How to Investigate the Financial Health of a College

Last Updated on April 26, 2024 by Jill Schwitzgebel

Unbelievably, I am rarely asked by any family about the financial health of a college that appeared on my list of recommended colleges for their student. Colleges’ financial health has always been a consideration for me as a consultant, but it is not something that most other people consider much.

With the pandemic, that has begun to change. When college campuses closed due to the pandemic, I think it became obvious just how dependent some of them were on revenue from room and board. The financial fallout caused by the pandemic certainly impacted colleges’ finances as much as it is affected families’ finances. And ultimately, colleges are businesses that need to make money to stay afloat. Many weren’t able to sustain themselves, and we’ve seen a recent wave of college closures.

It’s generally very difficult to find solid information about an institution’s financial health. In fact, the debate over how to assess their financial health and what information should be publicly available has been a hot topic in the last several years. But there are some things that families can look at to gain some insight into the financial health of a college their student is interested in.

How to Check Into a College’s Financial Viability

I think the important thing to keep in mind is that any one of the factors listed below should not be considered independently. Instead, use this information to try to get a complete picture of their financial health.

Check out Enrollment. This isn’t foolproof, but can be a good way to start. If enrollment has been trending downward, it can raise a red flag. You can check out past years’ Common Data Sets to see previous years’ enrollments. You can ask the Admissions Department if they have been meeting their goals. There’s always the chance that the school made the decision to reduce its size purposely. But, according the Chronicle of Higher Education survey, 60% of colleges have not been meeting their goals for class sizes, recently.

Note: In 2020 and 2021, enrollment trends may not tell the full story due to COVID-19, and students’ decisions to take a gap year.

Check out Selectivity. No, I don’t think you can judge a college’s quality by how selective it is, but if a college that typically accepts over 60% of their applicants is becoming significantly less selective each year, it might be a signal that they are having difficulty attracting students, particularly if there is also an enrollment decrease.

Check out the Tuition Discounting. It’s not uncommon for private colleges to heavily discount tuition for many students, especially through academic merit scholarships. But, if it seems as though every student on campus is getting a tuition break, that might be an issue. Colleges do need full pay students to bring in enough revenue.

Social Media and the News. Sometimes, it is really obvious that a college is having financial difficulty because it’s being openly reported via local news outlets. A simple Google search of news may tell you.

And often, if the college is undertaking cost-cutting measures like salary freezes or furloughs, professors or administrators may actually tweet about it.

Look around! This is easy if you can visit campus. What does the physical condition of campus look like? Are there any new-ish facilities or renovations? Do buildings look like they’re in good cosmetic condition?

What happened when COVID-19 hit campus? This can give you some clues about the financial health of the college. Did they refund room and board fees? If not, it could be a sign that they are financially stressed. Did they have to furlough (or even fire) professors and staff members? It might make sense that they had to furlough dining hall employees, etc, but if they had to cut teaching faculty, it could signal difficult times are ahead.

What Do the Experts Say About the College’s Financial Health?

As I mentioned above, it can be difficult to find resources that will give you information about college’s financial health. No one resource will be able to give you a complete picture, though some do try.

• Forbes has given letter grades to institutions of higher education with enrollment larger than 500 to signify a college’s financial health. This list is sometimes criticized for relying heavily on on endowment as a factor, when often endowments don’t tell the full story. Their methodology is here. Most experts say to be concerned about any college with a grade of “D” or lower.
• College Viability is a very informative independent website with all kinds of information about colleges’ finances.
• The federal government publishes a list of Financial Responsibility Composite Scores, annually. The goal is to rate the financial health of all colleges on a scale from -1.0 up to 3.0.
• The US Dept of Education has mandated that beginning in July 2024, colleges must disclose if they are entering bankruptcy or facing expensive legal judgments.

In Conclusion

There is no perfect tool for fully assessing the financial health of a college or university. Right now, there are even state-funded public colleges that are in danger of having to close their gates. I recommend checking out all of the above information if you have any questions about a college’s financial health. And beyond all of that, you should always feel free to ask questions of the college itself.

If the worst happens, and your student’s college does announce that they are closing their gates, increasingly, they are absorbed by a larger institution or choosing to merge with another college.  There are likely paths that will be open for your student to continue their degree – encourage them to pursue it!