Gordonstoun - the private school famous for educating generations of royal children - has run up a pound;3 million overdraft.
Troubles began after it bought a failing girls' school in Hampshire. Within four months of taking on North Foreland Lodge in April 2002, Gordonstoun's governors had approved payments of almost pound;2m to clear its debts.
During the following academic year the situation worsened as pupil numbers at the Hampshire school fell from 174 to a handful of exam-year girls.
Gordonstoun had spent pound;3m on the venture when the school closed in August.
Hugh Brown, Gordonstoun's financial director, told The TES the school was now on the market. He expected it to be sold by Christmas, helping to clear Gordonstoun's overdraft. He said the recent financial problems had not all been caused by the purchase of North Foreland Lodge.
Gordonstoun's latest accounts for the period to August 2002, showed an overdraft of pound;3.2m. Its total financial obligations, including fees paid in advance by parents, totalled pound;5.9m. Boarding costs up to pound;22,062 a year.
The deficit had been compounded by a drop in pupil numbers during 2001, Mr Brown said. Numbers fell to 405 but rose again the following year to 452.
"I am pleased to say that although in the period to August 2003 we still made a loss it is drastically reduced, and we will be in surplus next year," he said.
"Last year was a very bad year but this year was very much improved. Some public schools are ecclesiastical foundations from the middle ages and are fabulously rich. Gordonstoun was started 70 years ago next year by an impoverished German Jew."