Worried About Colleges Closing? Learn How to Tell Before Applying

Colleges you’ve never heard of sometimes offer the most tantalizing bargains for students pursuing bachelor’s degrees. Understandably so, plenty of families worry whether these colleges could implode and call it quits.

It happens more often than you might think. According to the Hechinger Report, about one university or college per week so far in 2024, on average, has announced that it was at risk of closing or merging. That’s up from a little more than two a month last year.

Seven out of 10 students at colleges that have closed got little or no warning. Of those, a smaller proportion were likely to continue their educations than students at colleges that gave more notice and ended operations in an “orderly” way. 

One of the colleges my daughter applied to and received a merit scholarship from is among the casualties: Newbury College outside of Boston. Enrollment had declined from 5300 in the previous decade to under 600 when the decision was made to close. 

It’s becoming more important that consumers understand the financial status of the colleges they are considering. If you are worried about the financial viability of colleges on your list, here are some things to consider as you play detective.

Look at a college's enrollment

According to the National Center for Education Statistics, about 40% of American colleges enroll 1000 or fewer students. The smallest institutions face issues if their enrollment slips because they have less revenue to support their operations. 

Even if a college is smaller, it doesn’t necessarily mean it will experience financial hardship. For instance, a campus with 700 students that falls 50 students short of its freshmen admission goal will experience greater financial pain from that shortfall than a campus with 5,000 students experiencing the same shortfall. 

So, when deciding which college to attend, consider the enrollment pattern of the students in recent years. If enrollment has significantly decreased, it’s a red flag. You can check enrollment size for recent years at an institution by looking at a school's Common Data Set. This is a standardized and annual document that many colleges and universities use, which includes a variety of statistics on enrollment, admissions, financial aid, and merit awards. 

To find a college’s Common Data Set, Google their name along with “common data set” and you should be able to access those statistics.

Check for deferred maintenance on campus

The collective price tag for deferred maintenance – now commonly called capital renewal – has reached billions of dollars on U.S. college campuses, and those costs have soared over the last year due to inflation, according to the 2023 “State of Facilities in Higher Education” report.

When you walk around a campus, does the facility look neglected? Is the paint peeling on buildings? Are the sidewalks cracked? Is the landscaping neglected? Do students complain about the air conditioning and heating? Do you see signs of neglect in the classrooms, such as cracked ceiling tiles?

Also, talk to students and faculty about the shape of the campus. Inquire about whether the college is investing in new technology for classrooms. Colleges strapped for cash often divert money from their maintenance budgets and the practice eventually becomes noticeable.

Be curious about excessive tuition discounting

Schools rarely charge students the full price of tuition to attend their institutions. Institutional scholarships and grants are referred to as tuition discounts. Colleges and universities having more difficulty attracting students may offer more plentiful discounts.

The average tuition discount rate at private colleges was 56.1% for freshmen and 51.9% for all undergraduate students for the 2023-2024 school year, according to a new study from the National Association of College and University Business Officers (NACUBO). Both rates represent all-time highs for the study, which has been conducted annually since 1994.

Tuition discounting is a standard and critical component in the enrollment and retention toolkit for private colleges and universities. It helps make education affordable to students and families of all socioeconomic backgrounds, so it's a good thing. If it's too high, though, then you might have a concern. 

Ask the financial aid office about the average tuition discount rate for the last few years. This way, you could see if the college had to increase it to attract new students. You might have reason for concern if it’s well above the national average. When a college’s discount rate exceeds 80%, it has reached the point of diminishing returns and cannot fix the financial problems by increasing tuition.

Check news reports & set up alerts

Closures and mergers don’t happen in a vacuum. There should be plenty of signs of trouble at a college on the brink, and you should expect these problems would attract media coverage. Use Google to search for news about the colleges on your tentative list. Also, set up a news alert on Google for these campuses.

Don’t overlook student newspapers. These publications are usually more candid about what’s going on than administrators are. Look for reports of faculty and staff layoffs, merger talks, and the curtailment of academic programs.

Look into how many students pay full price tuition

Another way to evaluate a college’s financial viability is to check how many freshmen pay the full tuition. A university where 40-50% or more of students are paying the sticker price means the institution attracts an enviable percentage of high-income students.

Half of the freshmen class at Ivy League colleges are paying the full sticker price. No one is worried that a university like Harvard or Princeton will fail. Still, plenty of elite colleges without national brand recognition don’t have to worry about this either. Here are some examples.

“If you have wealthy students wanting to go to your school that are paying the full price, that is a good sign that they aren’t going to go bust,” says Ann Gansemer-Topf, assistant professor in higher education at Iowa State University, who also co-authored the college tuition discount study.

You can find the percentage of freshmen that receive institutional grants and/or scholarships at a college via the federal College Navigator. You’ll find this statistic by clicking on the college’s Financial Aid link and checking the Institutional grants or scholarships line item. This includes both need-based and merit-based institutional grants. Subtract this figure from 100% to obtain the percentage of freshmen who paid full price for tuition.

Where to look for evidence a college will close

If you are wondering if the college you are applying to is in financial trouble, there are a few tools you can use to assess their financial health.

The Tuition Tracker by The Hechinger Report simplifies the process:

The tool looks at both public and private universities and examines:

• change in enrollment of first-time undergraduate students
• retention rate
• change in the average tuition and fee revenue per student
• change in the ratio of endowment to total expenses (excluding any hospital costs) for private universities and change in state appropriations for public universities 

This is an easy-to-use tool and a good first signal of problems. If any of the criteria used to evaluate financial stability is in the red, it could be a sign that the college is in trouble. 

Another resource for checking a college’s financial status is the 2023 Forbes College Financial Grades report.

Forbes pulled the latest available financial data from the National Center for Education Statistics, which covers the fiscal year that began in July 2020 and ended in June 2021. In total, they ranked 906 colleges that enroll at least 500 full-time students by giving them grades from A to F. A college with a poor grade could be a college facing hardship in the near future.

Is a college going to close? Wrapping it up

Many colleges are facing financial problems since the emergency funding from the pandemic has ended. Other factors are adding to college’s woes beyond the pandemic. 

Fewer students are going to college. In the past decade, college enrollment has dropped by nearly 1.5 million students, or about 7.4%. 

States have pulled back funding from public universities that they have not been able to make up with tuition alone. With state budgets under pressure, this is expected to continue. In addition, some private colleges have seen endowment declines due to inflation.

The best advice: do your homework. Research the colleges you are applying to and dig into their financial health. Stay vigilant while attending and look for signs of decline. If you are concerned about the college’s financial health, transfer before the college closes to save your credits and protect your investment.

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We understand the anxiety the college application process can cause. Add to that the chance that a college you're interested in will close. You want to make the right decision, so we’re here for you every step of the way. 

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