How to Judge the Financial Health of a College

by TBS Staff

Updated August 18, 2022 • 5 min read is an advertising-supported site. Featured or trusted partner programs and all school search, finder, or match results are for schools that compensate us. This compensation does not influence our school rankings, resource guides, or other editorially-independent information published on this site.

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The novel coronavirus has created unprecedented challenges for governments, economies, and education systems worldwide. The virus has disrupted the higher education industry tremendously, and has stoked fears that some institutions will soon close their doors for good.

In this environment, students are understandably concerned about their school's financial health and long-term viability. Colleges are a second home for many students, and closures can be devastating, both socially and academically. Current and prospective students should be wary of schools that are showing signs of distress. Common red flags include declining enrollment, program or budget cuts, and a sudden loss of accreditation.

Why Do Schools Close?

Although the COVID-19 pandemic has increased public discourse about possible school closures, the issue is not unique to this global health crisis. According to data tracked and compiled by Education Dive, dozens of colleges have closed or merged with other institutions in recent years since 2016.

Common issues that cause college closures and/or mergers include declining student enrollment, bankruptcy, a lack of popular degrees and student life offerings, and a lack of flexible, online programming. Any one of these problems can create a major hurdle to overcome, and one problem often leads to another. For example, decreased enrollment leads to decreased funding, which limits a college's ability to innovate, grow, and attract new students.

Common issues that cause college closures and/or mergers include declining student enrollment, bankruptcy, a lack of popular degrees and student life offerings, and a lack of flexible, online programming.

Chrisitian colleges and small private schools are particularly vulnerable to closure. Due to typically higher attendance costs and smaller student populations, any significant change in enrollment or funding can create a precarious situation.

Other institutions at greater risk of closure include those with mediocre or poor academic reputations, a history of financial mismanagement, or small endowments and uninvolved alumni networks. Any of these factors should encourage prospective students to seek alternative educational options.

Prior to the pandemic, colleges were closing because of decreases in three primary areas: state funding, freshman class sizes, and tuition payments. COVID-19 exacerbates these issues: states are facing budget shortfalls while fighting the virus, students are considering taking semesters or years off, and families who struggle to afford rent certainly can't afford the cost of college.

Schools that don't reopen their campuses for upcoming semesters will also lose vital income from room and board fees. The struggle to maintain facilities as they sit unused by faculty, staff, and students may become too great of a financial burden for some.

Will COVID-19 Push Schools to Close?

Even prior to the pandemic, some economists were predicting as many as half of all U.S. universities could close or go bankrupt in the next decade due to rising costs and declining enrollments. For many schools already in financial trouble, COVID-19 might be the final nail in the coffin.

One of the first institutional victims of the coronavirus was Urbana University, a small, rural, branch campus of Ohio's Franklin University. In late April, the school announced the permanent closure of its physical campus. After years of low enrollment, the added stress of the global coronavirus pandemic simply made on-ground services "impossible to sustain."

Urbana University is unlikely to be the only college forced to shut down in the near future. Small, liberal arts schools like Urbana are particularly vulnerable, as they are more likely to have preexisting financial and enrollment difficulties.

Schools are working rapidly to prepare for the short-term impact of COVID-19. Common approaches include recalculating finances, restructuring on-campus procedures, and developing viable alternatives to in-person classes. Unfortunately, retaining students may still prove difficult, as countless families encounter financial difficulty themselves.

Millions of Americans have applied for unemployment assistance since March 2020, and the price of college tuition has increased more than 1,400% over the last 40 years. Many prospective students may decide taking on massive education debt during the pandemic isn't worth it.

Given the turbulent nature of the virus and local, state, and federal government responses to it, schools may be forced to keep campuses shuttered much longer than initially expected. That means schools may need to reevaluate everything, including academic offerings, athletic programs, and employment of faculty and staff.

Colleges, universities, and their students face an uncertain future. No one can say with certainty how the pandemic will impact higher education in the months and years to come.

What Should I Look Out For?

Historically, schools and regulating entities have resisted publishing names of colleges in financial distress, making it difficult for the public to identify institutions on the brink of closing. However, students can look for warning signs, including program cuts, falling enrollment, neglected campus facilities, changes in tuition, and the departure of faculty and staff.

One of the first signs that a college or university is in trouble comes in the form of enrollment numbers. Schools with several consecutive years of declining enrollment often have smaller financial reserves. To save money, these schools may cut programs, lay off non-tenured faculty and staff, or delay repairs and updates to campus buildings.

One of the first signs that a college or university is in trouble comes in the form of enrollment numbers.

Tuition can also provide a glimpse into a school's well-being. In an attempt to drive enrollment, colleges may offer generous tuition discounts. Unfortunately, a larger number of students paying less to attend does not always tip the scales in the school's financial favor.

Using the National Center for Education Statistics' College Navigator tool, students can see how many of their peers are paying full price to attend an institution. Fewer learners receiving institutional aid can mean more funds to keep the school in operation.

What Should I Do If I Think My School Might Close?

Students attending a college or university at risk of closing can take several steps to be prepared if the worst should happen. Even if your school is likely to survive the coronavirus pandemic, it is always a good idea to make contingency plans for an uncertain future. Key priorities to focus on include academic records, housing, and loan responsibilities.

When school closure announcements are made, the first thing affected students need to decide is whether they want to finish out the semester or year at their current institution or begin the transfer process to another school. This decision may depend on how close a student is to graduating, the school's shutdown timeline, and program availability at other institutions. Students planning to transfer should secure copies of their official transcripts.

Colleges that plan to close may arrange program completion options for affected students. To do this, colleges may cease enrolling new freshmen, but continue operations until all current students graduate. Schools may also develop teach-out agreements with other colleges nearby, which then absorb students into equivalent programs.

Students who live on campus at a college with plans to close should look for alternative housing options. Consider leasing an apartment or moving back in with family.

In some cases, students who borrowed federal funds to attend a college that closes down may qualify for partial loan forgiveness or cancellation, though it's important to note that any loans that are discharged count as taxable income. Students who transfer to another school to finish their degrees typically do not qualify for this type of loan forgiveness.

Frequently Asked Questions

Will colleges reopen in fall 2020?

Colleges make decisions about reopening on a case-by-case basis. Factors at play include federal and state government regulations, recommendations from the World Health Organization and the Centers for Disease Control and Prevention, preferences of college administrators, and the interests of the students and communities they serve.

Colleges can take several approaches to the COVID-19 pandemic. Some may open up campuses as usual, but with certain precautions in place. Others may make a partial or complete switch to virtual learning. Still others may not be able to reopen at all due to financial strain, enrollment declines, or an inability to adapt to the changing educational landscape.

How can I continue my degree if my college closes?

When a college faces closure, students may need to transfer to another institution to complete their degrees. Credit transferability is affected by school accreditation, course equivalencies, and class grades.

Transfer students must also resubmit the FAFSA at their new schools. Before doing this, closely examine the terms of any loans you have to understand repayment responsibilities or filing procedures for deferment.

What are colleges doing to prepare for fall 2020?

Preparations for fall 2020 vary by school. The two most common plans include a continued focus on virtual learning and a carefully controlled return to campus. Colleges preparing for in-person classes are making plans to ensure student, staff, and faculty health by using advanced cleaning procedures and setting protocols for health screenings, physical distancing, and facial coverings.

Is fall semester 2020 going to be online?

To fight the continued spread of COVID-19, many colleges and universities will utilize online learning in fall 2020, including hybrid and/or fully virtual class options. Keep an eye on your school's social media for announcements regarding course enrollment, delivery, and attendance policies.

Image Credit: Cavan Images | Getty Images

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