Warning Signs of a College Closing Its Doors Permanently

By on April 7, 2020

Many of the colleges and universities that provide the best merit scholarships are institutions that aren’t widely known.

In contrast, some of the most highly recognized schools, such as the Ivy League institutions, as well as the Massachusetts Institute of Technology, the California Institute of Technology and Stanford University don’t award any merit scholarships. These highly sought-after schools can charge full price to well-off students and still have no problem filling their seats.

Most colleges, particularly private institutions, have to hustle to fill their freshman slots each year which is why the vast majority of students at these schools receive a significant tuition discount whether in the form of need-based financial aid or merit scholarships.

While capturing a college price break can be extremely helpful in an age when sticker prices are sky high, families sometimes worry about the viability of schools that aren’t brand names. This concern is understandable because more schools are experiencing financial difficulty, and some are shutting their doors.

An excellent shortcut to determine if a school is financially stable is to consult Forbes magazine’s annual report called College Financial Health Grades. A built-in search function in the online report allows you to discover the financial grade of more than 900 private, nonprofit colleges and universities that have at least 500 students.

The highest grade Forbes awarded was an “A+” that only 34 schools received. In contrast, 177 schools received a “D” rating which was the lowest possible rating.

Forbes used nine factors to evaluate each college. Here are some of the factors:

Tuition as a percentage of core revenues. Schools that depend on tuition revenue rather than endowment assets are at greater risk.

Core operating margin. This measures how well a college is meeting its annual obligations, like instruction expenses and student services, from its tuition, grant, gift, contract and investment revenue. In the report, 384 schools had negative margins. Schools that shined in this category were the California Institute of Technology and Grinnell College, a liberal arts college in Iowa that used to have Warren Buffet on its investment board.

Admission yield. This measurement indicates how many students who get into a college end up attending. Near the top was College of the Ozarks, a work college, with an average yield of roughly 89%. In contrast, Drexel University in Philadelphia had a yield of less than 20%.

Number of students. Families should also be wary if the school is small. While smaller colleges can be appealing for their small class sizes, those that have fewer than 1,000 students merit stronger scrutiny. Another red flag is a school that has been experiencing declining enrollment.

If you are a parent or grandparent sending a student to college, feel free to reach out to one of our advisors for guidance on your financial plan.

Learn More

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