By Pam Martens: August 23, 2013

President Obama spoke to students yesterday at the State University of New York in Buffalo and at Henninger High School in Syracuse on his plans to make college more affordable for middle class families. Total student debt in the U.S. now exceeds $1 trillion and, according to the President, is crushing the ability of graduates to buy homes or start a business and thus holding back economic growth.

On learning of the President’s new college affordability initiative, Senator Chuck Grassley of Iowa, who has been in a tug of war for the last six months with New York University (NYU), one of the most expensive universities in the country with a four-year tab estimated at $280,000 including dorm, released the following statement:

“I agree with President Obama on reducing college costs and student debt.  One area for consideration is college spending on high executive salaries and perks that drive up tuition without providing additional value for students.  For example, just before his promised resignation in 2016, New York University’s president will receive a gold-plated severance package including a $2.5 million parting bonus and $800,000 a year. This is on top of the beach house he bought with university help.  President Obama should use his bully pulpit to encourage more independent leadership from the boards that oversee tax-exempt universities. NYU’s president wouldn’t have had help with his beach house if the board refused.  And I encourage President Obama to look at a bipartisan Senate bill that would help students and families understand the true cost of college and the different types of student aid. The more students and parents become savvy shoppers, the more colleges would be forced to rein in rising costs to compete for students.” 

The bipartisan bill Senator Grassley is referring to is the Understanding the True Cost of College Act. 

Senator Grassley has waged a lonely battle since February, with no subpoena help coming from the Democrats (who have majority control of the Senate), to get documents from NYU showing just now much tuition and endowment money the university may have squandered on multi-million dollar mortgage loans to an elite group of administrators and faculty to buy luxury condos and beach homes. The President of the University, John Sexton, received one such loan for a beach house on Fire Island. According to the New York Times, Sexton was given the incredibly low rate of .19 percent on a mortgage loan while portions of his previous loans were forgiven. 

Wall Street On Parade reported on June 17 of this year that “between primary residences and vacation homes, NYU and its affiliated nonprofits have an estimated $72 million to $96 million outstanding in loans to faculty and administrators. The university has acknowledged 168 loans.”

Senator Grassley says he has been stonewalled in getting documents from NYU showing who received the loans, what interest rates were charged, and how much of the loans were forgiven. 

NYU is a recipient of millions of dollars in Federal grants. This stonewalling does not have to be tolerated by Congress. All it would take to instantly obtain the information from NYU is for the Chairman of the Senate Finance Committee, Max Baucus (D-Montana), to issue a subpoena for the material. One reason that may not be happening is to protect the President from further embarrassment over his nomination of Jack Lew to lead the U.S. Treasury, overseeing the nation’s bill paying, IRS, and minting of U.S. currency. 

A window into the excesses at NYU emerged during Lew’s Senate confirmation hearing. As NYU’s Chief Operating Officer for five years, Lew received a partially forgivable mortgage loan for $1.4 million to buy a luxury home in Riverdale, New York and “severance pay” of $685,000 – even though he had voluntarily left to join Citigroup at a high salary. In material provided to the Senate, Lew said NYU provided him with annual payments equal to the interest paid on his mortgage and forgave portions of the loan on a pre-set schedule.  

Five schools at NYU have given Sexton a no-confidence vote while a dedicated group of approximately 400 professors have demanded the resignation of Board Chairman, Martin Lipton, who has defended the use of these loans as prudent recruitment and retention techniques. Under withering press attention, the university recently announced that loans would no longer be given for vacation homes. Lipton had initially defended the practice when it was first revealed in the media. 

At both stops yesterday, the President stressed the theme that America must “make sure that everybody who works hard has a chance to succeed in this 21st century economy.” According to the President, “we’ve got to create more pathways into the middle class for folks who are willing to work for it. That’s what’s always made America great. It’s not just how many billionaires we produce, but our ability to give everybody who works hard the chance to pursue their own measure of happiness.  That’s what America is all about.” 

The President called attention to the skyrocketing cost of higher education, stating that over the past three decades, the average tuition has risen by 250 percent at a four-year college while a typical family’s income has increased by only 16 percent. Certainly, forgiving multi-million dollar loans on faculty mansions might have something to do with that increase. 

The President mapped out a three-prong plan to make college more affordable. The first component is to start rating colleges on the basis of which ones are offering the best value to students. Second, to jumpstart competition between colleges in terms of innovative methods that encourage affordability, student success, without reduction in educational quality. The final component was to make sure that when students have to take on debt, it’s affordable and manageable. 

That third component would involve reassessing federal student loan costs. The President said, “Our national mission is not to profit off student loans; our national mission must be to profit off having the best-educated workforce in the world.  That should be our focus.”

That last idea likely came from a Senate floor speech made by Senator Elizabeth Warren on June 6 of this year. The Senator revealed that student loans are a cash cow for the government: “Just last month, the Congressional Budget Office calculated that the government will make $51 billion this year off student loans. Think about that; $51 billion. And that’s $16 billion higher than the earlier estimate.” The Senator added: “We have the money to cut interest rates – if we’re willing to reduce the profits we make from our students…” 

NYU also has the ability to make college affordable to middle class families. It just needs to listen to the 400 professors on campus who have put their livelihoods on the line to restore the conscience of this institution of learning.