College Financial Health: How to Know If a College Is Financially Stable
When your family starts researching colleges, you’re probably looking at majors, campus life, admission requirements, and, of course, the cost of attendance.
But there’s another important question most families never think to ask:
Is this college financially stable enough to support my student through graduation?
With more colleges facing enrollment challenges, rising expenses, and pressure to offer larger tuition discounts, financial stability is becoming an increasingly important part of the college search.
Understanding college financial health can help families look beyond beautiful campuses, impressive marketing materials, and generous scholarship offers to determine whether a school is positioned for long-term success.
In This Episode of Ol’ College Try
In this episode of Ol’ College Try, College Aid Pro’s Peg Keough sits down with Gary Stocker, founder of College Viability, to discuss the financial challenges facing colleges and what parents should know before making a major investment in higher education.
Gary shares his firsthand experience working at a private college that was using its endowment to cover operating expenses. He explains why declining enrollment, tuition discounting, and rising costs are putting pressure on institutions across the country.
Together, Peg and Gary break down the most important indicators of college financial health, including enrollment trends, endowment values, four-year graduation rates, and whether colleges are investing enough to maintain their campuses.
Their biggest takeaway? Families should investigate a college’s finances before falling in love with the school.
Why Should Parents Care About a College’s Financial Stability?
Think about the last time you made a major financial decision.
If you were buying a house, you probably wouldn’t rely entirely on the seller’s description of the property.
You’d want an inspection.
You’d want to understand whether there were structural issues, expensive repairs, or problems that could cost you money down the road.
Gary argues that families should approach colleges with the same mindset.
After all, a college education can represent one of the largest financial commitments a family makes.
Yet most parents spend far more time researching academic programs, dormitories, and campus amenities than investigating whether the institution itself is financially stable.
A college may be a nonprofit organization, but it still operates like a business.
It needs enough revenue to pay employees, maintain buildings, provide academic programs, and support its students.
And just like any other organization, a college can experience serious financial difficulties.
Why Are Colleges Facing Financial Challenges?
According to Gary, several factors are creating financial pressure across higher education.
Declining Numbers of College-Age Students
One of the biggest challenges is demographic change.
Gary discusses what’s commonly called the demographic cliff, a period when the number of traditional college-age students is expected to decline because of lower birth rates approximately 18 years earlier.
Fewer potential students means more competition among colleges.
For institutions that depend heavily on tuition revenue, attracting enough students to fill their incoming classes becomes increasingly important.
Rising Operating Expenses
Colleges also face rising costs.
Faculty and staff salaries, building maintenance, technology, campus services, and other operating expenses don’t disappear when enrollment declines.
If a college’s expenses continue increasing while its tuition revenue stays flat or decreases, financial problems can develop.
Increasing Tuition Discounts
Many private colleges offer substantial institutional scholarships and grants to attract students.
While those discounts can make college more affordable for families, they can also reduce the amount of tuition revenue the institution actually collects.
Gary explains that this combination of declining enrollment, increasing expenses, and heavy discounting is creating financial challenges for many colleges.
Why a Large Scholarship Doesn’t Always Mean a College Is Financially Strong
Parents naturally get excited when their student receives a large merit scholarship.
And they should.
A generous award can make a meaningful difference in what a family pays for college.
But Gary explains that many institutional scholarships function more like tuition discounts than separately funded awards.
Consider a college with a published tuition price of $50,000.
If that college offers a 70% discount, the student receives a $35,000 reduction.
That leaves the family paying $15,000 in tuition.
From the family’s perspective, that’s a substantial savings.
But from the college’s perspective, it’s collecting only $15,000 against a published tuition price of $50,000.
If enough students receive significant discounts, the institution may struggle to generate sufficient revenue to cover its expenses.
This doesn’t mean families should avoid colleges offering large scholarships.
It means a scholarship amount alone isn’t a reliable indicator of college financial health.
The more important question is whether the college can sustainably operate while offering those discounts.
What Is a College Tuition Reset?
Some colleges are responding to pricing concerns by dramatically reducing their published tuition rates.
This is known as a tuition reset.
For example, a college might lower its advertised tuition from $60,000 to $30,000.
The goal is to make the institution appear more affordable and encourage families who might otherwise eliminate it based on sticker price to take another look.
But Gary cautions that a tuition reset doesn’t necessarily mean the college’s underlying financial position has improved.
A school that lowers its published price may also reduce the institutional discounts it previously offered.
As a result, the actual amount families pay might not change as dramatically as the advertised price suggests.
When evaluating affordability, families should focus on net price, not simply published tuition or the size of a scholarship.
Three Key Indicators of College Financial Health
Gary identifies three major factors families can use when evaluating a college’s financial stability.
These indicators aren’t guarantees of whether a college will remain open, but they can help parents identify warning signs and ask better questions.
1. Enrollment Trends
Enrollment is one of the most important indicators of a college’s financial position.
But Gary emphasizes that families shouldn’t focus on just one year.
Instead, look at enrollment trends over the past five to ten years.
A college may experience an occasional decline without facing a serious financial crisis.
However, a consistent downward trend can be more concerning.
Fewer students generally mean less tuition revenue, particularly for colleges that rely heavily on tuition to fund operations.
Gary also recommends looking at full-time equivalent enrollment, rather than simply the total number of students.
Why?
Because a college might report an increase in student headcount without experiencing the same increase in full-time enrollment or tuition revenue.
What parents should ask: Has the college’s full-time equivalent enrollment increased, decreased, or remained stable over the past five to ten years?
2. Endowment Value
A college’s endowment is another important factor.
An endowment generally consists of donated funds and investments intended to support the institution over time.
Gary suggests that families pay attention to colleges with endowments below $50 million, using that amount as a potential warning threshold in his analysis.
He also discusses endowment value per student as another way to evaluate institutional resources.
However, it’s important to understand that endowment size alone doesn’t tell the entire story.
Some funds are restricted for specific purposes, meaning the college cannot freely use them to cover everyday operating expenses.
Other funds may be available for broader institutional needs.
Families should also consider whether the endowment has been growing or shrinking over time.
What parents should ask: How large is the college’s endowment, how has it changed over time, and how much of it is available to support operations?
3. Four-Year Graduation Rates
This is one of Gary’s biggest concerns.
Families often assume that a bachelor’s degree will take four years to complete.
But that isn’t always the case.
Some students take five or six years to graduate, and that can significantly increase the total cost of college.
Gary recommends comparing four-year graduation rates across the schools your student is considering.
For example, if one college graduates 38% of its students within four years and another graduates 68%, that’s a meaningful difference worth investigating.
A lower graduation rate doesn’t automatically mean the college is financially unstable.
However, it can raise questions about academic support, course availability, student retention, and the institution’s ability to help students complete their degrees on time.
What parents should ask: What percentage of students graduate within four years, and how does that compare with similar colleges?
Why Graduating in Four Years Matters Financially
An additional year of college can cost families much more than another year of tuition.
Students may also need to pay for housing, meals, transportation, books, and other expenses.
And there is another potential cost that families often overlook.
Delayed earnings.
If a student takes an additional year to graduate, that’s potentially one year they aren’t earning a full-time salary.
Gary gives the example of a student who could earn $40,000 annually after graduation.
An additional year in college could mean missing out on that $40,000 in potential income, in addition to paying another year of college expenses.
For families already managing student loans or parent borrowing, those costs can add up quickly.
Peg also emphasizes the importance of making sure students can access the courses required for graduation.
Sometimes students need to advocate for themselves to get into a necessary class or explore approved alternatives, such as taking a transferable course at a community college.
The goal is to avoid paying for an unnecessary fifth year whenever possible.
Another Warning Sign: Is the College Maintaining Its Campus?
Beyond enrollment, endowments, and graduation rates, Gary introduces another financial measure that families may not be familiar with.
It’s called the capital expenditures-to-depreciation ratio, sometimes shortened to CapEx-to-depreciation.
In simple terms, this measure compares how much a college invests in its facilities and infrastructure with how much those assets are depreciating.
Gary suggests that a ratio below 1.0 can be a warning sign that an institution isn’t investing enough to keep up with the aging of its facilities.
That could mean deferred maintenance or delays in improvements to buildings, technology, and campus infrastructure.
While the ratio alone doesn’t prove that a campus is unsafe, it can raise questions about whether the institution has sufficient resources to maintain its property over time.
For parents, this is another reason to look beyond the appearance of a campus during a tour.
A beautiful admissions building doesn’t necessarily tell you how well the entire institution is being maintained.
What Happens If a College Closes or Merges?
College closures and mergers can create significant challenges for students.
If a college announces that it will close, students may need to transfer to another institution to complete their degrees.
That can mean navigating new academic requirements, transferring credits, changing housing arrangements, and adjusting to a completely different campus community.
For a student who has already built friendships, joined organizations, and settled into an academic program, that disruption can be substantial.
Mergers can also bring changes to college operations, leadership, and academic offerings.
Gary predicts that higher education may see larger-scale mergers in the coming years, with multiple colleges potentially combining administrative and operational resources while maintaining individual campus identities.
That’s his forecast, not a certainty.
The important takeaway for families is that the financial stability of an institution can influence the student experience long after the admission decision.
Does a Prestigious College Automatically Have Strong Finances?
Not necessarily.
Peg and Gary discuss how even well-known universities with substantial endowments can face operating deficits or financial pressures.
A large endowment can provide significant financial resources, but that doesn’t mean every dollar is available for everyday expenses.
Some endowment funds are restricted to specific purposes, such as scholarships or academic programs.
Colleges may also face challenges when their operating expenses exceed available revenue.
This doesn’t mean families should assume that prestigious universities are at risk of closing.
It means reputation, rankings, and selectivity aren’t substitutes for reviewing financial information.
Evaluating college financial health should be part of the research process for every school, not just smaller or lesser-known institutions.
Where Can Parents Research a College’s Financial Health?
The good news is that families don’t have to rely entirely on a college’s marketing materials.
Gary founded College Viability to help make financial information about colleges more accessible.
His organization provides tools designed to help families examine institutional data, identify trends, and compare colleges.
One resource he highlights is the free College Viability Inspection Report.
Families can explore the resource at MyCollegeViability.com.
Gary explains that his approach emphasizes trends over time and comparisons between institutions rather than evaluating a single statistic in isolation.
The goal isn’t necessarily to tell families which colleges they should or shouldn’t attend.
It’s to give them information they can use to make more informed decisions.
What Questions Should Parents Ask During College Visits?
Once you’ve done some initial research, use that information to ask more specific questions during college tours and conversations with admissions representatives.
Rather than focusing exclusively on campus amenities and student activities, consider asking:
- Has the college’s full-time equivalent enrollment increased or decreased over the past five to ten years?
- What percentage of students graduate within four years?
- Are required courses generally available when students need them?
- Has the college recently eliminated academic programs or announced major budget reductions?
- What resources are available to help students stay on track for graduation?
- Has the college announced any major financial restructuring or merger plans?
Not every admissions representative will have all of these answers immediately.
But the questions can help families determine what additional information they need before making a final decision.
Think of College Research as a Reverse FAFSA
One of Gary’s most memorable points is the idea of a reverse FAFSA.
When families complete the FAFSA and CSS Profile, they’re required to provide detailed information about their finances.
Colleges may learn about their income, assets, savings, and overall financial circumstances.
Gary asks a simple question:
If colleges have access to so much information about your family’s finances, shouldn’t you know something about theirs?
It’s an important perspective.
Families are expected to make major financial commitments based on information provided by colleges.
But parents also have the ability to research the institutions they’re considering and ask questions about their financial stability.
The more information you have, the easier it becomes to make decisions based on facts rather than marketing.
How Does Financial Stability Fit Into the College Search?
At College Aid Pro, we often talk about evaluating colleges based on three important factors:
Academic fit: Does the college offer the programs, resources, and academic environment your student needs?
Personal fit: Can your student see themselves being happy, involved, and successful on campus?
Financial fit: Can your family realistically afford the college without taking on an unreasonable amount of debt?
This conversation introduces another important consideration: the institution’s ability to remain financially stable and deliver the education your family is paying for.
A college might look like a great fit on paper, but if its enrollment has been declining for years, its financial resources are limited, or its graduation rates are unusually low, those are factors worth investigating.
Understanding college financial health adds another layer of protection to your family’s college planning strategy.
The Bottom Line
Choosing a college is about more than finding a school your student loves.
It’s also about making sure the institution can provide the academic experience, resources, and support your student needs to graduate successfully.
As Peg and Gary explain, families should approach the college search with the same care they would use when making any other major financial investment.
Look at enrollment trends. Understand the college’s endowment. Compare four-year graduation rates. Ask questions about tuition discounts and campus investments.
And most importantly, don’t assume that an impressive campus, strong reputation, or generous scholarship automatically means an institution is financially secure.
Researching college financial health doesn’t mean you need to become a higher education financial expert.
It simply means taking the time to understand the institution behind the admission offer before committing your family’s money and your student’s future.
A college should be the right fit for your student academically, personally, and financially, and it should be positioned to support them all the way through graduation.
