Student loan debt reaches $1.5 trillion — is a crisis around the corner?

CHICAGO, Jan 23, 2019 — Colleges and universities are relying on debt at unprecedented levels to close the gap between the funding they need and the funding they have. At the same time, skyrocketing student loan debt is among the most significant financial risks for higher education institutions.

More than 40 percent of student loan borrowers are expected to default by 2030 — a growing risk Federal Reserve Chairman Jerome Powell has labeled as a cause for concern. When too many of a school’s borrowers’ default within three years of repayment, an institution can lose access to the federal student aid that pays for tuition — a major source of revenue that can make or break an institution.

Higher education leaders can take steps in 2019 to mitigate the student loan default risk while accelerating innovation and recruitment power, unlocking savings and potentially easing burdensome tuition costs for students.

“Progressive college and university leaders have begun to view their campus facilities as a collection of assets, just as they view their endowment investment portfolios,” said Kevin Wayer, co-leader of JLL’s Higher Education practice. “With a holistic approach, a college or university can assess all of its properties to prioritize investments over time. A thoughtful plan that helps secure resources for revitalizing neglected properties can also unlock savings and generate revenue to hedge against student loan risk and secure their financial future.”

Five campus trends to watch in 2019 to enhance financial security and student experience:

1. The largest demand for capital investment that higher education has ever seen is right around the corner: Compounding the financial pressures for institutions is the looming reality of large-scale capital renewals coming due soon. Higher education has seen two major waves of building construction over the last 125 years, one from 1950-1975 and one from 2000 to present day. Within the next 10 years, both cohorts of buildings will demand high levels of upgrades and maintenance. That means the largest demand for capital investment that higher education has ever seen is right around the corner — regardless of resources available to meet that demand.

Institutions have an opportunity to proactively manage their facilities now to mitigate the backlog of deferred maintenance and slow the infusion of massive capital needed in the near future. Leveraging data and technology to improve organizational access to work order information, asset inventories and condition assessments can help align resources with the areas of campus that need them most. Additionally, building automation, sensor data, predictive analytics and fault detection can be used to limit the manual — and often time-consuming and expensive — tasks of identifying, triaging and responding to maintenance problems. Expanding the impact of each employee’s efforts can help reduce operational budgets over time.

2. Rise of innovation districts create dynamic live-work-play communities: Thriving new hubs of innovation are emerging in cities across the nation — and, often, universities are leading the way. Where the university research parks of the past were staid enclaves of quiet discovery, universities today are adopting new models of town-grown collaboration. Some are refreshing their traditional parks to create more “buzz,” while others are developing dynamic gateway centers that revitalize neighborhoods and business districts. At the heart of this trend is the integration of faculty, students and the business community in spaces designed to foster collaboration and innovation.

To fund innovation districts despite limited resources, some universities are creating public-private partnerships (P3s) that leverage private sector expertise and capital to advance an institution’s goals. Some universities further extend their resources by creating facilities that appeal to private sector companies seeking access to academic research and talent.

For instance, JLL helped Drexel University select a master developer for its ambitious Innovation Neighborhood plan in Philadelphia’s University City. The master developer will plan and develop a mixed-use project with more than five million square feet of education, research, commercial, retail, hospitality and residential transit-oriented real estate across a 10-acre urban site.

3. Student housing transforms from dormitories to live, learn, play communities: Many colleges and universities have undertaken major construction programs over the past decade. Often, they’ve banked on new student housing as a recruitment tool. JLL is seeing new types of student housing emerge, and all signs point to continued housing development in 2019 and beyond, despite the resources crunch. Many campuses are replacing legacy dormitory-style housing with the amenity-rich suites and apartments — including those designed for students with families.

Students are not looking for extreme amenities — such as lazy rivers — but they do want the mixed-use amenities that transform housing into a community complete with bars, restaurants, shops. For example, Franklin and Marshall University, located in a small Pennsylvania town, developed a housing community with retail and housing components.

“Generation Z students have different expectations and preferences for impromptu socialization and live-learn experience than previous generations,” said David Houck, co-leader of JLL’s Higher Education practice. “Student housing of the future is all about creating a community.”

4. New ways to offset burdensome tuition costs and increase access to students: Absent of federal or state policies to improve the tuition cost and student debt equation, bold higher education leaders are taking matters into their own hands with innovative new approaches to tuition financing. 

For example, Purdue University is piloting an income-sharing model in which a graduate agrees to pay a certain percentage of their income to the university once they are employed, in exchange for reduced or free tuition. While the university is very selective about program participants at this early stage, this type of innovative thinking could reinvent how higher education institutions, students and their families look at financing.

5. The “sharing economy” goes to college: Traditionally, academic facilities have been managed and allocated by their departmental owners. Classroom hours were limited to day times, leaving rooms vacant much of the time. Today, some institutions are rethinking how they allocate classrooms — and some are seeing the value of centralization and shared spaces.

“Rather than turning to new construction to accommodate academic needs, colleges and universities continue to make better use of the facilities they already have,” Houck said. “Campus utilization studies, occupancy planning tools and centralized management of shared spaces can unlock significant efficiency and savings opportunities.”

In fact, Purdue is analyzing how and when its facilities are used to determine whether it can accommodate additional course loads and students without new construction. For example, simply extending classroom hours could prevent the need for a new academic building. 

“The student loan crisis has the potential to reach an inflection point in the next few years,” Herman Bulls, Vice Chairman, Americas and International Director and the founder of JLL’s higher education business. “We believe 2019 is the year colleges and universities will take important steps to ensure their financial security by transforming campus facilities into a tool for revenue generation that, if done well, will also have enormous benefits on the student experience.”