Is Your Future College Financially Stable? Why Families Should Pay Attention

When families begin the college search, they typically focus on academics, affordability, campus culture, location, and career opportunities. But another important factor deserves attention: the college's financial health.

As an Independent Educational Consultant based in North Carolina, I have watched colleges in our state and across the country face financial challenges, mergers, and closures. Unfortunately, I expect these challenges to continue.

Does this mean families should avoid colleges experiencing financial difficulties? Absolutely not.

Evaluating a college’s financial stability is not about predicting which colleges will close. It is about identifying potential risks, understanding how those risks might affect students, and helping families make informed decisions. Sometimes, a college experiencing some financial challenges may still be the best fit for a student. The key is understanding the potential risks before making a commitment.

1. Why Are Colleges Facing Financial Challenges?

Higher education is experiencing significant financial pressures. Several factors are contributing to these challenges:

• Declining enrollment at some institutions

• Demographic shifts and a shrinking pool of traditional college-age students in some regions

• Rising operating costs and inflation

• Reduced pandemic-era financial support

• Changing federal policies and funding

• Increasing administrative and infrastructure expenses

• Growing concerns about the cost and value of a college education

• Expanding expectations for student support and increased needs

Many colleges, particularly smaller private institutions that depend heavily on tuition revenue, are feeling the pressure. When fewer students enroll, colleges collect less tuition revenue. However, many expenses, including maintaining buildings, paying faculty, and providing student services, remain relatively fixed. Over time, this can create serious financial challenges.

2. What Are the Warning Signs of Financial Trouble?

No single financial indicator tells the whole story. A college experiencing one difficult financial year is not necessarily in danger of closing. However, certain patterns may warrant a closer look:

• Declining enrollment over several years

• Repeated operating losses

• Declining tuition revenue

• Increasing institutional debt

• Significant or unsustainable withdrawals from endowment funds

• Frequent changes in college leadership

• Accreditation concerns or federal financial restrictions

• Reductions in academic programs, faculty, or student services

• Missed debt payments or other signs of financial distress

• Increased "discounting," offering more students more scholarship money

Even something that appears positive, such as adding new athletic teams or launching a football program, may be part of a strategy to attract additional students and generate tuition revenue. Adding athletic teams is not necessarily a bad thing, but it is worth understanding the institution’s motivation.

3. Look at Financial Trends, Not Just One Number

When I evaluate a college’s financial health, I prefer to examine eight to ten years of financial and enrollment information whenever possible. A college may report an operating loss one year because of a major investment, an unexpected expense, or a temporary enrollment decline. That is very different from a college that has experienced declining enrollment, shrinking tuition revenue, and repeated financial losses for a decade.

Some of the indicators I examine include:

• Enrollment trends over multiple years

• Operating revenues, expenses, and financial losses

• Financial reserves and available cash

• Endowment resources relative to enrollment

• Dependence on tuition revenue

• Net tuition revenue per student

• Institutional debt and repayment obligations

I also look at what the college is doing to address its challenges:

• Is enrollment improving or stabilizing?

• Is the college strengthening its financial reserves?

• Is tuition revenue increasing?

• Does leadership have a realistic long-term financial plan?

• Are there signs that recent changes are producing positive results?

A college facing challenges but making meaningful progress may present a different level of risk than one whose financial position continues to deteriorate.

4. Where Can Families Find Reliable Information?

Much of the information needed to evaluate a college’s financial condition is publicly available, although it is not always easy to locate or interpret. Useful resources include:

• College Navigator and IPEDS: Federal databases providing enrollment, financial, and institutional information.

• Common Data Set (CDS): Information about enrollment, retention, graduation rates, financial aid, and other institutional characteristics.

• IRS Form 990: Financial information for nonprofit private colleges.

• Audited Financial Statements: Details about operating performance, debt, financial reserves, and other obligations.

• Accreditation Reports: Information about institutional oversight and potential compliance concerns.

• Federal Financial Responsibility Information: Financial oversight measures used by the U.S. Department of Education.

• News articles, credit rating reports, and research from higher education organizations can provide additional context. Financial ratings and AI-generated assessments can also be useful starting points, but verify important findings against original sources.

Remember:

• Financial ratings are screening tools, not predictions of college closures.

• Different rating systems use different methodologies, and some rely on information that may already be several years old.

• A college with a concerning financial rating may continue operating for years.

  Conversely, an institution with a relatively strong rating can experience unexpected difficulties.

5. Does Eliminating a Major Mean a College Is in Trouble?

Not necessarily. Colleges regularly adjust their academic offerings to reflect student demand, workforce trends, and institutional priorities. Examples of routine institutional changes include:

• Eliminating under-enrolled majors

• Combining academic departments

• Consolidating administrative functions

• Expanding online programs

• Adjusting staffing levels

• Introducing new academic programs

These changes can be part of a thoughtful long-term strategy to strengthen the institution. However, other developments may warrant closer investigation:

• Repeated rounds of faculty and staff layoffs

• Sudden elimination of academic programs

• Emergency sales of institutional assets

• Significant reductions in student services

• Frequent leadership turnover

• Major cuts to academic resources

The important question is whether these changes reflect a deliberate strategy to strengthen the college or reactions to immediate financial pressures.

6. How Could Financial Problems Affect Your Student?

This is the question I believe families should focus on most. A college does not have to close for financial difficulties to affect its students.

Financial pressures can result in:

• Fewer course offerings and difficulty registering for required classes

• Larger class sizes

• Faculty departures and fewer academic advisors

• Reduced extracurricular activities and athletic opportunities

• Cuts to tutoring, counseling, and other student support services

• Deferred campus maintenance

• Elimination or consolidation of academic majors

• Potential delays in completing graduation requirements

Students in specialized academic programs may be particularly vulnerable. Imagine a student majoring in a field that requires courses to be completed in a specific sequence. If the college reduces faculty or eliminates certain courses, the student could experience difficulty completing the degree on schedule. Even if the institution remains open, these changes can affect the overall college experience.

Families should consider whether the college has the financial resources and commitment to support their student throughout the anticipated four years of enrollment.

7. Questions Families Should Ask Colleges

If you have concerns about a college’s financial condition, I encourage you to ask questions directly.

• How has enrollment changed over the past five years?

• Have any academic programs been eliminated or consolidated recently?

• Are there plans to reduce faculty, academic departments, or student services?

• How is the college investing in the academic programs that interest my student?

• What steps is the college taking to ensure its long-term financial sustainability?

• If a program is discontinued, what protections or alternatives would be available to current students?

• What contingency plans are in place if the college experiences additional financial challenges?

A college’s willingness to discuss these questions openly can also provide valuable insight.

8. Should You Cross a Financially Struggling College Off Your List?

Not automatically. College selection involves balancing many factors, including:

• Academic fit and quality of programs

• Affordability and financial aid

• Campus culture and student experience

• Graduation and student outcomes

• Career preparation and opportunities

• Institutional financial stability

A college with some financial challenges may offer an exceptional academic program, generous financial aid, a supportive community, or opportunities that make it the right choice for a particular student. Every family has a different comfort level with risk.

The goal is not to eliminate every institution that shows signs of financial pressure. It is to understand those risks and weigh them alongside the other factors that matter to your family.

My Advice to Families

Choosing a college is one of the largest financial and personal investments many families will make beyond their primary home. We spend considerable time researching admission rates, academic programs, scholarships, and campus life. I believe understanding a college’s financial health deserves a place in that research, too.

Here are my key takeaways:

• Do your homework. Include financial stability as one factor in your college research.

• Look for trends. A single difficult financial year does not necessarily indicate serious trouble.

• Visit and talk to students on campus. Read the student newspaper and look for deferred maintenance.

• Consider the impact on your student. Financial challenges can affect academic programs and campus life long before a college closes.

• Ask questions. Colleges should be able to explain their financial strategies and commitments to students.

• Keep perspective. A college facing financial challenges may still be an excellent fit.

• Make an informed decision with data and facts.

• Understand the potential risks and determine whether they are acceptable for your family.

A college may be the perfect fit academically, socially, and financially for your student, but you should also consider the college's long-term stability.

Choosing the right college isn't just about getting in. It is about finding a college where your student can thrive, grow, and graduate with marketable skills.