College Textbooks: Wall Street’s New Cash Cow
For years, textbook prices have burdened students already struggling with loans and sky-high tuition costs. Now Wall Street is taking over the market, tightening its grip on a staple campus institution: the college bookstore.
College students are now buying their textbooks from Wall Street. (Leonard Ortiz / Digital First Media / Orange County Register via Getty Images)
As the fall semester ramps up, the nation’s college students are preparing to make a dreaded purchase: course textbooks, which can cost students hundreds of dollars per year.
For years, textbook prices have been rising many times faster than inflation, burdening students already struggling with loans and sky-high tuition costs. A single course textbook can cost $400; the average hardcover textbook is closer to $100. Used textbooks and e-books aren’t always much cheaper.
How did the college textbook market become so broken, forcing some students to skip meals and work overtime just to afford course materials? One culprit, advocates say, is Wall Street’s increasing control over a staple campus institution: the college bookstore.
There are more than 4,000 campus bookstores across the country, and over half of them are operated by just two firms: Barnes and Noble Education, a publicly traded company that was spun off in 2015 from the Barnes & Noble bookstore empire, and Follett Higher Education, a bookstore operator now backed by the personal private equity fund of Tony James, the billionaire that once led Blackstone.
The duopoly may be forcing students to pay more for their books, thanks to a scheme originating under the Obama administration that has entrapped thousands of students over the last decade, all while bookstore giants and textbook publishers profit. The industry has stymied all attempts at reform, including stricter rules on the matter proposed last year under the Biden administration.
Many college bookstores were once run independently by universities, working closely with faculty to curate their shelves for students’ courses. But over the last several decades — as the rise of e-books and Amazon threatened the broader bookselling business — campus bookstore operations have increasingly been outsourced to private firms. Of the thousands of bookstores, only about three hundred independent college bookstores remain.
Campus bookstore consolidation is only growing. This spring, Barnes and Noble Education announced a “surge in new campus store partnerships,” assuming control over bookstores at more than twenty schools, including Villanova University and Georgia Southern. At the latter school, student bookstore workers were laid off as a result of the takeover, losing their tuition benefits.
The trend has hollowed out many once-independent college bookstores — and when Barnes and Noble Education or Follett arrives on campus, they bring with them a self-enriching textbook scheme.
The “conspiracy,” as it was described in one antitrust case from 2020, is an automatic textbook billing program sometimes dubbed “inclusive access.” Schools that have adopted the billing program, often through bookstore partnerships with Barnes and Noble Education or Follett, automatically add textbook costs to students’ tuition bill, charging them for a semester’s course materials, which are in most cases provided online via a digital access code.
For bookstore operators and textbook publishers, the system is a gold mine, guaranteeing them lucrative textbook sales. But critics say that the program can entrap and then overcharge students, who may not know they can opt out.
As Barnes and Noble Education and Follett have expanded their campus bookstore duopoly, they have pushed universities to adopt their trademarked automatic billing programs, raking in millions in the process.
“There’s a lot of money in this market,” explained Nicole Allen, the director of open education for SPARC, an advocacy group dedicated to promoting open access to education and research. And both Barnes and Noble Education and Follett, she said, were using campus bookstore takeovers to help advance their textbook sales racket: “Their plan is to push campuses to this model.”
The Great Bookstore Buyout
In 2012, David Hoyt, the finance manager at the University of Denver bookstore, saw the writing on the wall. Like many independent bookshops around the country, the campus store was struggling to make money in the cratering book business. Students were increasingly buying textbooks and course materials online for cheap or pirating them. Publishers were hiking textbook prices to try to recoup the lost income, and bookshops were trying to get in on the e-commerce boom, but the industry was in free fall.
“The competition started to get very, very intense,” Hoyt said.
Follett, Hoyt told the Lever, swooped into Denver with a promise of a guaranteed income stream for the university, if it allowed the company to take over the bookstore. For many years, the bookstore had been profitable independently. But some 75 percent of its revenue came from textbook sales, according to Hoyt, which were dropping off rapidly.
University administrators struck a deal with Follett in 2012. At the time, they claimed that the new bookstore operator “would better serve students,” Hoyt said.
But in reality, the university was watching out for its bottom line.
“They were worried about a loss in revenue from the bookstore,” Hoyt said.
Had the University of Denver’s bookstore stayed independent, Hoyt said, there were plans to add a cafe to the bookstore, to encourage students to spend more time there, and to increase its affordable rental textbook offerings. Instead, the university turned the bookstore over to Follett, which promptly laid off staff, including Hoyt, and slashed operating costs — “trying to cut expenses as low as possible to make a profit,” Hoyt said.
This sequence of events at the University of Denver became a common story, repeated many times at struggling campus bookstores across the country. By the mid-2010s, as they continued to acquire dozens of college stores each year, Barnes and Noble Education and Follett had firmly established their duopoly over the college bookstore market.
Yet even when Wall Street was in charge, the bookselling business remained tough.
This began to change in 2016, when federal regulators granted the floundering textbook industry what seemed to be a golden goose. That year, former president Barack Obama’s Department of Education released a rule change, buried in an obscure financial aid policy, that for the first time allowed universities to automatically bill students for textbooks, bundling the charges with tuition.
Regulators were “hoping that campuses would be able to use the large purchasing power of their student body to negotiate for bulk pricing,” explained Cailyn Nagle, senior program manager of open educational resources at the Michelson 20MM Foundation, a nonprofit that advocates for equity in educational access. “You have thousands of students who need the same thing, maybe you can get a discount for them,” she said — or so the thinking went.
Instead, the new policy proved to be a “lifeline for the textbook industry,” in the words of Allen. Major publishers and booksellers seized on the opportunity to extract more money from students.
In the wake of the rule change, Barnes and Noble Education and Follett began offering their own automatic billing programs, which charged students for a suite of online course materials. Barnes and Noble Education has claimed that its program saves students thousands of dollars, but advocates like Allen are dubious. One recent study found that booksellers’ claims of savings were exaggerated, concluding that the program “does not benefit students as a whole.”
The fees charged by these programs vary; some levy a flat fee per course or per credit hour. Under some university contracts, Barnes and Noble Education and Follett charge $25 or $26 per credit hour for classes that use their materials, which could add up to $390 for a typical fifteen-credit-hour course load in a semester. Because course materials are either provided via digital access codes that expire or, less commonly, rental print textbooks, students can’t resell the materials, as they might with a brand-new textbook.
In 2020, as the companies’ automatic billing programs took off, students and independent booksellers around the country brought a slate of antitrust lawsuits over the practice. They charged Barnes and Noble Education and Follett, as well as the largest textbook publishers, with collusion to “restrict the supply of textbooks and monopolize the market.”
The scheme, which prevented students from choosing to buy textbooks from other, potentially cheaper vendors, had “allowed them to charge higher prices for those course materials with no legitimate justification,” antitrust attorneys argued.
In other words, the automatic billing programs had created what Nagle called a “captured consumer group.”
While technically, students are guaranteed a right to opt out of such programs, it has often proven difficult for students to do so. Some universities have an opt-out deadline weeks before students receive their syllabuses, making it difficult to investigate textbook alternatives. Others warn students that opting out will make coursework “impossible.” In some cases, advocates say, students have accidentally bought a second set of textbooks, not knowing they had already paid for one.
“It’s just obviously predatory,” said Dan Xie, the political director at the Student Public Interest Research Groups, a coalition of student advocacy groups, and a longtime advocate for open textbooks.
Universities, meanwhile, have little incentive to bargain for better deals from the booksellers. Many of the contracts, records compiled by SPARC show, provide universities a cut of the textbook revenue — giving them a vested interest in higher textbook costs. Booksellers advertise that adopting the programs will provide universities with much-needed cash. Under its contract with Follett, for instance, the University of Iowa receives 8 percent of digital textbook sales.
“It’s quite clear that the publishers and the schools know they’re going to make more money if they have these programs,” Xie said.
The Textbook Trap
As opposition from students and consumer advocates to the auto-billing program mounted, booksellers fought attempts at reform — all while continuing to ink deals with universities to operate their campus bookstores.
In 2021, a federal judge dismissed the slate of antitrust suits, largely siding with the booksellers and publishers’ legal defenses. The decisions dealt a blow to students’ attempts to hold booksellers accountable for the automatic billing programs in the courts.
Still, there remained the possibility of regulatory reform. In the final two years of the Biden administration, federal education policymakers signaled that they were considering revising the 2016 rule that had opened the floodgates for automatic billing. In a rulemaking last year, regulators proposed a new requirement that any such programs be opt-in, rather than enrolling students by default.
This proposal provoked immediate backlash from both textbook publishers and booksellers, who inundated regulators with letters opposing the change, arguing that it would make textbooks less affordable. Reformers encountered “an incredible amount of industry and institution pressure,” Nagle said.
Joe Biden’s Department of Education tabled the proposal, then ultimately walked it back shortly before President Donald Trump’s inauguration, citing a need for further study. With Trump now dismantling the Department of Education, reforms on a federal level seem a distant prospect.
For Barnes and Noble Education, its auto-billing programs — called “First Day” and “First Day Complete” — appear to be central to its business model. The publicly traded company has seen financial troubles over the last several years, receiving a $50 million equity investment last year to remain afloat.
To their shareholders, Barnes and Noble Education executives indicate that they are betting on auto-billing as the company’s future. Last year, the company said its 1.6 percent revenue growth for the 2024 fiscal year was “primarily” due to First Day Complete. In a March earnings release, the company said the program’s revenue had again increased 20 percent year over year.
“We’re really encouraged . . . by the pipeline of schools that have either already committed or are on the verge of committing” to the program, one executive told investors last year.
At the same time, the company has gone on an acquisition spree, signing numerous contracts over the past year to operate more campus bookstores. That included the University of Denver’s, which Follett operated for over a decade.
When Barnes and Noble Education acquires a new college bookstore, its operation contract signed with the university often includes a provision that provides its automatic billing model. Such is the case with the University of Denver, which is now advertising courses that use the program to provide materials.
Hoyt remains convinced that the University of Denver’s bookstore could have remained independent, if the university had the will. “Students were definitely served better when it was an independent bookstore,” he said.
“The university could have done it, and they could have done it for years,” he added. “But they wanted the money.”