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NYU's 'Toxic' Expansion Prioritizes Marketing Over Debt-Saddled Students, Professors Say

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Sashika Gunawardana, who graduated from NYU in 2012, has monthly payments from student loans that total $1,000, leaving her with little leftover to save for graduate school, or to even visit family in California.
Sashika Gunawardana, who graduated from NYU in 2012, has monthly payments from student loans that total $1,000, leaving her with little leftover to save for graduate school, or to even visit family in California.

In a time of growing alarm over soaring student loan debt, New York University -- which graduates the most indebted classes of students in the country -- has embarked on an ambitious real estate expansion that could make the school even more expensive.

A vocal group of professors has mounted a rebellion aimed at halting the university's plans, which call for the addition of 6 million square feet of new space over the next two decades. NYU's administration has refused to publicly disclose the cost, but faculty critics point to estimates that the build-out could run several billion dollars.

"The situation is so toxic right now," said Adam Becker, an associate professor of religious studies at the university, and a member of the faculty opposition movement. "People are angry at the place. We feel like we have been pushed into the corner."

Like many of its students, NYU will need to finance its ambitions through borrowing. The plan's critics argue that these costs will surely get passed along to future classes in the form of higher tuition and less financial aid.

"I think they should put more money back into scholarships for students instead of expanding," said Sashika Gunawardana, who graduated from NYU in 2012 with about $150,000 in student loans.

University officials say that NYU must amass more space in order to keep pace with other campuses that can offer faculty and students more room than their school, based on the urban island of Manhattan.

But to faculty opponents, these plans, known as NYU 2031, exemplify what is wrong on their campus and throughout much of American higher education: The post-graduate financial distress of graduates is exacerbated by undertakings like NYU's real estate ventures and an expensive arms race to recruit and retain elite faculty.

For the nation as a whole, concern over the rising costs of college has reached feverish proportions. Over the past five years, American college costs have soared 24 percent, according to the College Board, even as the financial fortunes of millions of families declined. Not coincidentally, borrowing has soared.

Between 2004 and 2012, total outstanding student debt tripled to $1.1 trillion in the U.S., the Consumer Financial Protection Bureau recently calculated. The average debt load now exceeds $25,000 -- double the level of eight years ago. Some 13 percent of borrowers owe more than $50,000, and 4 percent owe more than $100,000, according to the Federal Reserve Bank of New York.

These forces are especially pronounced at NYU, the nation's largest private university. Even by the measure of private colleges, NYU is extraordinarily expensive, with the price of a typical four-year stay, including tuition, room and board, approaching $280,000.

Financial aid is relatively scarce, prompting many NYU students to gorge on student loans. The 2010 graduating class departed campus owing $659 million, according to Department of Education data, the highest sum of any class in the country (excluding a handful of for-profit colleges).

This borrowing spree has turned the financial life of many recent graduates upside down. Many are starting their careers owing an amount that would equate to a mortgage on a modest house. The debt burden is also forcing grads to live at home or on a shoestring budget. Some simply can't keep up and are defaulting, a financially ruinous outcome for young people further handicapped by strict laws that prevent discharging student debt through bankruptcy.

Gunawardana's debt saturation began in the weeks leading up to her freshman year in the fall of 2008. Her parents told her that their business had collapsed, leaving them unable to contribute to college. She signed off on the first of what would become a mountain of loans, telling herself that this was the price of admission.

"If you want to go to one of the top schools in the country, this is the sacrifice," she said.

She now works at a tech startup in New York and shares an apartment with two roommates. She declined to disclose her salary, but said the $1,000 each month she pays to her college lenders leaves her with barely enough money for groceries. She hasn't been able to afford a trip home to California to visit family in two years. She has shelved thoughts of graduate school for fear of taking on more debt.

On July 1, rates on new federally-backed student loans will double to 6.8 percent, unless Congress acts to prevent the increase.. Gunawardana may soon be forced to assume payments on a separate student loan her mother co-signed, which have been deferred until now.

Yet rather than confronting this burgeoning debt crisis among its alumni, or working to lower tuition costs for current and future students, the administration of NYU President John Sexton has instead prioritized a costly expansion funded by borrowed money, his critics maintain. The new expansion endangers future students, who will be forced to shoulder the cost, they say.

Last year, the university's prestigious Stern School of Business voted against the proposed expansion by a tally of 52 to 3, warning in a public letter that it would be "tremendously costly, amounting to several billion dollars." The borrowing-funded expansion will put "a significant strain" on the university's finances, and could lead to higher tuition rates, the school cautioned.

"Our widely-shared assumption is that the cost of debt-financed growth will inevitably fall on students in the form of rising tuition," said Andrew Ross, a professor of social and cultural analysis at NYU who is one of the leaders within the growing faculty opposition movement.

NYU's administration counters that the expansion plan and student debt are separate concerns that have been improperly conflated by faculty looking for ammunition to use against Sexton, whose leadership style many openly disdain. Sexton declined a request to speak with The Huffington Post.

Over the past decade, NYU has developed new space at approximately the same rate contemplated in the expansion plan, the university contends. What is proposed is really just a formalized approach to an acquisition strategy well underway, the school says.

"If NYU is unable to develop new space, it will not be able to recruit new faculty, to pursue new areas of research and education and it will fall behind its peers," university spokesman John Beckman said in a lengthy written response to a HuffPost query.

As for the impact on tuition, Beckman said the expansion will have a "very modest" effect.

A NEWCOMER TO ELITE RANKS

NYU's high cost is largely a function of its status as a relative newcomer among the ranks of top universities.

A generation ago, NYU was considered a regional school. As such, it has a much smaller store of financial assets than other large, private universities like Yale or Columbia, whose students have long been drawn from wealthy families that tend to contribute large sums, and whose alumni have for generations landed in lucrative perches in the corporate world. The interest produced by these endowments allows the schools to better cushion the costs for students in need of aid.

Even so, NYU maintains that it is working to confront the student debt problem, having more than doubled the amount of grant aid over the past decade to $190 million per year.

"Financial aid is our number one fundraising priority," Beckman said.

To some ears, such claims ring hollow. Under Sexton's leadership, the school has embarked on a series of misguided propositions, opponents assert, including opening satellite campuses overseas in Shanghai and Abu Dhabi.

Many NYU faculty members have also taken umbrage at the large and often opaque benefit packages the private university has bestowed upon senior leaders, a suite of perks that has in some instances included multi-million dollar mortgage loans that were later forgiven, financial records show.

Jacob Lew, a former executive vice president at NYU -- who was recently confirmed as the U.S. Treasury secretary -- received $1.5 million in mortgages from the school, of which $440,000 was forgiven before he departed in 2006, according to financial records. Sexton's salary has doubled to $1.5 million during his tenure, and he is due to receive $800,000 a year after he retires. Other staff have received six-figure "departure bonuses," according to a recent report in The New York Times.

Charles Grassley, a Republican senator from Iowa, has asked NYU to turn over documents that detail these loan agreements and other financial arrangements with its administrators. A spokeswoman at Grassley's office said that the school is responding to most of the questions, but said she didn't know how many of those documents would be released to the public because of requested restrictions from NYU.

That NYU's faculty, known as liberal-leaning, is cheering on this investigation is an indication of just how deep the divisions have grown at the school, some staff members said.

"This is a fundamental clash between faculty and administration," said Mark Miller, a professor of media and culture at NYU, and a leader of the opposition. "We see this place as a school, where the purpose is teaching and research. They see it as a bundle of assets. I don't know how to bridge this gap."

In recent months, the disagreement has devolved into open war. Five NYU schools, including the College of Arts and Science, have voted "no confidence" in Sexton's leadership. But the faculty is not empowered to override the administration.

So far, the board of trustees, led by Wall Street legal titan Marty Lipton, has stood by Sexton. So, too, has the law school, which voted overwhelmingly to affirm its faith in his leadership.

To some degree -- perhaps a large one -- the dispute over NYU's expansion proposal has little to do with students, who often are too preoccupied with their own concerns to worry much about what will happen to their alma mater years after they depart.

It is no coincidence that the movement against the endeavor is being led by faculty, some of whom seem as upset about being disturbed by the sound and inconvenience of construction in their neighborhood as they are about the larger questions of how best to deploy the university's resources.

On a recent weekday afternoon, two students eating lunch in Washington Square Park said that they were only dimly aware of the dispute. One, a young woman in a black T-shirt and red corduroy pants, said she had taken out some loans to fund her education, but wasn't sure what she owed.

"I realize I should have a better idea of what I am doing," she said, somewhat sheepishly.

MAJORING IN DEBT

The economic forces that have shaped the student loan debate at NYU are present at nearly every college in the country.

College administrations, especially those at elite-level schools, have increasingly competed to woo top faculty and managers in order to boost their application rate -- and their leverage to squeeze money out of donors. New facilities are seen as a major selling point. Taxpayer aid for public universities has dipped, forcing many students to resort to debt.

At the same time, job prospects remain bleak for many recent graduates. According to a report on recent college graduates by the Economic Policy Institute, the unemployment rate in early 2013 for those ages 21 to 24 was about 8.8 percent, up from 5.7 percent six years earlier.

Student loan delinquency rates are also up. According to a recent study by the Federal Reserve Bank of Kansas City, the 30-day past due delinquency rate for all borrowers who must make a minimum payment each month was 17.4 percent in the fourth quarter of 2012.

"For an increasing number, payments are an insurmountable burden, leading to delinquency rates that are considerably higher than those on other forms of debt," the study concluded.

The most recent data on default rates is relatively old, but as of 2010 the percentage of borrowers who had stopped payments altogether on their student loans was 9.1 percent.

Lisa -- who spoke on the condition that her last name be withheld for fear of embarrassing her family -- is among the hundreds of thousands of students who in recent years have stopped making her student debt payments. A Connecticut native who graduated with a marketing degree from NYU in 2009, she owes about $200,000, mostly to a collection of private student lenders. She said she is still making payments on a smaller portfolio of federally backed loans -- about $25,000 worth -- and is worried about the looming rate hike.

Lisa did seven internships while in college, and she earned excellent grades. She now has a good job at a marketing firm, "doing well by most people's standards," she said.

Yet she has come to see her decision to borrow heavily to finance her NYU education as a massive miscalculation. Right after graduation, she defaulted nearly immediately on her private loans, which were issued through Citibank.

"I understood the amount of money I was taking on, but I didn't really understand the level of payments," she said. Her first bill was for $1,500.

In recent years, Lisa said she has given up all but the essentials in life. She does not go out with friends. She does not go shopping or traveling for pleasure. She is not on the lease of the apartment she shares with roommates. She has no credit cards.

"My credit is miserable," she said. "All of my loans have been sold to debt collectors. I get calls every day, and I know which ones to ignore."

She even worries that her debt will hurt her romantic life. "If I am dating someone, will they want to be tied up in this?"

Her family is ashamed of her debt problem, she said. She is, too. Most of her friends are not aware of her financial situation.

"I should have done more research," Lisa said. "I should have made more educated decisions."

GROWTH WARS

Even by the absurd measure of Manhattan real estate prices, the Greenwich Village neighborhood that is home to New York University stands out as expensive, with a single square foot fetching an average of $1,600.

Given this reality, developers have long since squeezed the most out of the properties in the area, adding whatever space they can without violating codes that seek to preserve the neighborhood's low-rise character.

Exceptions can be found, however, along the six large blocks that make up the southernmost portion of NYU's property.

The area is home to three 1960s-era residential towers and other large buildings that house many of the school's faculty. But it also contains a community garden, a playground, lawns and a dog run. In one area, a stretch of low-slung businesses spill casually out into a plaza. A single-story grocery store anchors one block, and the school's Coles gym, another.

To many of the faculty who live there, and in the opinion of much of the neighboring community, the green space and rambling charm are qualities to be cherished. It is as tranquil a neighborhood as can be found in this part of the city.

To NYU's administration, the area presents as something else: underutilized.

In 2003, Sexton told The New York Times that his plan was to create "the world's first global university in the world's first truly global city -- the intellectual epicenter of the world's epicenter.'' To achieve this exalted status, he has made clear, the university needs more of everything -- more students, more faculty, more locations in more countries -- and much more space.

Starting this summer, workers will begin construction of a temporary gym to replace Coles, which is slated for destruction. The playground and dog run will be moved. The community garden will be demolished. A giant block-long structure, known as the "zipper building" for its serrated appearance, will eventually stand where Coles is now.

The professors and other faculty who have fought the expansion vow that they will continue to do so. In a lawsuit filed last year, opponents allege that the city violated a law preventing the transfer of parkland to the school without approval from the state legislature.

Yet the biggest hurdle, obtaining approval from the city council, has been cleared. Unless the board of trustees has a change of heart, it seems probable that construction will continue, according to the plan, for the next 18 years. When complete, the area will be transformed, with 2.5 million new square feet of space devoted to dorms, shops and classrooms.

To Sexton's detractors, this phase of the development, which will happen quite literally in many of their backyards, is premised on the misguided notion that NYU is like a business that needs to get bigger in order to thrive, rather than a nonprofit that has an obligation to the welfare of its students.

"The argument that we must grow to maintain excellence defies logic," said Miller, the NYU professor of media and culture. "This is not Starbucks, this is a university."

Getting better, to Miller and many other professors, means getting more selective. In 2012, NYU offered admission to about 35 percent of applicants, a slight increase over the year before. Most Ivy League schools that NYU compares itself with admitted less than 10 percent of applicants.

The new buildings, critics say, simply aren't needed. Current faculty housing and student dorms are sufficient to serve the population.

This is an extravagance all the more galling for the plight of many students who come from modest means, must skimp and save to attend, and are still loaded down with debt when they leave, critics say.

Estimated tuition for the 2013-2014 academic year will be $43,494 for most of the biggest colleges within the university, about a 5 percent hike over last year. Students can expect that rate of increase to continue, the school says.

Dependent health insurance premiums have been rocketing up, rising 33 percent for the recently completed school year.

As the debate over the project has heated up, leading to the string of "no confidence" votes in Sexton's leadership, the school president has characterized the root of the disagreement as a communication problem.

"As I listen to my faculty colleagues, it is clear to me that there is a recurring and common theme ... NYU has undertaken a lot of new, innovative initiatives in a short period of time and, regardless how positive they are or prove to be, there could have been better communication and faculty involvement in them," he recently wrote in a message to faculty.

But to faculty who oppose the expansion, this isn't the issue at all. Though they would welcome detailed information about the cost, they aren't looking to be better informed about the purpose of the project. They have already made up their minds: Sexton is building a totem to the school's greatness -- and to his own.

"He is building a giant bust of himself," Miller said.

In the 2003 interview with the Times, Sexton was asked if his early attempts at raising the university's profile were about marketing. "Yes," he responded. "Mythology, salesmanship, branding—it's all the same thing."

It's not that the faculty don't hear Sexton. It's that they don't like what he is selling.

CORRECTION: The pending rate increase for federally-backed student loans applies just to new loans. An earlier version of this article incorrectly indicated that the rate increase would affect existing loans as well.

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