Assessing a College’s Financial Health
Part of the process of finding the right college or university to attend includes researching something most people take for granted: a school’s financial health.
Just because a school has existed for a long time, or is an integral part of a city or town, doesn’t guarantee it will be there forever–especially now that COVID-19 has forced campuses to shut down.
According to the website educationdive.com, as a result of the pandemic “colleges and universities are looking at the business of education in a whole new light. The lasting impact of COVID-19 could mean some of the schools, especially the smaller ones, may have to shut their doors.”
That’s partially because most schools need students on campus, especially those who can pay full price, to help generate revenue.
Forbes.com reports that “it’s not widely known, but for many residential colleges tuition does not cover the cost of operations and it is room and board that helps make up the difference.”
Even before the pandemic hit, the business of higher education was financially challenged.
As noted by HechingerReport.org, a nonprofit, independent news organization focused on inequality and innovation in education, “More than half of university trustees in a survey conducted by the Association of Governing Boards of Universities and Colleges said they were concerned about the financial futures of their institutions. The survey was released in late January — before the market went into its slide.”
There are obvious problems that affect students when a school shuts its doors, however.
The less obvious problems might be a blot on a degree that emanated from such a school, or a lack of an alumni network that can be so important to a student.
So how can you and your child know if a school is financially sound?
Checking a College’s Financial Health
Search for clues…
No one can predict the financial viability of a school by judging just one aspect of that school, but there are a number of telling signs that, in combination, might send up some red flags.
First and foremost: Check the school’s website and look for any published financial information, including the size of the school’s endowments (more on this below) and any relevant state funding increases or decreases.
On the website, you can also learn about their enrollment over recent years.
Look for trends downward: For a small school especially, this may mean they’re not meeting their goals.
Enrollment information for many schools is compiled annually in something called the Common Data Set, and published in a variety of ways.
You can find it most easily from home by doing a search from a school’s website for: Common Data Set.
Another piece of important data within the Common Data Set is the percent of students who are nonresident aliens or international. In the past, colleges (both public and private) have relied on international students to pay full price and fill budget shortfalls. With the COVID-19 crisis, the number of international students able to attend US schools will be significantly impacted.
Talk with Current Students. What to Ask/Search for:
Your child can also reach out to talk with students who’ve recently graduated from their own high school—and who are currently enrolled in colleges or universities they’re interested in.
If they’re unable to find people on their own, their high school can usually help facilitate this.
Since your child cannot visit the school, they should inquire of those students about the physical state of the school:
- Are buildings in good working order?
- Do classrooms and dorms look worn and torn?
- Is the school open to new ways of learning?
- How has the school handled things during the crisis? This is especially helpful if your son or daughter decides to go to school away from home, and then learns classes will remain online.
A few other ways for your child to find students to ask questions of: LinkedIn and Twitter, or through Facebook groups for those schools.
Go to the Department of Education’s College Navigator and look under the enrollment section.
There, you’ll be able to see the percentage of students who are enrolled in distance (online) learning.
If the percentage is low, the transition could be more difficult for them, and a sign that they might not attract as many students in the coming year.
This, in turn, can mean financial hardships for the school, at least in the short term. When talking to a school, it’s good to ask them about how they’re handling this sudden shift.
Tuition Discount Rate
Be aware that, much like a store offering deep discounts to attract more customers, a school offering to cut prices by a significant percentage (they’re all discounting to a certain extent) may be trying to attract students in large numbers to enroll.
This can be a red flag that they’re having financial difficulty. Schools need students who can pay full price in the mix.
Economic Conditional of College Town/City
What about the community that surrounds the school? Is the economy healthy? Can you glean any information about the school from their local TV news, radio, or online and print publications?
Communications From the College
If a school is having financial difficulty, rest assured, said author-educator Michael Horn during our recent Facebook Live interview, that they “have a legal obligation to their students to be upfront about it,” and that it’s less likely to be an issue this year than it might be in the years that follow the pandemic.
A recent article in Forbes suggested that students reach out to college admissions officers. One of those officers even encouraged it, saying, “students aren’t the only ones who cannot travel and visit schools. We’re in the same boat, and we are just as interested in talking to students as they are in talking to us. Take advantage of our undivided attention while we aren’t on the road all the time.”
Social media can be an early warning indicator even before colleges make official announcements.
Search tweets by professors and administrators to find clues that things may be changing at the college.
Comments related to salary and hiring freezes and course cutting may be clues of a school trying to cut expenses.
Turn to the Experts
In addition to the steps above, there are a number of sites that have compiled helpful research you can easily access that will help you get a better idea of a school’s financial health.
- Forbes grades of private not-for-profit colleges in the U.S. (enrollment greater than 500).
Click here to see National Center for Education Statistics database, Forbes analyzed all private not-for-profit colleges in the U.S. with enrollments greater than 500, grading them on balance sheet strength and operational soundness, plus certain other indicators of a college’s financial condition, including admission yield, percentage of freshmen receiving institutional grants and instruction expenses per student.
(For Forbe’s methodology, please click here)
- Bain & Company created a table classifying colleges as tuition dependent or not. The data is about 10 years old, but it’s a good start to use as directional information in your continued research.
- The government publishes Financial Responsibility Composite Scores for colleges and universities. “The composite score reflects the overall relative financial health of institutions along a scale from negative 1.0 to positive 3.0. A score greater than or equal to 1.5 indicates the institution is considered financially responsible.
Schools with scores of less than 1.5 but greater than or equal to 1.0 are considered financially responsible, but require additional oversight. These schools are subject to cash monitoring and other participation requirements.
A school with a score less than 1.0 is considered not financially responsible.”
- The State Higher Education Finance (SHEF) report examines the trends, context, and consequences of state higher education funding decisions. This report analyzes state-level and national funding and enrollment trends over time.
- College Viability is an independent site that investigates and publishes information relating to the financial health of colleges and universities.
- NACUBO publishes data on endowment sizes of institutions, an important indicator of whether a college can financially withstand a crisis, especially one that will impact government funding (for public universities) and family finances available for college.
The Bottom Line
Used together, the information on school websites, combined with information on the sites suggested above and aided by conversations with current and former students and school administrators, can help provide a more accurate and well-balanced picture of a school’s financial health.
Encourage your child to take advantage of the opportunity to do the research, perhaps with your help, to sort it all out.
It’s a worthwhile investment of time that can have a far-reaching payoff.
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