After working hard to qualify for admission, high school seniors look forward to their college years with high hopes. But what happens to their hopes if they enroll in a college that closes its doors soon after they matriculate? Some students may choose to attend an associated college that has made an arrangement with their school. However, the associated colleges often fail themselves, forcing a second transfer in pursuit of a Bachelor’s degree. A student could spend their precious college years losing friends, mentors, coaches, and campus jobs. Not to mention the high cost of losing credits in unplanned transfers.

This is not a far-fetched scenario. Colleges fail. A surprisingly large number of them failed before COVID-19 struck, but the pandemic hastened the demise of many financially weak institutions. Experts predict that 20% of the 6,000 U.S. colleges will close in the next few years due to changing demographics, state disinvestment, and unaffordable tuition.

The coming years will take a heavy toll on colleges that are now in precarious financial condition. They are usually small, private colleges with small endowments or small public campuses. Many are already operating at break-even or a deficit. A small decline in enrollment can be ruinous without a large endowment to cushion the blow.

Even as non-profits, colleges compete for business. The smaller the school, the more likely it’s struggling in today’s competitive environment. College enrollment, in the aggregate, is expected to continue to decline, so at-risk schools must get a larger piece of a shrinking pie.

Why Is College Enrollment Falling?

From 2016 to 2019, 86 colleges shut down or merged with other schools. Then 53 colleges closed during the 2019-2020 school year alone. From  2019 to 2021, total undergraduate enrollment fell by 8% — the largest 2-year drop in the last 50 years. In 2022, more than 1 million fewer students were enrolled in college than were enrolled prior to the pandemic.

The major reasons for the decline in enrollment are:

    • Rising College Costs: Rising tuition has outpaced inflation and income growth for the last 20 years, except for the pandemic years 2020-21.
    • Lower Return on Investment: 99.5 million Americans have a bachelor’s degree or higher, yet 73% of them have a job unrelated to their major. The degree that they earned probably isn’t helping their career.
    • Smaller Candidate Pool: From 2025 to 2029, college enrollments are predicted to fall by more than 15% due to a smaller college-age population. This traces back to a slump in the birthrate in the second half of the aughts.
    • Lack of Interest: Just 48% of current high school seniors are planning to go to a 4-year college, down from 71% in 2019.

Statistics Are Bleak

Amid skyrocketing tuition rates, 70% of undergraduates say that affordability had the greatest impact on their choice of a college. Nearly 500,000 of them dropped out in 2022 because they could no longer afford the cost of the college they were attending.

Over 36% of parents tapped into a child’s 529 Plan college fund to weather the financial impact of the pandemic. Since then, high schoolers are more likely to choose a less expensive option than a 4-year college, such as:

  • Community college is chosen by 36% of graduates,, up from 28% in 2019.
  • 15% plan to attend a public college and won’t be applying to a private one.
  • 27% will take a gap year to work to save money for college.
  • Many will seek jobs, especially as technicians in health care or digital technology.

Students Should Identify Target Schools At Risk

Higher education is a huge investment for most families, so steps should be taken to assess the financial stability of target colleges before a student applies and again after acceptance.

Students will encounter two problems when searching for financial information about colleges. First, private non-profit colleges are not obligated to report their financial condition to the public. Second, the financial condition of all individual public colleges is usually aggregated within the entire state university system, so students can seldom discern the financial outlook for a particular campus. Students won’t find even a hint of the possibility of a college closure on its website. Websites are marketing tools that try to recruit and inform applicants, not discourage them.

The best way to obtain the information needed to assess a college’s finances is to research it in the Common Data Set (CDS), which is a valuable resource for several reasons. CDS is a collaborative project involving colleges and the publications that report on them such as Peterson’s, the Thomson Corporation, U.S. News & World Report, and the College Board. CDS  maintains a common database of information about colleges to enable it to be used as to conduct a valid comparison by prospective students. To find the CDS data set for a particular college, enter “Common Data Set “Name-of-College” into a web search engine.

There is a Financial Responsibility Composite Score for all colleges that accept Federal financial aid, which is virtually all of them. It’s published by U.S. Department of Education and is available on their website.

Many colleges publish an Endowment Report online or provide it upon request. Students should look for colleges that spend no more than 5% of their endowment annually.

Students should also investigate a college’s average tuition discount rate, which is part of its CDS record. An above-average  discount rate may signal poor financial health. The average tuition discount for freshmen was 52% in 2021-22.

Other information to look for includes frequent changes in leadership, significant declines in enrollment, announced mergers, coverage in the local press about financial instability, and accreditation difficulties, all of which can be construed as derogatory.

Preparing for the Possibility of Closure

Despite a rigorous assessment process , a student should prepare for the possibility that their college could close. Sometimes colleges announce a planned closure and execute it slowly over months or years. Others shut down abruptly without notice. To be prepared for this possibility, students should keep a detailed record of course syllabi, transcripts, and important conversations with school officials.

A  student’s college, upon closure, may have facilitated transfers to an associated college that will enable students to complete their degrees. However, before agreeing, students should review the details regarding how credits will transfer. They should also research Federal loan discharge options. If a student’s college closes while they’re enrolled or soon after their withdrawal, they may qualify for a full refund of payments.

Many Colleges Are Tightening Their Belts

Students should be wary of enrolling in schools that are experiencing financial difficulties even if they’re not in imminent danger of closing. A college might adopt an austerity program to avert closure. Even if the school survives, an applicant’s education may be disrupted by the austerity measures, so students should investigate their impact and stay informed of the austerity programs at targeted colleges because cuts may include the degree programs, majors, courses, or activities in which the student is most interested.

Public institutions, even some large ones like Rutgers and Michigan, are also feeling financial pressure. States have reduced their education budgets in recent years. Many public systems have never fully recovered from heavy cuts made to their budgets during the Great Recession of 2009-10. These were followed by the pandemic, which caused another decline in state tax revenue and further budget cuts in education. Because of this combination of setbacks, it was inevitable that small state campuses would be endangered.