California University Bonds rely on increasing tuition revenue

The California State Treasury office was able to successfully sell bonds to 70 large investors. The bonds have a whopping 100 year term and 860 million dollars worth were sold.

The funds will be used to finance various capital projects in the University System. The interest rate is about 4.9 per cent paid twice a year. The demand for the bonds was so strong that the offering was increased from 500 million to 860 million.

While state finances are in dire shape and funding is being cut for universities nevertheless investors show confidence in the university and are banking on the U. of Cal. system surviving for a century. Why?

The rating agency Moody's has the explanation. In spite of state budget cuts the U. of Cal. has the ability to raise revenue by increasing tuition fees. So there you have it. Students will pay more and more for their tuition to pay off bonds. Increased fees will make it more difficult for less well off students to attend university and those who do attend will have a larger debt to pay off when they graduate. For more see this article.