File this story under higher ed bubble.

Ry Rivard of Inside Higher Ed reports.

In Debt, Making New Promises

In largely unnoticed side deals with investors, several colleges have promised they will raise prices on students, force students to live in dorms and even increase class sizes as they lay off faculty.

These are not for-profit colleges. Instead, they are nonprofits running into trouble with their debts. Unable to fulfill promises made when the colleges borrowed money years earlier, these colleges have struck deals to head off severe penalties, including foreclosures of campus property.

The debt was borrowed in the form of bonds, usually for campus construction. These bonds come with a host of financial conditions colleges must meet. Colleges agree to make timely payments, of course, and also to set aside a certain amount of money to cover their debts.

But, as colleges struggle to find enough students or run into unexpected market conditions, they may not be able to fulfill all these promises. To avoid penalties, at least a handful of colleges have promised their bondholders they would do things that could substantially affect student life.

These agreements — which are usually publicly available but largely unknown to students — could eventually raise questions about who is in charge of the institution: the college’s governing board members, administrators and faculty, or the people who hold its debts?

“To a banker, to an investor, it doesn’t matter if you’re a nonprofit or a for-profit. The bottom line is you owe them money,” said Kenneth Hartman, a senior fellow at Eduventures and a former president of Drexel University’s online operations.