Methods you can use to evaluate a college’s financial health

Figuring out if a college is in good financial health can tricky. Here are some methods you can use:

1. Review bond rating reports

The easiest way to figure out a college's financial health is by knowing its bond rating. A college’s bond rating is essentially an its credit score. Two main agencies rate colleges: Moody's and S&P/Fitch (they use the same system) but sadly access to this information is aimed at institutions not interested parents. That said, googling ‘university-name bond rating' usually brings up a result.

The Rating Scale (Best to Worst):

Investment Grade = Financially Stable

Moody's → S&P/Fitch

• Aaa → AAA: The best. Rock-solid financial health (think Harvard, Yale, Princeton)
• Aa1, Aa2, Aa3 → AA+, AA, AA-: Excellent financial health with very low risk
• A1, A2, A3 → A+, A, A-: Strong financial health with low risk (most well-established colleges)
• Baa1, Baa2, Baa3 → BBB+, BBB, BBB-: Adequate financial health, but some vulnerability

Below Investment Grade = Financial Warning Signs

• Ba1, Ba2, Ba3 → BB+, BB, BB-: Speculative. Financial stress is present
• B1, B2, B3 → B+, B, B-: Significant financial risk
• Caa, Ca, C → CCC, CC, C: Serious financial distress. Default is possible or likely

What This Means for Families

Anything rated A or higher suggests financial stability. If a college is rated BBB or below, dig deeper into why.

Red flag: A college with a downward rating trend (like dropping from A to BBB over 2-3 years) or anything below Ba/BB.

2. Google “[college-name] financial”

You’ll have to wade through a lot of links to financial aid but if there’s been troubling news, it may surface.

3. Look at enrollment trends

Go to the Common Data Set (CDS) for the past 5 years and track:

• Is undergraduate enrollment declining?
• Is the freshman class getting smaller?
• Are transfer numbers increasing? (Sometimes used to fill revenue gaps)

There are only a handful of colleges that can survive many years of declining enrollment because they have such endowments, and those colleges aren’t really the ones with this problem. The relevant section is B1 and it's often easiest to google 'college name' + CDS rather than wade through the college's website.

4. Check the discount rate

The ‘discount rate’ is the rate that the college is discounting its listed tuition. You can probably get a sense of a college’s financial health without doing this calculation, but for those of you who want to get weedsy, I’ll walk you through it.

Download your college’s latest CDS (as above). You can follow along with the document I'm using. First go to Section H1, Aid awarded to enrolled undergraduates. Now let’s go to H1, Number of Enrolled Students Awarded Aid:
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Now go to B1, Institutional enrollment and look for total undergraduate enrollment (7,126):

Calculate and decode the discount rate

Undergraduate institutional aid ÷ undergraduate population = Average aid per student. In this case $147,713,730 ÷ 7,126 = $20,731. Now, perform this calculation: Average aid amount ÷ Tuition = Discount rate. In this case, $20,731 ÷ $71,982 = 29%. Do this for 3-5 years of CDS data to see what trend emerges. A discount rate snapshot matters less than its trajectory over 3-5 years. An upward trajectory plus declining enrollment is a red flag, particularly if the rate is already on the high side.

Pro tip: use an AI shortcut

Try throwing the CDS into an AI with this prompt:

I’m interested in calculating this college’s discount rate. In order to do that, perform these calculations: Undergraduate institutional aid ÷ undergraduate population = Average aid per student. Then, Average aid amount ÷ Tuition = Discount rate

You can find the information in these sections:

• Undergraduate institutional aid - Section H1, the Institutional row, adding both need-based and non-need based together.
• Undergraduate population - Section B1, ‘Total all undergraduates’ amount
• Tuition - Section G1, ‘Undergraduates’ amount