How Can You Find the Financial Health of a College?

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  • 0:02 Financial Health
  • 1:11 Importance
  • 3:00 Warning Signs
  • 4:59 Lesson Summary
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Lesson Transcript
Instructor: Natalie Boyd

Natalie is a teacher and holds an MA in English Education and is in progress on her PhD in psychology.

Colleges vary in how healthy their finances are. In this lesson, we'll explore the financial health of various colleges, including why it is important to prospective students and warning signs that a college might be in financial trouble.

Financial Health

Shane is getting ready to go to college. He's very excited, but he's also a little nervous because one of his friends showed him an article that said that many colleges are not financially healthy. What does that mean? And should Shane be worried about it?

The financial health of a college involves looking at whether the college can continue to provide educational services in the future based on their current finances. Essentially, it's a way of seeing how good a college is doing in the money department.

There are three possibilities for any institution when it comes to finances. They can operate at a loss, which means that they are spending more than they make. They can break even, which means that they are spending exactly what they make. Or they can make a profit, which means that they are spending less than what they make.

If a school is financially healthy, they are making a profit or breaking even. But if a school is operating at a loss, they are in dangerous financial waters. Let's look closer at why it's important to choose a school with solid finances and how to find out if a school is in financial trouble.

Importance

Okay, so Shane understands that schools can operate at a loss, break even or make a profit. But does that really matter? After all, he's going to college to get a degree in biology, not economics!

The truth is that the finances of a school do matter. For most reputable schools that make a profit, that money goes back into the school. It could mean additional services for students, improvements to the campus or recruitment of better (and higher-paid) professors. Basically, you want your school to be making more than they spend!

But what if Shane's school is operating at a loss? Will that impact him? Most likely, yes. The first thing that happens when schools begin to operate at a loss is that they cut back. This could mean that scholarships and grants aren't renewed in subsequent years. So, the scholarship that Shane is offered now might not be there for him in his second or third years at the school.

If a school continues to operate at a loss and their finances get worse and worse, they might have their accreditation, or the process of validation by an independent organization, suspended. This means that they lose their rights to federal and sometimes state financial aid. So, if Shane's school's finances are bad enough, they could lose their accreditation, which could lead to Shane not being able to use student loans to go there.

Not only that, but accreditation is a sign of educational quality. If a school loses their accreditation, the degrees from that school are devalued. Many employers won't consider a degree from a non-accredited school as a 'real degree.' Even if Shane is able to continue with his education after his school loses accreditation, he could end up with a degree that's not worth very much.

Warning Signs

As you can tell, the financial health of a college is very important! But how can Shane know if his college's finances are in trouble?

There are some warning signs, which signal that the college might be in financial trouble, that Shane can look out for.

1. Fewer classes offered less frequently.

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