Friday, July 12, 2024

Is Your College Bankrupt? How to Check a University’s Financial Health

Universities are often considered institutions that stay strong throughout time. It’s easy to forget that colleges are also businesses that can go bankrupt and close down.

More and more accredited educational institutions have been put to the test in recent times. There have been major college closures and consolidations in every state since 2016, and there are even claims that up to half of all colleges in the US are in danger of bankruptcy.

What Happens if My College Closes?

If your college closes down, there are both immediate and long-term concerns that you need to address, in particular:

  • What will happen to my records? Will they be kept intact? 
  • Will future schools give credit for the courses I have taken? 
  • What will be the impact when applying for jobs in the future? 

While most reputable colleges will have transfer assistance programs in place, these can be a hassle. That’s not to mention the long-term effects if you earn a degree from a college that closes down. While the qualification will remain valid, any reputation arising from the school (“that was an excellent architectural school”) will eventually be forgotten.

You can avoid these complications by checking on your school’s financial health. There are various red flags that can be an alarm for both enrolled students and incoming freshmen. After all, it’s not just the next four years of your life at stake — it could be your entire career.

How Can I Check the Financial Health of My College?

College is the biggest investment in your future, so you should choose carefully. Here are some steps you can take to see a clearer picture of your school’s financial situation. 

Check the Common Data Set

One source of valuable information is the school’s Common Data Set (CDS). The CDS is a standardized compilation of valuable statistics on colleges and universities. With this, you can access useful statistics on admission and enrollment trends that give insight to the school’s financial status. Most institutions publish their CDS on their website.

There are other sources from government institutions like the National Center for Education Statistics which gathers financial data of colleges, like how much of their revenue is based on tuition payments.

See If Enrollment Has Dropped

Using the CDS, you can see if a university’s enrollment rate is consistent, rising, or falling.

There could be situations where external crises affect enrollment rates and this can adversely affect the school’s operations. Room and board revenue generate funding for the upkeep of facilities. When classes shift online, colleges will need other sources of income to continue this maintenance. 

Check How Big Endowment Is

An endowment is a college’s assets that usually come from alumni donations. The endowment adds to the financial strength of the school throughout time, but a sizable endowment is also indicative of how the school manages its finances.

Schools are generally advised to spend only 5 percent of their endowment annually. If your college is spending more than that, it could be a sign of a financial management issue. Even if the college has a substantial endowment, it can still be used up with a high rate of spending.

You can generally find out what your school’s endowment is through an online search.

Watch for Tuition Discounts and Scholarships

Schools grant financial aid or discounts for students who fit certain requirements. However, if the discounts are aggressively advertised as a marketing scheme, it could be a sign that the college is having trouble attracting students. If a college gives discounts over the average discount rate of 52 percent this could be an indicator of financial distress.

One of the indicators of a college’s financial health is whether they are still capable of offering scholarship programs. Check whether they still accept applicants for academic, athletic, or social/charitable scholarships.

Just like other businesses, an indicator of a college’s financial health is the clientele it attracts. If they have a high percentage (40 to 50 percent) of students who are paying the full price upfront, then it means they attract students from wealthy families. It also follows that the school would have more financial flexibility since they are not providing loans to the majority of their student population. There are various sources to find this information.

Look for International Students

Aside from students paying full price, schools also benefit from international students. These students pay higher fees and they usually pay upfront. Schools can use these payments to cover their budget deficit.

Institutions may be left with a financial gap if the flow of international students drops.

Consider the School’s Physical Condition

This is one of the more obvious signs. If a school’s facilities are poorly maintained, it could be an indicator of financial issues. Ask yourself:

  • Is the school’s welcome area well-presented?
  • If yes, is that extended to the classrooms?
  • Are the school grounds maintained, or are there signs of neglect like garbage and unmowed grass?

College administrators understand that most prospective enrollees will first assess them based on the campus’ physical aesthetics and functionality. School administrators will rarely neglect this unless they are in a tight financial situation.

Talk to Current Students

While there is plenty of information online, talking to past and current students may give some valuable clues to a college’s financial state. You could ask them about the lodging, facilities and classrooms, and even the quality of food and maintenance.

It’s also worthwhile to ask them about recent crisis situations in the college and how the administration responded. This shows whether the school is prepared for emergencies and has reserve resources to draw upon if needed.

Look for Clues on Social Media

Aside from actual visits, you can find significant signs of financial health in social media. People tend to share more than they intend on most social platforms, whether in the form of comments or photos of events. Some of these may point to a college’s true financial state.

Check the social media accounts of professors and school officials. If a teacher complains about department budget cuts or a coach makes remarks about the neglected sports equipment, you know there could be trouble. 

Just as you would carefully check out the return on an investment opportunity, you should also take the time to gain information on your college and university. Use the tips above to find out how to vet your college!

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