Ranking Colleges by Financial Health

Mark J. Drozdowski, Ed.D.
By
Updated on September 11, 2024
Edited by
Why do the nation’s wealthiest universities not top a ranking of schools according to financial stability?
Featured ImageCredit: George Frey / Bloomberg / Getty Images
  • A new Forbes ranking evaluates colleges and universities according to their financial health.
  • Criteria include endowment per student, operating margins, and instructional expenses.
  • Colleges are awarded letter grades and grade point averages.
  • The ranking offers some counterintuitive results.

Any list of universities ranked by financial health must start with Harvard and its $50 billion endowment, right?

Nope.

What about Princeton, which boasts the highest endowment per student in the nation? Not even close.

Yale? Please.

An Ivy did earn top honors, along with one other school, but this new ranking by Forbes contains plenty of surprises.

Which Colleges Earned Top Financial Honors?

Leading the way are the University of Pennsylvania and Brigham Young University, both of which earned a 4.5 “grade point average” and a grade of A+.

Claremont McKenna College, ranked third, earned a 4.43 GPA.

Among the other 24 institutions earning an A+ grade are Cornell University, Stanford University, and Duke University, plus some less obvious schools such as Hillsdale College and Johnson C. Smith University.

Brigham Young’s Hawaii campus also earned an A+.

Harvard received a grade of A and a GPA of 3.98, edging out the Massachusetts Institute of Technology, the school with the sixth-largest endowment in the nation, by one-hundredth of a point.

Joining them in the “A” category are Mesivta Torah Vodaath Rabbinical Seminary and New Orleans Baptist Theological Seminary, institutions that, one might assume, aren’t accustomed to being juxtaposed with these Cambridge neighbors.

Nor do they normally rank ahead of Princeton, which, in this case, earned an A- and a GPA of 3.67. Its entering students have a higher academic profile.

Coming in just ahead of Princeton is Berea College in Kentucky, a small school with a substantial endowment per student and the nation’s highest share of Pell Grant recipients.

Appearing down the list are a few other surprises. The California Institute of Technology, another school with a large endowment per student, earned a B+. Sheldon Cooper would be chagrined.

The University of Richmond, with its $3.2 billion endowment and an enrollment under 4,000, got a B, as did Boston University, Georgetown University, and New York University.

Syracuse University, with a B-, landed one notch above Hampshire College, which almost closed and continues to struggle.

Fordham University fared even worse, earning a GPA of 1.61 and a C-, the same grade given to Rensselaer Polytechnic Institute. Both have endowments approaching $1 billion.

At the bottom of the list, Forbes identifies several “dunces” with D grades, including Hastings College, Georgetown College, Virginia Wesleyan University, and Bethel University.

The class clown in terms of financial grades, however, is Sterling College, which, despite its name, garnered a GPA of only 0.61 and a spot on academic probation.

How Forbes Calculated the Rankings

Any astute reader has likely noticed by now that all these institutions share something in common: They’re all private.

That’s because Forbes decided to rank only private colleges and universities, perhaps in order to remove variables related to state funding.

Using 2021-22 data from the National Center for Education Statistics, Forbes ranked 876 institutions enrolling at least 500 students. Of those, 55%, or 480, earned a grade of C or worse, compared to 20% in 2021, Forbes notes.

Another 182 earned a D, a dramatic increase from the 20 that did in 2021. Forbes calls this a “return to normal” following a stock market spike and an infusion of COVID-19 stimulus cash.

To arrive at its rankings, Forbes examined 19 variables and employed a methodology consisting of nine factors.

One is endowment per student, which accounts for 17.5% of the total score. Forbes calls it “the most important determinant in a college’s long-term financial health.” Yet a high score on that count evidently wasn’t enough to vault Princeton, the clear leader in this category, above an A-.

Another factor is the primary reserve ratio (15%), which measures a college’s liquidity. Forbes points to Grinnell College as an example of an institution excelling in this regard thanks to its $2.5 billion endowment guided by Warren Buffet’s sage investment advice. Grinnell, Forbes notes, could cover 16 years of expenses with its current assets, though it continues to charge tuition.

Also counting for 15% of the score is the measure of tuition as a percentage of core revenues, which penalizes colleges that rely too heavily on tuition income to operate.

An institution’s viability ratio and core operating margin each account for 10%. The former looks at assets divided by liabilities, a measure on which Penn fared somewhat poorly, though evidently not enough to knock it off the top spot. The core operating margin really gets into the weeds, but suffice it to say that’s one area where Brigham Young shines.

A college’s return on assets (10%) is essentially a measure of stock market performance and fundraising totals.

Two other criteria, instructional expenses per student and the percentage of first-year students getting aid, each count for 7.5%. The first is a rather straightforward assessment of how much universities invest in teaching and learning. Coming out on top in this regard is Washington University in St. Louis.

But the other measure is somewhat baffling. Forbes actually penalizes institutions for handing out too much scholarship aid to students, or, to use the vernacular, offering tuition discounts. Helping students with generous amounts of aid may appear generous, but “an unusually high percentage in this category can often be more indicative of desperation to entice students to enroll,” Forbes claims.

The final criterion is also a bit of a head-scratcher. Admissions yield, the percentage of accepted students who enroll, counts for 7.5% of the score, even though, unlike the other measures, it doesn’t involve finances. Forbes claims a high yield “is a sign of a healthy enrollment.” That may be, but popularity doesn’t necessarily equate to financial stability.

Bryn Mawr College earned a GPA of 4.33 and an A+ rating but has a yield of 32%, less than half of what some of the Ivies boast. CalTech, which earned a B+, has a yield rate that is twice as high.

Having a high yield clearly aided Brigham Young’s ascension. The school’s rate of almost 80% is consistently one of the nation’s highest. For Mormon students, it’s quite often the top choice.

While it’s somewhat evident why certain schools earned high marks, it would be nice to know why some elite institutions ranked comparatively low. What accounted for Princeton’s A-? Or Harvard’s and MIT’s GPA in the 3’s? Given how one assumes these schools should rate on these measures, the results are counterintuitive.

At the same time, why do some schools seemingly overachieve? Hollins University, with an endowment of about $220 million, manages to sandwich itself between Stanford and Duke. A few more explanations could help solve some mysteries.

For students and families making college decisions, the Forbes rankings provide yet another tool they can consult when comparing institutions, peculiar results notwithstanding.