College 101
Why Your College Is Going Broke Article Type: Quick and Dirty
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Sometimes it's hard to think of your dream school as a business with financial responsibilities and debts of its own. Sure, Yale probably doesn't hit up its parents for book money until the loan check clears, but colleges are increasingly susceptible to economic forces. Those forces can sometimes—as in the recent case of Sweet Briar Women's College—lead to closing up shop and letting the ivy grow everywhere. Everywhere.
Roughly 13.7 million undergraduates attended U.S. colleges and universities in 2014 (source) and the overall cost of college has increased 3.2% for four-year public schools and 10% for private schools in the last five years alone (source). This means that there are a large number of students paying ever-steeper sums of money.
So why are colleges going belly-up?
Well, the increase in the net price of college hasn't risen as sharply when you consider grants and tax benefits. In fact, students receive, on average, a 45% discount on tuition (source). If relatively few students are paying the sticker price, then it's not hard to see why tuition revenue fell roughly 15% for public universities and 18% for private universities in 2013 (source).
It's a snake-eating-its-own-tail type of situation. Schools steeply discount their tuition in order to get bodies in the doors...but then with this decrease in income, they fail to keep the doors open at all.
Smaller private colleges are perhaps most susceptible to financial ruin, but the problem is widespread. One-third of colleges in the U.S. have decreased post-recession financial ratings (source). Even public universities are facing less state funding than they did thirty years ago. So apparently, not everything comes back into style eventually.
The news is troubling, but don't throw your stuff into a bindle and hit the road just yet. Larger schools with more significant endowments are better-protected from immediate financial troubles, as are state schools, despite their own particular funding woes. Don’t worry—nobody’s coming to throw you off of Berkeley's gorgeous campus.
However, it is wise to research the financial fitness of your school of choice. Try to find a sweet spot between a school with a price tag that makes you woozy and one that's promising you discounts so deep that they're burying themselves.
If you apply a little common sense, some proactive research, and dash of good luck, you won't have to transfer out of a boarded-up school.
Happy colleging, Shmooper.