now an enormous global industry, exceeding $10 trillion in 2020 and predicted to increase by another $4 trillion by 2023. So ebullient is the industry these days that the cover of Preqin’s 2020 industry report centered on a rocket ship blasting off into space.
The vast majority of institutional investors—which includes endowments, pension funds, charitable trusts, and sovereign wealth funds—now have at least some investments in alternatives, an industry originated and still led by the U.S. but increasingly taking root abroad as well.
Alternatives are ubiquitous, affecting virtually every aspect of our lives: our jobs and benefits, our infrastructure and public utilities, hospitals, health care and nursing homes, retail and manufacturing, housing and real estate, and even the music we listen to, the news we read, and the food we buy. And they inevitably cause negative and damaging social and economic effects, as profits get prioritized over people and communities.
Alternatives are immensely lucrative for the general partners, not least because of the massive “carried interest” loophole allowing profits to be taxed at lower rates. If college tuitions keep rising the way they have over the last few decades, top managers would still easily be able to afford tuitions of even, say, $150,000 per year, while the rest of us would be forced to take on ever more enormous debts. This is not a recipe for educational equity and social progress, but only deepening inequality.
Lured by the prospect of higher yields, colleges and universities have become complicit in our increasing disparities of wealth, which are now at Gilded Age levels. The industry itself will say, much like Canavan did, that the massive fees and costs it extracts from investors are justified because of the higher yields it brings, although recent research has shown that alternatives do no better or even worse than more regulated and less expensive investments, such as index funds.
With adjunctification proceeding rapidly, and the pandemic revealing that faculty at many institutions are effectively viewed as expendable, it’s easy to reach the conclusion that higher education now values the acquisition of paper profits over the experience of its students and faculty, even when those profits are illusory. That can be seen in Oberlin’s recent action. Despite announcing a tremendous, record-setting gain in its endowment this spring, the college went ahead with its plans, firing and outsourcing union employees in the midst of a deadly pandemic.
And then something else happened too, which brings me to another important avenue of the financialization of higher education: debt. After cutting the union jobs and outsourcing, Moody’s upgraded Oberlin’s bond ratings from a negative to stable outlook on March 21, 2021.
Debt and Bondage: The Destructive Effect of Interest Rate Swaps
Most institutions of higher education, public and private, now carry debt in the form of bonds. Particularly at public colleges and universities, which have in recent decades been starved by state legislatures for both political and fiscal reasons, these instruments provide much-needed funds for building construction and other projects. Before the 2008 financial crisis, a particular type of bond had become very fashionable: the interest rate swap, a derivative instrument used to manage risks like fluctuations in interest rates or to lower financing costs.
Across the country, countless schools, municipalities, state agencies, and pension funds invested in swap arrangements. The largest five or so banks, which dominate the industry, aggressively pushed swaps, and had an interest in doing so, since they got paid only if a swap arrangement took place. This conflict of interest no doubt contributed to downplaying the risks to their clients in order to push more product.
Some, like Bank of America, continued to market swaps to their customers, even as the banks’ own research indicated growing risks. One victim was the Chicago public-school system, which ended up paying over $50 million more for the deal than if the district had stuck with traditional fixed-rate debt. Because swaps contracts usually carry longer terms than traditional municipal debt and are expensive to exit, Chicago and many other places were forced to institute budget cuts just to keep up with the payments, resulting in declining standards of living as city services disappeared, schools and libraries were forced to close, and jobs were lost.
The swaps crisis did not spare higher education, either. As an important 2016 report from the Roosevelt Institute revealed, a sample pool comprising 19 public and private colleges and universities across the country revealed a combined total of $2.7 billion in swap costs for those institutions alone. Many of these deals had significant consequences. In 2014, Rutgers was still hemorrhaging money from four long-term swaps contracts, and was only able to right itself by entering into a so-called “century bond,” a hundred-year term bond that will conclude in 2119 (an optimistic move given the accelerating pace of climate change).
In some cases, swaps contributed to credit ratings downgrades as post-crash institutions struggled to deal with ballooning debt service, making it more costly for them to borrow. By design (and contract), exiting swap arrangements is a very expensive move, generally adding tens of millions in additional costs. According to a 2009 Bloomberg report, Harvard University ended up paying around $1 billion to terminate its swaps arrangements with the banks, many approved by its former president Larry Summers in a context rife with conflicts of interest.
Only this spring did Oberlin, saddled with costly and damaging interest rate swap agreements dating from before the financial crisis, regain a positive outlook on its debt. It is hard to imagine that this upgrade wasn’t related to the various austerity measures imposed over the preceding year, as well as endowment growth (as collateral, chiefly, not a resource supporting the general educational mission).
The Disciplining Factor of Rating Agencies
The rating agency Moody’s “Higher Education Methodology” offers a remarkable case study in the ways financial “logic” has become entrenched. It gives far greater weight to the results of one-size-fits-all, metric-driven calculations of financial viability than to any other factor. “Brand strength” is the instrumentalized stand-in for the qualities and characteristics of particular institutions and communities. Under this rubric, some prospective students will be drawn to “progressive” brands like Oberlin, while others will be drawn to “conservative” brands like Pepperdine, much like some people prefer Crest to Colgate toothpaste.
This branded, commodified view of education has no concern for the processes of learning, debate, and critical reflection that are central to education. But this allegedly ideologically neutral way of looking at higher education is in fact very ideological, something that can be seen from the effects of the ratings agencies on governance. And one major effect is imposed austerity, like at Oberlin, as well as declining faculty control over their circumstances of work. For example, because Oberlin outsourced and cut those union jobs, it cannot require dining and custodial workers to be vaccinated, as it has all other employees.
The ratings agencies occupy a “disciplining” position not unlike the “shareholders” of private investments. Institutions have become answerable to these agencies in a manner that exceeds the ways that they are answerable to other stakeholders, such as students, faculty, workers, and communities.
Adding to this is the lack of transparency. When faculty, students, employees, and alumni are not aware of the extent of the financialization, they cannot effectively oppose it. And when administrations and trustees fail to be forthcoming about what they are doing with the money and instead act autocratically, there can be no basis for trust. To date, as far as I know, not a single institution with an endowment invested in opaque alternatives has revealed how much those investments have actually cost.
Higher education has been captured by a vicious circle of financialization, which is destroying it as an affordable and widely available right of the citizenry, and as an engine of social mobility. Saddling people with enormous debts only accomplishes the opposite. This has been a choice, not an immutable fact of nature. Surely, there must still be good, well-intentioned people within administrations and boards of trustees, people who still value education as a worthy public good and are willing to defend it against predatory, damaging financialization. The current system cannot hold.
