The Financial Risk No One Mentions When Building a College List

Families vet a college's academics, campus culture, and price tag — but almost no one checks whether the institution can afford to stay open. In a sector where colleges are closing at the rate of roughly one per week and all three major credit rating agencies have issued negative outlooks, that oversight is a strategic mistake.

In 2025 alone, sixteen non-profit colleges closed. Moody's, Fitch, and S&P have all downgraded the sector. The Hechinger Report's financial fitness analysis found that 182 private colleges now carry a D grade for financial health — up from just 20 in 2021. This is not a fringe concern. It belongs in every family's college admissions evaluation.

The Merit Aid Trap

The average tuition discount rate at private nonprofit colleges has hit 56.3%, according to NACUBO (the National Association of College and University Business Officers). The typical student pays less than half the sticker price.

That sounds like a good deal – until you ask where the money comes from. Only about 12 percent of institutional grant funding comes from endowment earnings. The remaining 88% is foregone tuition revenue – money the school simply agrees not to collect. A school with a $65,000 sticker price discounting at 56% collects roughly $28,600 per student. For many institutions, that does not cover the actual cost of education.

No single school can stop discounting without losing students to competitors who still offer large awards. So schools keep discounting, keep drawing down reserves, and keep deferring the maintenance, staffing, and technology investments that define the student experience. A Higher Ed Insights analysis of 44 private colleges in New England found 15 facing serious liquidity challenges and six already drawing endowments at 12.7% annually – more than double the sustainable rate.

The scholarship letter does not mention any of this.

Why the Pressure Is Accelerating

These financial strains are converging. The number of high school graduates peaked in 2025 and has entered a 15-year decline, according to NPR's analysis of WICHE data — with projected drops of 32% in Illinois, 29% in California, and 27% in New York by 2041. At the same time, the One Big Beautiful Bill Act eliminates Graduate PLUS Loans for new borrowers effective July 2026, caps Parent PLUS Loans at $20,000 per year, and tightens Pell Grant eligibility. Pew Research projects as many as 150,000 fewer international students for 2025–26 — students who typically pay full tuition.

The Federal Reserve Bank of Philadelphia modeled a worst-case scenario: if enrollment drops 15%, up to 80 additional colleges could close per year, displacing over 100,000 students.

How Families Can Check

Here is a practical framework for evaluating any school's financial health:

• [Department of Education Financial Responsibility Scores](https://studentaid.gov/data-center/school/composite-scores) — Free composite scores on a scale of -1.0 to 3.0. A score below 1.5 warrants scrutiny; below 1.0 signals serious concern.

• [IPEDS](https://nces.ed.gov/ipeds) (the federal Integrated Postsecondary Education Data System) — Three or more years of declining enrollment is a red flag. A drop of 10 percent or more over a short period signals real pressure.

• [Hechinger Report Financial Fitness Tracker](https://hechingerreport.org/special-reports/colleges-in-crisis/) — A free stress test for public and private colleges, drawing on multiple financial indicators.

• [ProPublica Nonprofit Explorer](https://projects.propublica.org/nonprofits) — Tax filings, revenue sources, and 12-year trends for any nonprofit institution.

• Operational red flags — Leadership turnover, program eliminations, faculty layoffs, and accreditation warnings. A quick search of any school's name plus "financial" in Inside Higher Ed often surfaces what the school's own marketing will not.

Be especially skeptical of unusually large merit awards from schools with declining enrollment. A $30,000 scholarship from a school discounting at 65% is not generosity — it is recruitment desperation.

Build Financial Safety Into Your College Application Strategy

This does not mean families should only apply to large, wealthy institutions. Some of the best educational experiences in the country happen at smaller colleges with strong missions and engaged faculty. But financial viability deserves a place in the college admissions evaluation – alongside academics, culture, and fit.

Admissions professionals are introducing a concept that did not exist five years ago: the "financial safety." Not just a school you can afford – a school stable enough to still exist and function well four years from now. If a school fails multiple financial health checks, treat it as a risk from a viability standpoint and make sure your list includes stable alternatives.

Run every school on your list through the DOE composite score and the Hechinger tracker before you finalize applications. Diversify by institutional type – include at least one well-funded public university and one school with a strong endowment relative to its student body. Ask direct questions on campus visits: What is your enrollement trend? Where is your institutional aid funded from? Have you cut programs in the last three years?

The data is available. The tools are free. And the stakes – four years of your student's life and a significant financial investment – are too high to leave to chance. If you need help building a college list that accounts for financial viability alongside fit and admissions strategy, JRA Educational Consulting can help.