College Mergers and Closures: Warning Signs to Watch

Choosing a college used to be about finding the right academic fit and campus culture. Today, students and families must also act as financial auditors. A wave of closures has shaken the higher education sector, leaving students stranded and degrees in limbo. By understanding the warning signs of financial instability, you can protect your investment and ensure the school you choose will survive until graduation day.

Why Small Private Colleges Are Struggling

The headlines in 2024 were alarming. Institutions with over a century of history suddenly locked their doors. The primary driver of this crisis is a combination of demographic shifts and economic pressure.

There are simply fewer 18-year-olds in the United States today than there were a decade ago. This phenomenon, often called the “enrollment cliff,” means colleges are fighting over a shrinking pool of students. For small private colleges that rely almost entirely on tuition revenue to pay the bills, a drop of even 50 or 100 students can be catastrophic.

Recent closures highlight how quickly this happens. Birmingham-Southern College in Alabama closed in May 2024 after years of financial struggles. Similarly, Wells College in New York and the University of the Arts in Philadelphia announced abrupt closures in the same year. In the case of the University of the Arts, students were given only seven days’ notice before the school shut down, creating chaos for current students and incoming freshmen.

Critical Warning Signs of Financial Distress

You do not need to be an accountant to spot a college in trouble. Most failing institutions display visible symptoms years before they actually close or seek a merger.

consistently Declining Enrollment

If a college has fewer than 1,000 students and that number has dropped steadily over the last five years, you should be cautious. Small schools lack the “economy of scale” to maintain facilities and pay staff without a full roster of tuition-paying students. You can usually find this data in the school’s “Common Data Set,” which is often published on their website.

High Acceptance Rates and Deep Discounting

Desperate colleges often accept nearly every applicant to fill seats. While a high acceptance rate seems welcoming, it can indicate that the school cannot afford to be selective.

Furthermore, look at the “tuition discount rate.” This is the difference between the sticker price and what students actually pay. If a college advertises tuition of $50,000 but gives almost every student a $35,000 scholarship, they are generating very little actual cash. According to the National Association of College and University Business Officers (NACUBO), average discount rates at private colleges hit a record high of roughly 56% recently. Schools discounting significantly higher than this average are in a precarious position.

Administrative Turnover and Delayed Audits

Stability starts at the top. If a university sees a rapid succession of presidents, provosts, or chief financial officers (CFOs) leaving within a short period, it suggests internal turmoil.

Additionally, pay attention to news regarding financial audits. The Department of Education requires colleges to submit annual financial statements. If a school is late filing these reports, it often means they are struggling to balance their books or are in a dispute with their auditors regarding their ability to continue operating.

How to Check a School's Health

There are concrete metrics and public databases you can use to verify the stability of an institution.

The Financial Responsibility Composite Score

The U.S. Department of Education gives private non-profit colleges a score ranging from -1.0 to 3.0.

• 1.5 to 3.0: The school is considered financially responsible.
• 1.0 to 1.4: The school is in the “zone” and requires additional oversight.
• Below 1.0: The school is not considered financially responsible and must post a letter of credit to receive federal financial aid funds.

You can search for “FSA Data Center Financial Responsibility Composite Scores” to find the latest spreadsheet. While the data usually lags by a year or two, a score consistently below 1.5 is a major red flag.

Endowment Size

An endowment acts as a savings account for the college. Wealthy institutions like Harvard or Stanford have billions in the bank, making them immune to closure. However, many small colleges have endowments under $50 million. If a school has a small endowment and draws from it heavily just to keep the lights on, they are eating into their principal. This is unsustainable.

Accreditation Probation

Schools must maintain accreditation to offer federal financial aid. Regional accreditors, such as the Higher Learning Commission or the Middle States Commission on Higher Education, will place schools on “probation” or issue “show cause” orders if they doubt the school’s financial viability. This information is always public. If a school is on probation, it is facing a life-or-death crisis.

Mergers vs. Closures: What is the Difference?

Not all financial trouble ends in a total shutdown. Many schools are opting for mergers to survive.

Mergers usually involve a larger university absorbing a smaller one. For example, Saint Joseph’s University acquired the University of the Sciences, and Villanova University acquired Cabrini University. In a merger, the smaller campus might remain open as a satellite location, or it might be sold off. Crucially, current students are often provided a clear path to finish their degrees at the acquiring institution.

Closures are far more damaging. When a school like The College of Saint Rose closes without a merger, students are forced to transfer. The closing school creates “teach-out agreements” with partner institutions to accept the students, but the transition can be difficult. Credits may not all transfer, tuition at the new school might be higher, and the specific degree program might not be available.

How to Protect Yourself Before Enrolling

If you are looking at a small private college, take these steps to safeguard your education:

1. Ask Direct Questions: During the admissions process, ask about the school’s 5-year strategic plan and enrollment trends. Listen to whether they give vague answers or concrete data.
2. Check the “Teach-Out” Plan: While uncomfortable to ask, inquire if the school has existing transfer agreements with other nearby universities.
3. Diversify Applications: Do not apply only to small, tuition-dependent private schools. Include at least one large state university or a community college in your list of options as a safety net.

Frequently Asked Questions

What happens to my student loans if my college closes? If your school closes while you are enrolled or shortly after you withdraw, you may be eligible for a “Closed School Discharge.” This federal program forgives 100% of the federal Direct Loans taken out to attend that school. However, if you transfer your credits to a new school and finish your degree there, you generally cannot get the loans discharged.

Will my credits transfer if my school merges or closes? It depends. In a merger, the acquiring school usually honors the credits. In a closure, the school negotiates teach-out agreements with other colleges to accept the credits. However, if you try to transfer to a school that was not part of the agreement, you may lose credits, particularly for specialized upper-level courses.

Is there a list of colleges at risk of closing? There is no official government “watch list” for closures. However, higher education news outlets like Inside Higher Ed and The Chronicle of Higher Education track mergers and closures regularly. Forbes also publishes a “College Financial Grades” list that ranks schools on financial health, which serves as a useful reference point.