Lending Money to Hot Shot Professors

(MoneyWatch)  Parents have grown numb to all the excuses that colleges dish out about why a bachelor's degree costs so much. But here's an excuse from universities that I bet you've never heard:

"We have to increase your tuition because we're in the mortgage business."

Yes, that's right folks. Some universities are lending money to professors and administrators so they can buy homes. Some lucky professors are even getting cushy loans to buy antique violins or to pay for their own kids' college tuition.

You'd think that star academics could afford to purchase a house or a Stradivarius the way the rest of us do -- through a financial institution.

The Chronicle of Higher Education recently uncovered this dubious yet apparently legal practice when it poured over college tax forms.

University officials argue that lending money to professors is necessary to attract the finest academic luminaries. But during these difficult financial times, do you really need to lend a professor $500,000 to prod him to accept a post in a biology department?

One of the universities turned mortgage banker that caught my eye was New York University. Just this summer, NYU made home loans to three professors totaling $769,000. When contacted by The Chronicle, an NYU spokesman acknowledged that the university holds as much as $49 million in loans.

NYU's lending practices peeked my interest because it's far less generous than you would expect for a wealthy institution. It's one of New York City's biggest real estate owners, but its financial aid practices aren't great. For instance, NYU typically meets 72% of an undergraduate's financial need, but nearby Columbia University meets 100% of a student's need.

Other schools in the lending business, according to The Chronicle, include Boston University, Pepperdine University, Fordham University, Butler University, Carnegie Mellon University and Harvard University. Larry Summers, the former Harvard president, got a sweet deal from the Cambridge campus -- a $1 million mortgage.

Critics, including Deane A. Zerbe, the former senior counsel to the U.S. Senate Finance Committee, complain that lending professors money is a lousy use of a college's assets:

"When you have students being stuck with loans that are borderline shakedowns, but then university presidents and high officials get sweetheart loans, it is disgraceful."
I couldn't agree more.

New York University image by wallyg. CC 2.0.