Bloomberg ran a story Friday that shows how private schools got caught up in the financial ease of the mid-2000s and now stand near extinction. Its lead example is Simmons College:

Simmons, founded in 1899, educates a mix of 1,900 female undergraduates and 2,800 graduate students. Its women-only undergraduate liberal arts program accepts 56 percent of applicants; top-tier schools accept fewer than 20 percent. Simmons has five graduate schools, from the 200-student School of Management to the 1,100-student College of Arts & Sciences Graduate Studies.

Colleges like Simmons -- mainly undergraduate schools offering some master�s degree programs -- are in the worst financial shape, according to Kneedler�s analysis. They turned to borrowing for the amenities they used to entice students to small programs. Now, they�re drowning in debt, Kneedler says.

Simmons President Helen Drinan says she hopes the new building and accreditation in March by the Association to Advance Collegiate Schools of Business will make it easier to market the School of Management to prospective students. The school hired Deloitte LLP�s higher education advisory unit to suggest ways to navigate its current bind and to find further savings.

If these ideas don�t work, the business school may have to go co-ed or abandon its emphasis on MBAs to focus on undergraduate business degrees.

Drinan bets Simmons won�t have to go that route. It should be able to keep its undergraduate enrollment steady and increase students in its graduate programs, including the business school, she says.

�If that school cannot grow, then we have another decision to make,� she says. �There�s been a lot of political anxiety around campus over the fact that the School of Management is a relatively small program. Now we�re in a position to say, �Let�s run with it.��

Like the housing bubble, Simmons�s woes started with easy credit. The school borrowed more than $140 million, tripling its debt in the seven years through 2008. It added classrooms connected via wireless networks. It renovated its library. And it spruced up its student center with a coffee bar and mix-your- own-milkshake cafeteria.

�That was a pretty bold borrowing strategy,� Kneedler says.

Simmons followed suit as U.S. colleges jacked up tuition by an average of 3 percent above inflation every year. It counted on a rising endowment, parents� bull-market-fed wealth and burgeoning private loans that more than doubled student debt from 1998 to 2008.

Simmons raised annual tuition and living expenses to $41,500 in 2008, 22 percent above the $34,132 average for private colleges. Sarah Lawrence College in Bronxville, New York, the costliest U.S. school, charged $53,166 last year.

Then credit markets collapsed. Simmons -- and even better- known schools such as nearby Boston University -- felt the aftershocks. Like many now-struggling companies and municipalities, Simmons had sold variable-rate bonds and hedged against rising interest rates through swap agreements, which fixed interest costs for the school.

When rates fell, Simmons owed more than $10 million on the swaps. When it refinanced the bonds, it had to accept more than triple the interest rate it had been paying before the crisis. Drinan expects to settle the swap with bankrupt Lehman Brothers Holdings Inc. at a lower cost.

Wall Street provided the tools for schools to take advantage of cheap credit. Bankers introduced college finance executives to the interest-rate swaps and similar innovations that are now costing colleges, says Andrew Evans, vice president for finance at Wellesley College in Massachusetts.

I have a niece at Simmons and thus more than a passing interest in the school. It's a common story though: In a period of easy credit, inexperienced investors are lured to take on risks for which they are ill-suited and ill-prepared, in part to keep up with competitors or neighbors. When the investments turn against the neophyte, bad things happen. And like many other businesses, colleges have to retrench, figure out how to survive. In Simmons case, its undergraduate programs, which are highly regarded in New England, are not the revenue generators that graduate programs can be.

Most businesses would, in an environment like this, be led to increase their efficiency, but you see damn little of it. A new report on colleges and cost control included two quotes from a survey of college faculty (both teaching in four-year schools):

I think there are maybe some things we could do at the margin to improve our efficiency a little bit, but I think huge moves in the direction of cost-effectiveness are going to translate into watered-down quality.

This drive for business efficiency is not necessarily compatible with good education.

It's not just recalcitrant or resistant faculty. Inside Higher Ed noted last week that presidents and chief budget officers all believe they've done all they can, all the efficiencies have been achieved already. So we will try to cram more students into a classroom maybe (in my own department where I schedule about fifty classes a semester, our limit is set mostly by room size and where we have rooms with the technology the faculty want to teach with -- you're welcome to wonder why labor gets to pick its own technology) but cutting away unessential programs just isn't on the radar. Like Simmons, most schools are doubling down on expanding programs that sell to the over-30 crowd, many of whom come with dollars from their employers. (Thus their chase of AACSB accreditation.)

That will work well if the economy turns around and the employers can put dollars in their managers' hands to get additional training and MBAs. But universities traditionally have been countercyclical businesses; to save itself, some of these schools are making themselves more pro-cyclical.

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