How CSU's Growing Debt Imperils Students and Workers

Ever wonder where our taxpayer dollars and student tuition are going? Here’s a quick walkthrough that will explain just how your money is being spent by CSU management and why it may end up destroying our universities. 

In order to build new buildings (and renovate old ones) CSU management takes on debt by issuing Systemwide Revenue Bonds: assets that are traded on the market. Private investors then purchase these bonds, giving the CSU upfront cash for buildings. In return, the CSU promises to pay these investors a guaranteed amount of interest payments on a fixed schedule over the life of the bond (often 20 or 30 years).  

At this time, the CSU has committed $18 billion to debt over the next 35 years. This is an average of more than $500 million being diverted away from instruction per year for these 35 years¹. 

Taking on institutional debt can make sense in some instances. The CSU doesn’t always have upfront cash to build expensive new buildings (e.g., dorms, classrooms, labs, stadiums, administrative offices, and so on), so they issue bonds to investors in the hope that the CSU will generate enough revenue to pay these investors back. However, a significant portion of student tuition and fees get allocated to servicing bond interest, leaving less money for instruction and other related activities. 

Think of it like this: In the same way that a bank can repossess your house or car for defaulting on a mortgage or car note, bondholders can take something of the CSU’s in the unlikely event of default. In the CSU’s case, that collateral is tuition and fee revenues. So, when the CSU collects tuition and fees from students, bondholders get first pass at those revenues, taking over 15% of the CSU’s net revenue each year. The CSU, in its Annual Debt Report², presents this figure in terms of a Debt Service Coverage Ratio (DSCR), rather than a percentage, obscuring the true impact of its debt burdens on its ability to fund operations. 
 
Even in light of how student tuition and fees are being used, CSU management is still committing $663 million of the CSU’s funds to debt service in 2026, which will balloon to $700 million in 2027. In just 10 years from 2016 to 2026, management has committed 143% more dollars to debt. 

They commit to more and more debt without hesitation. This summer, management issued a bond series totaling $1.9 billion^3. Additionally, when issuing these bonds, they tell investors that the CSU is a strong investment with increasing enrollment and a gross revenue that continues to grow. Yet, when seated at the bargaining table, management claims they have absolutely no money to pay faculty or staff a fair wage. Instead of using new ongoing dollars to pay for faculty salaries and instruction, management uses these dollars to pay for their extravagant projects that they willingly took on. 

On top of this, bonds are issued in $5,000 increments, which means only the wealthy can truly benefit from them or afford them. They exist for the wealthy to park money for a guaranteed, tax-advantaged return and CSU management uses student tuition to guarantee bond payments. 

In short: bonds are a massive transfer of wealth from California students and their families to the rich. 

The burden of the CSU’s debts gets passed onto students, whose tuition and fee payments form the main revenue stream that is pledged to the bond program. As debt obligations persist, CSU administrators are incentivized to increase student fees, thus driving up the cost of attendance for students.  

This is especially true and damning in cases where debt and capital are mismanaged What we’re witnessing now in our system is management’s prioritization and unjust spending on exorbitant vanity projects at the expense of maintaining and repairing buildings in desperate need of attention… buildings which not only cost more to repair if we continue to delay their upkeep, but pose a hazard to the faculty, staff, and students who occupy those spaces.