Perhaps the MOST important thing to consider when choosing a college

Parents Forum
1

<p>Their credit rating. Do you really want to hand over thousands of dollars to an institution that is on the verge of bankruptcy? </p>

<p>Colleges, just like households and businesses are under intense financial pressure. They need to keep up with the competition and build nice facilities and attract teaching talent. However at the same time they need to provide more financial aid and keep tuition increases down. Just like households and businesses, some are better at managing those challenges than others so some will go bankrupt and some will thrive. </p>

<p>Before you write that deposit check, are you sure the school is on a secure financial footing? How do you find out? Moodys.com. Moody's is a credit rating organization. You can register for free and check the rating of most institutions of higher learning. Along with a letter rating, it gives you some financial color on the outlook for the school- is their application pipeline strong, are they relying too much on tuition dollars for funding, unsustainable campus building program, etc. </p>

<p>Check it out.</p>

2

<p>This is particularly important when looking at smaller schools as they truly can tank. Though the UC system is going broke they say, and PA has been cutting money to their colleges, I don’t think these giant flagships are going to collapse. I’ve seen schools go under, and it seems like it tends to be the smaller privates. They don’t have the back up of government funds that the state schools do.</p>

3

<p>Size of endowment can answer a lot of these questions too. How many colleges have gone bankrupt in the past 5 years? Does anyone know?</p>

<p>Also realize that the lack of a credit rating doesn’t mean it’s a bad school, just that they choose not to disclose that information, just like a lot of companies choose not to disclose financial information.</p>

4

<p>Do the state schools really still have the back up of government funds?</p>

5

<p>mihcal1–not really. They experience cuts just like everyone else. Those cuts are passed along to the students in tuition increases or cut programs. They just have a base budget from the state----but if the state is broke, they don’t get any money either.</p>

6

<p>Actually, I should have written “big” state schools. I don’t guess the smaller ones are any safer than privates, though if one should close, the chances are pretty good that another state school would pick up the pieces for continuity. With privates, you are out of luck.</p>

7

<p>I don’t think we really know what would happen if a public flagship without a large independent endowment faced a life-or-death crisis. It would probably depend on the state and on how many flagship alumni were in the legislature.</p>

8

<p>The closest thing to that is the ongoing accreditation crisis at City College of San Francisco (a large community college). Enrollment dropped after news of that came out.</p>

<p><a href=“http://www.sfgate.com/citycollegeofsfaccrediation/[/url]”>http://www.sfgate.com/citycollegeofsfaccrediation/&lt;/a&gt;&lt;/p&gt;

9

<p>I agree that the smaller, younger, less prestigious schools are the ones most at risk. However you should check the rating of any school your’re considering.</p>

<p>It’s not just the risk of bankruptcy. If a school is having financial difficulty but surviving, do you want your child going there as the school defers building maintenance, skimps on the cafeteria food, increases class size, etc?</p>

<p>SteveMA: If the school borrows money i.e. issues bonds, they have no choice but to provide all the financial information necessary to be rated. The only way Moody’s would have no info on them would be if they never floated any public debt.</p>

10

<p>If they have never floated public debt that would be a good thing…</p>

<p>Honestly, none of the small private schools our kids looked at were hurting at all financially. The state schools however, were in horrible shape–dorms haven’t been updated at all, various arenas and other buildings in poor repair, etc.</p>

<p>D’s small private school has updated all the dorms in the past 10 years, 5 years for most of them. New buildings in the past few years. Generous merit aid for students. By far the least expensive school on their list. No Moody’s or S&P ratings. Not concerned at all.</p>

<p>One other school we looked at, again, not rated at all. I’ve never seen another campus in as good of shape as this one. EVERY building was new or newly remodeled within the past 5 or 6 years, the grounds were amazing, generous merit aid and financial aid, not a speck of dust anywhere either :D. It’s obvious that the school is well funded.</p>

11

<p>Some publics float debt through the state and use the state’s credit rating–do not have one of their own.</p>

12

<p>I believe the weakest colleges avoid issuing publicly traded bonds, and therefore don’t have a public bond rating. </p>

<p>Sometimes a college is sold. One of the for-profits bought a failing religious college just to be able to use their accreditation for their online diploma mill. Unfortunately, the accredition rules didn’t stop them.</p>

<p>Texas did propose to close a couple of public colleges a couple years ago for budget reasons. </p>

<p>Endowment can be deceiving. A college could have debt that is larger than their endowment. Some debt is fine - to construct a major needed building that will be used for decades. Other colleges are using debt to pay for more routine expenses.</p>

<p>Sometimes the endowment of a university-owned medical center is mixed in with the total endowment of a university. They really should be separated.</p>

<p>Some of the colleges with the fanciest and newest buildings may have the most severe debt problems. (I’ve also seen a couple affluent country clubs go out of business because they couldn’t pay for the huge new clubhouses that they had just finished.) </p>

<p>Also, when looking at endowment, you need to look at average endowment per full time equivalent student. The same endowment may be great for a small liberal arts college but horrible for a large university. </p>

<p>During the Great Recession, some colleges with huge endowments found that their investments were not liquid, and they had to go out and borrow huge sums of money to pay operating expenses. There are some suspicious that some colleges are still over-valueing their endowment investments, and are refusing to exchange any of their endowment assets, because then their true worth will be revealed. </p>

<p>If you can find a ratings report for a college, that can be interesting reading. One of the many things they look at is acceptance rate and yield rate. They want to see that a college could increase their enrollment by weakening their admissions standards, if they needed to do so in order to pay back their debt. The reports also may look at the average revenue generated per student - vs. how much the college needs to “discount” their tuition in order to enroll students.</p>

<p>I know of one college that has debt that involves interest-only payments for the first few years. After they have to start paying the principle back, it may be unpleasant.</p>

<p>By the way, the University of Virginia is one of only two public universities that has earned the top bond ratings from all three major debt-rating agencies.</p>

13

<p>Who is the other public U with the best bond rating, if UVA is one?</p>

14

<p>I believe it is Indiana University.</p>

<p>In any case, as of 2010, the following public universities had the top rating from Moody’s: Indiana University, University of Michigan, the University of Texas, the University of Virginia, the University of North Carolina, the University of Washington and Purdue University.</p>

15

<p>One of the reasons I didn’t suggest Bennington to my niece was that I worried it wouldn’t be around in 20 years. This is based on NO RESEARCH at all. Bennington may be in fine financial health but I worried about it.</p>

16

<p>Many of the less selective colleges are in a bidding way for students. They basically have to discount their price down to public colleges in order to attract the more qualified students.</p>