Who knows what restrictions are placed upon it, but the spendthrift example from the article, the University of Chicago, has a $6.5 billion endowment. Lots of bigger private and public universities have similarly large financial resources.
I haven't looked, but I doubt U of Chicago have that much debt. I would guess that they can mostly service their debt on income from the endowment.
To the extent that individuals and businesses are using college degrees as signals, it does seem reasonable to expect lots of attempts at cheaper alternatives.
The sort of loans that these institutions take probably do not come due all at once. And if they do (certain kinds of bonds) then the institution plans for it. If they're borrowing the money and planning to re-borrow when it comes due then they are truly foolish, but it is more likely that they plan to pay the loan off over time.
I haven't looked, but I doubt U of Chicago have that much debt. I would guess that they can mostly service their debt on income from the endowment.
To the extent that individuals and businesses are using college degrees as signals, it does seem reasonable to expect lots of attempts at cheaper alternatives.