How Student Loans Funded a Multi-Billion-Dollar Building Boom
The untold story of modern American higher education is that many institutions funded the complete physical transformation of their campuses using tuition from students who never set foot on campus.
The story was the same everywhere I went – somewhere in the past of a mission-driven school, they ran into severe financial straits. “We had a closing plan here,” a senior administrator shared, while another school executive similarly recalled, “It was ‘going out of business’ time.” The problem seemed obvious, as a professor at a third school starkly explained: “Our enrollment was going down; our facilities weren’t very good, and none of us really understood what was going on in terms of the money hole.”
When finances are dire, these mission-driven institutions that rely on tuition have very limited options, leaving many institutional leaders feeling trapped. As one senior executive put it to me, “All of a sudden you are looking in the medicine cabinet at what can I actually grab onto that can help me meet the business objectives of enrollment?” The reality is that for most of these schools, their institutional medicine cabinet doesn’t contain viable alternative remedies like endowments to tap.
To generate the revenue needed to sustain their schools, administrators at these institutions have continually applied the same “cure.” They turn to market-oriented federal education polices that allocate financial resources on a per-student basis, and increase student tuition and enrollment numbers, using students as their financial lifeline. Because this market logic is “hard-wired” by design into higher education, these colleges and universities are encouraged “to grow our way out of problems,” as one administrator observed. As a result, one university leader I interviewed bluntly confessed that “All colleges [like ours] are basically trying to find ways of accepting all students.”
With only one remedy in their financial medicine cabinet, these college and university leaders have consistently innovated over the last three decades with respect to where to look and find student tuition dollars. The specific avenues to secure these dollars differ, but the strategy is the same – “periphery” enrollment markets are developed to generate profits that are then diverted to subsidize the transformation and operating costs of the residential campus to ensure the main enrollment driver doesn’t fall behind the competition.
The (until now) untold story of modern American higher education that I chronicle in my new book, Capitalizing on College, is how tuition-driven institutions have creatively funded the complete physical transformation of their campuses—using tuition from students who never set foot on them.
Naming the Practice: Margin Capitalization
In business, margin refers to the monetary surplus an organization produces upon selling its product—the financial profit that remains once all the costs to produce it have been paid. Higher education, with its traditional emphasis on delivering education via costly residential campuses, has historically been considered a low- or no-margin industry. And yet behind closed doors, in offices and boardrooms, university administrators are just as concerned with the financial viability of the institution as the leadership of any other business, recognizing their margins are directly linked to their ability to continue their mission.
Capitalization refers to the process of funding the capital assets of an organization. To achieve this, some organizations turn to banks to secure the credit necessary to pay for start-up or production costs, while others pursue investors who “buy in” to the firm with venture capital or private equity funding. In higher education, however, a different strategy emerged.
At colleges and universities that rely on student tuition to survive, leaders have leveraged market-oriented education policies to innovatively create a new form of paying for assets that I call margin capitalization. At many of the schools I visited, administrators engaged in a process of generating financial surpluses from student tuition in periphery enrollment markets and redirecting the surplus to pay for the residential campus infrastructure. This margin capitalization approach depends on non-traditional students who generated higher financial returns because they did not need to come to the campus—although their tuition subsidized it.
To secure financial stability, several schools I visited had transformed from small liberal arts colleges in a single location into a fleet of “periphery” sites that supported the residential campus. The type of periphery enrollment markets for each university differed considerably, spanning the military, adult education, international campuses, satellite campuses, certification and non-traditional programs, and even online. But these periphery markets all had one thing in common—they were unmistakably lucrative because they served students who did not utilize the residential campus. An administrator overseeing a periphery program confessed that “most of my time was focused on mining a $56 million cash cow,” with his school’s leadership saying “just send us the check” because his program was subsidizing the residential community. Another senior leader I interviewed for Capitalizing on College explained margin capitalization by gesturing toward the new construction dotting the campus. “Every building you see was built debt-free—most of that on revenue over expense from the adult education program.” A senior administrator summed up the philosophy pithily: “We build buildings with adult money here.”
Four Strategies of Margin Capitalization
In speaking with leaders of tuition-driven universities, I identified four different strategies behind margin capitalization. Schools employing the pioneer approach acted as “first movers” to establish multiple peripheral sites in an enrollment market. They adopted innovative concepts relating to “place” to bring education opportunities to previously excluded student populations. Leaders established an array of satellite locations near their non-traditional student populations to allow for in-person learning in unconventional classrooms (e.g., shopping malls, hotel conference rooms, and military bases), transforming from a single residential campus to a multisite fleet of campuses that funneled marginal tuition revenues back to the residential core. Then there were schools that adopted network tactics that relied on creating a variety of different types of enrollment markets, which functioned together to collectively support the financial needs of the core residential campus. Seeking diversification in revenue streams, this strategy aimed to maximize the number of periphery enrollment markets, ensuring any institutional financial gaps were filled.
A third and highly lucrative approach was the accelerated strategy—a model that rapidly scaled a periphery market by developing replicable systems of growth while simultaneously holding costs flat, enabling explosive enrollment and financial returns. These online markets allowed institutions to break free from the linear revenue/cost relationship and pursue enrollment growth that curved upward, generating greater rates of surplus with each additional student admitted. At the time I was interviewing school leaders for Capitalizing on College, a fourth approach was just beginning to take shape: what might be called the accelerated network strategy, whereby schools would rapidly scale up multiple types of enrollment markets by combining the network and accelerated approaches.
These strategies of margin capitalization provided crucial stability for school finances, but they were not universally embraced by everyone. One senior academic official shared his cynical response after learning from his school’s CFO that the excess revenues from his periphery program, which was generating millions in profits, would be used to cover the annual deficit generated by the residential campus: “We’re working so you can build more dorms.” Another offered a more philosophical objection, distilling the concerns at her school down to student welfare versus organizational interests: “That ‘cash cow’—wherever it is in a school—these are students. You ought to be giving them the very best you can, not thinking about how they can give us the very most we need.”
Subsidized by the Unseen
The real story about the building boom in higher education in the 21st century is not about the addition of climbing walls or lazy rivers, as the media would have you believe—it's about who paid for them. What remains hidden from public view is a profound irony. The gleaming monuments of academia—those towering buildings and spotless campuses, symbols of opportunity and advancement—were largely financed by invisible students who never walked their hallways or strolled their grounds.
While traditional students enjoyed state-of-the-art facilities, their education was quietly subsidized by the debt of distance learners who received none of these benefits. This “shadow economy” driven by neoliberal policies within higher ed might have offered a financial lifeline to schools desperate to survive, but at what cost to their mission as student-centered enterprises?
Extra Edge
Issue Soundtrack: Your Power by Billie Eilish
Writing Playlists: Need some new energy for your own writing project or workday tasks? I’ve made the up-tempo music playlists that I use for writing available for others to use too! Each of the six lists has a different theme: Eclictic Hope, Ambient Sunshine, Energetic Focus, Belief with Bass, Rhythmic Confidence, and Inspired by Anime. You can listen via Spotify here.
Available Now: My book, Capitalizing on College: How Higher Education Went From Mission Driven to Margin Obsessed, has officially been released! Grab your copy now using this link!
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