Financial Health: Is Your Student’s College Going Under?

Parents worry about college. We worry about admissions, paying for college and jobs as our kids graduate. But, until now, worrying that the college your student attends will not be financially solvent and will close before graduation day has not been on the list. Yet even before the pandemic, many colleges were struggling financially and with students off campus for months at a time, many are wondering if they will survive.

How can parents tell is a college is in perilous financial shape? (Twenty20 @maginnis)

How can a parent determine the financial strength of a college?

Until now experts have told us that there are a number of ways parents can assess how a college is doing.

  • First, look at the college’s bond rating. Many colleges borrow money and and have their solvency rated by S&P, Moodys and Fitch and that information is publicly available.
  • Second, look at the college’s endowment. Check this number as endowment per student, rather than just total endowment.
  • Third, look at the college’s filing with the IRS which is known as its 990. This is a form all nonprofit institutions have to file and there is great deal of financial information available.

But, there is a new tool, developed by The Hechinger Report that simplifies this process for parents.

How’s your college’s financial fitness?

The new 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 

The scores estimate the financial strain on a college after the 2019-20 school year and do not account for the effects of the crisis and does not project into the coming school year.

For parents concerned about a college their teen is considering on one their college student already attends, we think this easy to use tool is a good first signal from problems. The other three methods for assessing financial strain: bond ratings, endowments and 990s will allow parents to delve further into a colleges data as well.

There are a number of big factors adding to college’s woes beyond the pandemic. These include lower enrollment as smaller classes of high school students have graduated since the peak in 2010. Sates have pulled back funding from public universities that they have not been able to make up with tuition alone and with State budgets under pressure this is expected to continue. And some privates colleges have seen endowment declines.

The 2020-21school year will be unlike any we have seen before. For parents looking for ways to pay for college, or helping their teens make an enrollment decision, assessing the financial health of a university will be more important than ever.

You Might Also Want to Read:

Two important topics from Jeff Levy, Certified Educational Planner, on how to pay for college and decisions to make about when your teen should apply:

Ten Things You Need to Know About Private Student Loans

Early Decision: Big Mistake or No- Brainer

About Lisa Endlich Heffernan

Lisa (Endlich) Heffernan is the co-founder of Grown and Flown, the #1 site for parents of teens, college students and young adults, reaching millions of parents every month. Lisa is a New York Times bestselling author.
She started the Grown and Flown Parents Facebook Group and is co-author of Grown and Flown: How to Support Your Teen, Stay Close as a Family, and Raise Independent Adults (Flatiron Books) now in paperback.

Read more posts by Lisa

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