A college closes every week. How to know if yours is in danger of shutting down.
As if finding a suitable, affordable college isn’t hard enough, students must also find one that isn’t likely to close on them, experts say.
Every week, on average, a college or university closes, according to an analysis by the State Higher Education Executive Officers Association (SHEEO). That’s up from about two a month last year and could worsen this fall as college enrollment dwindles further, experts said.
When schools close, fewer than half of the students transfer to another school, the executive officers association said. Of those who do, less than half graduate, it said. The others who reenrolled and didn’t finish, just added to their student debt and “added to the population of students who have some college but no credential,” the association said.
That means choosing a school that’s the right fit for you and affordable isn’t enough. You also need to research the school’s financials to ensure its solvency, said Jack Wallace, director of governmental and lender relations at Yrefy, a private student-loan company.
“You’ve got to look at the school’s financials, liquidity and endowments,” he said, noting the work is like researching a company to decide whether to buy its stock.
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Why are so many schools closing?
Many small private schools, both for-profit and nonprofit, depend on tuition to operate. With enrollments trending lower for more than a decade, smaller schools with little to no endowments are having trouble staying afloat, experts said.
Undergraduate enrollment in 2023 was 15% below peak levels from fall 2010, “with no meaningful growth expectation on the horizon,” Fitch Ratings said. “Eroding consumer sentiment on the affordability of a higher education degree and unfavorable longer-term demographic trends for high school graduate totals together could translate into demand pressure well into the next decade for the sector.”
New federal rules are also squeezing budgets, Fitch said. Overtime pay is required for salaried employees earning less than about $55,000 a year, up from the $35,568 threshold. “For colleges already managing extremely tight or deficit operations, any additional mandated costs will compound budgetary stress,” Fitch said.
And “what may be a final nail in the coffin is the FAFSA debacle,” said Shannon Vasconcelos, financial aid consultant at Bright Horizons College Coach. “There’s a decrease in the number (of FAFSAs) submitted, and that leads to enrollment decreases.”
The number of high school seniors who submitted the Free Application for Federal Student Aid through June had dropped 11.6% from a year ago, according to National College Attainment Network.
What red flags should students look for in a school?
It’s not a perfect science, Vasconcelos said, but some steps students and families can follow to get a sense of how well capitalized a school is include:
- ProPublica Nonprofit Explorer allows you to search the financials of any nonprofit organization, including schools. “Look at the net income over several years and see if it consistently has huge profits each year, whether it’s positive net income or negative, or in a downward trend,” Vasconcelos said. “If it’s losing money or if net income’s trending down, that can be a real red flag the finances are not working well at this college, and you might want to give it a little extra thought about enrolling.”
- Search the school on the internet “and throw in words like 'finances' and 'layoffs' to see if there’s any news about the school’s financial issues,” she said. “A closure usually doesn’t happen totally out of the blue. Usually, you’ll see some news about layoffs and budget cuts for a number of years before closure happens.”
- Take a tour and ask yourself, “How are the physical state of buildings?” she said. “Are there improvements or decrepit buildings? Are there signs of innovations or status quo? Are they adding new programs or not? These can give you an idea of whether they have money to invest in new things.”
- Common Data Set is standardized data every school collects and publishes. “It will be on the school’s website but sometimes it’s buried,” Vasconcelos said. “So, you may want to Google the college’s name and ‘common data sets’ to find it. It will have numerous years of data, and it’s in a consistent format from school to school so it’s easy to compare.”
Within the common data set, she said, the two biggest things to examine are:
Enrollment data in Section B. “If enrollment’s consistently declining, the school could be struggling,” she said. “It can be a strategy to cut back enrollment to keep afloat, but you need to consider if it’s a bad sign.”
Amount of institution non-need-based scholarships and grants in Section H2A, line O. “This sounds counterintuitive, but these are recruitment scholarships. If these are increasing, it could be seen as a measure of desperation,” Vasconcelos said. “They could be trying to draw in more students that pay tuition.”
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Taking these steps doesn’t guarantee your school won’t close, but they can minimize your risk of it happening and your dropping out as a result.
“In the best situations, colleges that close have prepared and worked out mergers with other colleges or transfer agreements with other colleges they’ve partnered with so students can get automatic admission as a transfer student,” Vasconcelos said. “They’ll try to ease the path for existing students, but it’s always major disruption and not every student will take that. The new school may be far away, social adjustment may be hard, credits may not transfer. It can be major disruption, and the school may not be a right fit anymore.”
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.