MONEY College

5 Signs Your College is in Serious Financial Trouble

Academic building with "Going out of Business" sign on door
Gregory Olsen/Getty Images—iStock (sign)

An increasing number of schools are unable to balance their books. Make sure yours is not one of them.

When Corinthian Colleges Inc. agreed in July to sell off or close nearly all of its 107 campuses, it left 72,000 students wondering about their futures—and whether they should have seen the writing on the wall.

Today, with more colleges and universities than ever having trouble making ends meet, experts are urging students to pay closer attention to warning signs. “In this day and age, when there’s so much at risk, it doesn’t hurt to do some legwork and investigate,” says Mike Reilly, executive director of the American Association of Collegiate Registrars and Admissions Officers (AACRAO).

When colleges close, students face the wrenching process of having to find another place to continue their higher educations, often in the middle of semesters; plus, they may wind up tangled in the red tape of student loan paperwork and the often unsuccessful effort to transfer academic credits. If credits won’t transfer—and they often don’t—those students face the prospect of repeating course work they’ve already completed, which prolongs the time they spend in college and the amount it costs them. Alumni, meanwhile, see the value of their hard-won degrees decline.

Measures to protect students take different forms, depending on the nature of the school. A for-profit college like Corinthian, for example, must disclose serious issues to investors and the federal government. In January, Corinthian filed a regulatory report acknowledging that the federal government was preparing legal action against the company.

“But colleges are very far down the vortex of the funnel by the time problems are publicly acknowledged,” Reilly says.

So you’ll want to keep up with the early warning signs. Here are five to watch for:

1. The accreditors are circling. Most reputable colleges and universities are overseen by regional accreditors, which keep an eye on schools’ academic and financial health.

When City College of San Francisco’s budget fell apart, for instance, the Accrediting Commission for Community and Junior Colleges, stepped in and ordered the community college to close. That decision is on hold while a court battle proceeds.

Accreditors give schools several rounds of warnings before taking the rare step of ordering them to close. It’s important for students to know the difference between an early warning and more serious sanctions, says Mary Ellen Petrisko, president of the Western Association of Schools and Colleges (WASC), which accredits four-year schools in California and Hawaii and other Pacific islands.

“Students should not panic when they see there’s some sort of challenge to the institution,” Petrisko says. “Institutions go through challenges all the time.”

Accreditors like WASC post warnings and other actions after each meeting. The documents can be helpful for students who want to keep track of their schools’ financial health.

2. The credit rating agencies are raising flags. Another resource to pay attention to is the credit-rating agencies, such as Moody’s, which warn bond investors about at-risk schools. Among the schools that have failed Moody’s smell test is New York’s Yeshiva University, which was downgraded to junk-bond status after a series of financial problems.

Rabbi Kenneth Brander,Yeshiva’s vice president for university and community life, says some students had expressed concerns about their financial aid. But he added that there was no threat to scholarships or academics.

3. The D.O.E. gives the school poor marks. The U.S. Department of Education also provides a measure of schools’ financial strength through its annual “financial responsibility composite scores,” on which a score of less than 1.0 indicates problems.

4. There’s talk of a merger. Several colleges and universities have tried to stave off extinction by merging with other schools. Some mergers work out, but others fail and leave students marooned and without transferrable credits.

A merger “to me seems like a very tenuous strategy,” AACRAO’s Reilly says. “That seems like a trigger in my mind. I’d get a copy of my official transcripts at that point.”

5. The administration won’t come clean. Students at shaky colleges should press their student leaders to keep a close eye on the school’s future, says Reilly. A school that is confident it’s on the right track should have no trouble communicating details to students, he adds.

“One of the things is for students to look at whether an institution is being realistic about its future,” Reilly says. “Once a school closes, your options become a little more limited. I would start asking questions about what the plan is for the institution. If they’re doing nothing but making assurances to students, I’d be concerned.”

This story was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet affiliated with Teachers College, Columbia University.

Related stories:
Higher education is headed for a shakeout, analysts warn
Colleges keep increasing discounts to keep students coming
Needing revenue, old universities open new campuses
Private, for-profit colleges see unaccustomed setbacks

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