June 24 (Bloomberg) -- Boston University Athletic Director Warren Dexter smiles as he surveys the scene in the school's new $100 million, five-level recreational center one morning in May. About 18 students soak in the heated whirlpool, while others jog against the current in the ``lazy river,'' a churning channel of water.

Professors in their 70s swim laps in the 16-lane pool. A line of rock climbers forms near the 35-foot-tall artificial mountain. ``If you could only hear the students and faculty saying, `You did this right,''' says Dexter, a 33-year veteran of BU, which also just completed a 290,000-square-foot (26,940- square-meter) sports and entertainment arena.

The BU gym is among hundreds of luxurious new amenities rising on U.S. college campuses -- and few of these projects are directly related to education.

The University of Houston built a 256,000-square-foot recreation and wellness center with a 62-foot-high atrium and outdoor pool studded with palm trees. Middlebury College in Middlebury, Vermont, has its own 18-hole golf course and a heated, $17.5 million ice hockey rink that holds 2,600.

Ohio State University in Columbus completed a 600,000-square- foot recreation center with three pools, a 25-person hot tub and two saunas in June. There's a video game arcade next to the ESPN SportsCenter desk at the Rochester Institute of Technology in Rochester, New York, where students can perform and e-mail their own news broadcasts.

Theater and Dance

Williams College in Williamstown, Massachusetts, opened a $50 million theater and dance performance center in April.

Amenities such as climbing walls and massage rooms are recruitment tools to impress students and their parents, says Jean Rutherford Wall, director of college counseling at Tampa Preparatory School in Tampa, Florida.

``Colleges feel they must market the tangible products that are readily available to the student,'' she says. ``Fancy new dorms with suite configurations, the newest toys, airy student centers with Starbucks and science labs that are cutting edge. If they don't have these things, it puts them at a disadvantage in the marketplace.''

The campus construction boom has been aided by a record number of donations to U.S. colleges, which took in $24.4 billion in the fiscal year ended on June 30, 2004, according to a study by Rand Corp., a nonprofit research group based in Santa Monica, California.

Growing Endowments

Colleges also saw their endowments, or nest eggs of income- generating investments, go up by an average of 15.1 percent, the biggest advance since 1988, according to the National Association of College and University Business Officers in Washington.

Forty-seven schools in the association's study of 741 higher education institutions reported endowments of at least $1 billion compared with 17 a decade ago. Schools with funds of $500 million to $1 billion recorded average gains of 17.9 percent, with fund- raising initiatives the primary driver, the study found.

A total of 321 U.S. schools have endowments greater than $100 million, and 48 of them are seeking to raise $1 billion or more in donations. Harvard University, which has a $22.1 billion endowment, says it's planning the largest capital campaign in the history of U.S. higher education; it hasn't yet set an amount.

At a time when colleges are stockpiling money, they should be focused on making an education more affordable rather than constructing lavish swimming pools and video arcades, says Patrick Callan, 62, president of the National Center for Public Policy and Higher Education, an independent nonprofit group in San Jose, California.

Cost Doubles

College tuition rates have increased about 8 percent a year in current dollars since 1958, meaning the cost of college doubles every nine years, according to data compiled by Bloomberg.

Private schools increased their total charges by 5.6 percent last year to an average of $27,516, says the College Board, a nonprofit education association of more than 4,700 schools. Total charges at public universities rose 7.8 percent to an average of $11,354.

``A lot of what we are seeing is an arms race,'' Callan says. ``This is a Star Wars competition for prestige, in which there will never be enough money to entice the students you want.''

It's not just the Ivy League schools that are jacking up prices. The University of Richmond, a private liberal arts school, raised undergraduate tuition by 31 percent this year, bringing total costs for freshmen to $40,510.

Higher Rankings

Schools are using their wealth to look better rather than lower costs, says Ronald Ehrenberg, director of the Cornell Higher Education Research Institute at Cornell University in Ithaca, New York, and author of ``Tuition Rising: Why College Costs So Much'' (Harvard University Press, 2000).

Attracting and then rejecting higher numbers of students while spending more per pupil can give schools what college administrators covet: higher rankings in the U.S. News & World Report ranking surveys, Ehrenberg says. As a result, colleges have no incentive to cut tuition.

``You aren't rewarded for being fiscally efficient, so it's assumed the more that you spend, the better you are as a school,'' Ehrenberg says. ``And that is disturbing. So everyone is spending more than they should because they're worried about their position, and that makes it difficult for schools to cut costs.''

Moody's Investors Service is also critical of the expansive building and borrowing on U.S. campuses.

Country Club Mentality

``We continue to see institutions borrowing heavily for projects that serve more to enhance an institution's status rather than to advance its mission or meet current pressing facility needs,'' a Moody's 2004-2005 report says. ``These projects include mixed-use commercial developments, high-end residential facilities, research parks and lavish student recreation buildings and performing arts centers.''

Colleges are developing a country club mentality that has little to do with acquiring knowledge and learning to think, says Leon Botstein, president of Bard College in Annandale-on-Hudson, New York.

``There should be a more Spartan aspect to education that is more conducive to learning,'' says Botstein, 58, whose college will cost students an estimated $41,800 in the school year beginning this fall. ``You are looking at a culture driven by Hollywood and vulgarity, people who are more interested in hot tubs than in what goes on in the classroom. Are we spending on education or a cruise for entertainment?''

Learning and Literature

Colleges have become less about learning and literature and more about branding and marketing, says David Kirp, a professor of public policy at the University of California, Berkeley and author of ``Shakespeare, Einstein, and the Bottom Line: The Marketing of Higher Education'' (Harvard University Press, 2003). Instead, students are treated like pampered consumers, he says.

``We're in a higher-education tournament, with every school wanting to move up in the pecking order, and a big part of the costs are about wooing students,'' he says. ``Is society getting better-educated students as a result? That's not so clear.''

At its best, higher education should liberate the imaginations and intellectual energies of students, says Richard Hersh, former president of Trinity College in Hartford, Connecticut, and co-editor, with John Merrow, of a book titled ``Declining by Degrees: Higher Education at Risk'' (Palgrave Macmillan, 2005). He says he worries that there's no way to know whether schools are doing that job.

Soliciting Gifts

``There is no evidence that the money spent on high-end dorms, great athletics and computers in every room makes any difference in what students are actually learning,'' he says.

Colleges can measure their skill at soliciting gifts and capitalizing on a thriving climate for philanthropy, says Dennis Barden, vice president of the educational practice at Witt/Keiffer, a consulting firm in Oak Brook, Illinois. Gift giving went up by 3.4 percent last year, Rand Corp.'s study found.

``People have done well financially and they feel the need to give back,'' Barden says. ``Lots are now giving away eight- and even nine-figure gifts.''

Schools have reacted by hiring more fund-raisers, developing sophisticated methods for tracking wealth and soliciting donors who didn't even attend those colleges, says Paul Schervish, director of the Boston College Center on Wealth and Philanthropy.

Nonalumni donations to colleges rose 21.5 percent in fiscal 2004 from $4.28 billion in the year ended on June 30, 2003, Rand Corp. found. Only churches surpass education when it comes to charitable gifts, Schervish says.

No. 1 Fund Raiser

At Wellesley College, a women's school in Wellesley, Massachusetts, a development staff of 50 is supplemented by 900 volunteers who have helped make Wellesley the No. 1 fund-raiser among liberal arts schools.

The college keeps track of alumni by clipping articles to see who's successful at raising money or prominent at giving it away, says David Blinder, the school's vice president for resources and public affairs. ``As people gain wealth, they are added to our list,'' Blinder says.

About 55.7 percent of alumni donations to U.S. colleges last year went toward day-to-day operations, Rand Corp. found. The rest went toward building and renovation projects, from so-called wellness centers to dormitories, along with purchasing equipment, building endowments and enhancing infrastructure.

U.S. schools completed $13.7 billion of construction last year, more than twice what they spent a decade ago, according to an annual survey published by College Planning and Management magazine. They will spend an estimated $14 billion this year, the survey says.

Fitness Centers

Over the next six years, at least 333 schools will construct, remodel or expand fitness centers at an estimated cost of $3.17 billion, according to the National Intramural- Recreational Sports Association, a nonprofit group based in Corvallis, Oregon.

Schools that aren't receiving enough gifts or donations for their buildings will borrow or sell bonds, as is the case at BU. The school built its new gym with the help of a $20 million gift from John Hancock Financial Services Inc., as part of a $100 million fund-raising campaign.

BU financed the balance of the project by selling $250 million in tax-exempt bonds in a no-bid, or so-called negotiated, sale privately arranged by MassDevelopment, Massachusetts's economic development agency, with Lehman Brothers Holdings Inc. and Merrill Lynch & Co., both based in New York.

Elaborate Gyms

The school expects its new arena -- which is hosting concerts, hockey games, conventions and trade shows -- to generate revenue, BU spokesman Colin Riley says. A tuition increase of less than 1 percent over a two-year period also went toward paying for the project.

As colleges plan elaborate gyms and student centers, they're also paying closer attention to where students sleep and what they eat. On a May afternoon, representatives from 240 colleges tuned in to an hour-long Web seminar entitled ``Strategies to Gain a Competitive Edge: Improving the Campus Experience,'' a lesson moderated by University Business magazine.

Building housing for students that looks more like apartments and quadrangles is one way, says Robert Sevier, a senior vice president at Stamats Inc., a Cedar Rapids, Iowa-based higher-education research, planning and marketing company. ``They're very space-oriented,'' he says. ``Many had their own bedroom and bathroom, so their physical space is very, very important to them.''

The `Money Walk'

Sevier describes how to showcase the best facilities along what he calls the ``money walk,'' or the tour potential donors, parents and students take when they visit a college.

The so-called campus dining experience (say goodbye to cafeteria steam tables) is another way schools can stand out, says Peter Cusato, vice president for business affairs at BU. The school boasts 18 ``dining venues'' within one mile, offering cuisine from places like the Caribbean and the Pacific Rim, along with meals prepared on demand.

``You want to keep people on campus and make them feel at home,'' Cusato says.

Colleges that don't spend money for better facilities can't attract top faculty members with prestigious grants and research dollars, says Robert Zemsky, founding director of the Institute for Research on Higher Education, a public policy center at the University of Pennsylvania in Philadelphia.

``If you don't build them, you can't be in the game,'' says Zemsky, 65, who is also a trustee at Franklin & Marshall College in Lancaster, Pennsylvania, a liberal arts school with 1,860 students.

Bookstore and Cafe

Zemsky pushed to build a $45 million science center Franklin & Marshall expects to complete by 2007. During the past three years, the college has renovated its dining halls, revamped the admissions office and used $2.8 million in donations to turn an 1891 building into a Barnes & Noble bookstore with a cafe.

Applications to the school rose 17 percent from 2003 to 2005, and admissions fell to 45 percent of applicants from 62 percent in 2003, Vice President of Enrollment Management and Dean of Admission Dennis Trotter says.

Franklin and Marshall succeeded by developing edgier marketing materials, including animated Web site content, Trotter says. The school set up the entire campus with wireless Internet access, began paying student tour guides, scattered Adirondack chairs on the lawn and placed twinkling lights in the trees.

``What we're trying to do is create an environment where the campus is a blend of the intellectual and the social,'' Trotter says.

Performance Center

What colleges build is not always based on what students most need. Williams began building its new performance center with a $20 million gift from 1962 alumnus Herbert Allen, chief executive officer of Allen & Co., a New York-based, privately held investment bank.

The 106,000-square-foot, two-level center has four performance venues and two theaters, one of which seats 550 and the other, 250. Its two-story-high dance studio has three glass walls facing the Berkshire Mountains, a summertime cultural hub for New Yorkers.

Only 10 percent of the entering class at Williams reported being significantly involved in art, theater or dance, according to a 2004-2005 prospectus.

``A lot of the nontheater majors wondered why we need it,'' says graduating senior Jason Marburg, standing in the two-story, wood-and-glass lobby. ``Definitely, there are some people who say this amount of money could have paid everyone's tuition, but if you are looking for top students who want the best, you have to give them the best.''

Theater Festival

The center is hosting the Tony Award-winning Williamstown Theater Festival in July and August. There's also a guest artist series open to the community.

``I don't know yet if it will be a success,'' says Allen, who gave his gift eight years ago. ``The challenge will be to open it up to the community.''

Gifts can also be spurred by tragedy. Howard Lutnick, 43, CEO of bond broker Cantor Fitzgerald LP, gave $14 million to his alma mater, Haverford College in Haverford, Pennsylvania, to build an athletic center in honor of his best friend from Haverford, Douglas Gardner.

Gardner was the 39-year-old vice chairman of Cantor Fitzgerald LP's eSpeed Inc. division when he died in the terrorist attack on the World Trade Center on Sept. 11, 2001. The attack killed 658 Cantor Fitzgerald employees.

Rising Tuition

Wellesley officials say tuition goes up each year to keep pace with increasing heating oil, health care and technology costs, along with faculty salaries and more financial aid. It actually costs $68,222 annually to educate a Wellesley student, and the school charges $41,030, says Andrew Evans, 54, the school's treasurer and vice president for finance.

Ten years ago, it cost $55,000 per student. Evans says instruction alone cost $48.8 million last year, an 11 percent increase from 2003.

Wellesley President Diana Chapman Walsh, 60, says competition for the best students and faculty drives fund-raising at Wellesley, whose alumni include U.S. Senator Hillary Rodham Clinton, a Democrat from New York.

The school, which has a $1.2 billion endowment, set a record for liberal arts colleges by raising $470 million in a five-year capital campaign that was scheduled to end in June.

The 500-acre, wooded Wellesley campus is being transformed by gifts, Walsh told alumni fund-raisers and donors in New York in April, as they clinked wine glasses in celebration.

`Understretched'

``We wondered if we had overstretched, but now we wonder if we have understretched,'' Chapman said. Gifts included $27 million for a 565-space parking garage, landscaping improvements and financial aid for international internships and study abroad.

In September, Wellesley will open its $40 million, 75,000- square-foot Wang Center, named for $25 million donor Lulu Wang, a 1966 graduate and CEO of Tupelo Capital Management LLC, a New York-based investment firm.

The center is painted 34 colors, including six shades of red, and has floors of Brazilian cherry and bamboo. It boasts 95- foot-high ceilings, a post office, a pub, a cappuccino bar, a brick-oven pizzeria and a vegan eatery.

``A generation ago, colleges saw themselves as academic destinations,'' says Wellesley trustee Beth McNay, escorting guests on a hard-hat tour in May. ``Now, we want to make campus life as right as it can be. How can you not be a part of the times in which you exist?''

Graduating Wellesley senior Bailey Childers, 22, says she would rather see money go toward reducing costs. ``I'll have about $40,000 in loans when I graduate,'' Childers says. ``My question is the priorities.''

Faculty-Student Ratio

The ratio of nine faculty members to each student helps explain rising costs at Wellesley, Treasurer Evans says. Salaries for full professors averaged $119,500 last year, up from $113,600 the previous year. That puts Wellesley out front among liberal arts colleges.

An increasing ratio of faculty to students also drives costs up at Williams, which took in more than $40 million in donations last year, according to Rand Corp.

During the past five years, gifts to Williams averaged $45 million annually, putting Williams in third place among small liberal arts colleges, behind Wellesley and Smith College in Northampton, Massachusetts.

Williams has expanded the faculty by 15 percent since 2000 and has about two students to every employee, says economist Catharine ``Cappy'' Hill, the college's provost. She says the school spends as much money as it takes in.

Operating Like Charities

Williams reported revenue of $132.6 million in fiscal year 2004, the bulk of it from tuition and other student charges of $69.7 million, and it spent $132.3 million, according to school records.

``The productivity gains that keep costs down in other sectors of the economy don't happen at our schools,'' Hill says.

Economics professor Gordon Winston, who directs the Williams Project on the Economics of Higher Education, says the true cost of higher education is often misunderstood because schools look a lot like companies while operating more like charities.

Discounts that colleges give through loans, financial aid, scholarships and grants leave few paying the full price, he says. About 43 percent of students at Williams get some amount of financial aid, he says.

``We produce such an incredibly good education, it is just offensive to sell it only to the rich,'' Winston says. ``The cost of producing an education has not exploded. It's misleading, and it is scaring the hell out of poor kids.''

Winston says he recently came back from a three-city tour on which he spoke to donors about the need for more scholarship aid. Williams is seeking to raise $90 million.

$40,310 a Year

In a 2001 study of 28 selective schools, Winston found some students paid as little as $800 a year after subsidies, including loans and grants.

Williams donor Allen remains critical of the high costs. When he graduated in 1962, tuition, room and board cost $2,350 a year. Estimated costs for this coming fall's freshmen at Williams will be $40,310.

``The waste in high-end education is a disgrace,'' Allen says. ``These are multibillion-dollar organizations being run by academics. They are not efficiently run. A lot of schools are throwing money out the window. Why do they cost so much more than inflation? It's ridiculous.''

Even Harvard, which took in $540 million in gifts last year, struggles with rising costs and is constantly searching for new donors, says Donella Rapier, vice president for alumni affairs and development.

`Psychology of Entitlement'

``Everyone is looking for top faculty and spending more to get them,'' she says. Harvard has a fund-raising and development staff of 625, and Harvard College and Harvard Business School hold reunions every five years, Rapier says.

If alumni keep supporting their alma maters, colleges can keep renovating and building. They'll need to, because students have great expectations, marketing expert Sevier says. ``They come to your campus with a galloping psychology of entitlement,'' he says.

Already, schools hoping to impress students are offering motorized scooters for campus tours and giving out concert tickets, Sevier says. ``We're seeing students get some pretty amazing gifts, like BlackBerries,'' he says.

At BU, graduating senior Lily Han says she has one regret about her college experience. She says she's sorry the gym didn't open until her final year.

``It's definitely a wow factor,'' Han says, returning from a game of volleyball to her high-rise suite with picture windows overlooking Boston's Charles River. ``It's one of the best gyms I've ever used.''

Not to worry, BU spokesman Riley says. For $480 a year or $49.95 a month, Han and other alumni who stay in the area can climb walls, take wave-running classes or lift weights at the BU gym for as long as they like.

To contact the reporter on this story: Liz Willen in New York at ewillen@bloomberg.net.

Last Updated: June 24, 2005 00:00 EDT