By one measure at least, the 2012-13 academic year was a healthier year financially for private colleges than 2011-12 was. Fewer degree-granting colleges missed the passing mark on the Department of Education’s financial-responsibility test that year, according to a Chronicle analysis of data the department released Thursday night.
A total of 158 private colleges—108 of them nonprofit, the rest for-profit—failed to achieve a passing score on the department’s test of financial health. (See an interactive table of scores for all 1,880 institutions in the latest test, below.) That’s 10 fewer than in the 2011-12 academic year.
The department calculates the scores by taking into account such factors as colleges’ debts, assets, and operating surpluses or deficits, and developing a single composite score for each institution. The latest scores cover institutions’ fiscal years ending from July 1, 2012, to June 30, 2013. For colleges whose fiscal year ends on July 1 or later, the data cover their 2012 fiscal years. For colleges whose fiscal year ends before July 1, the data are for 2013.
The scores were designed as a tool to help with oversight on federal student-aid funds, but they also are one of the few publicly available nationwide indicators of the financial health of private colleges.
Although the scores often highlight financial problems that are a precursor to colleges’ being sold, merged, or closed, they aren’t always a perfect predictor. For the 2013 year, Sweet Briar College got the highest possible score, yet this week college leaders announced that the institution would close at the end of this academic year because of “insurmountable financial challenges.”
With its release of the latest list, the department also notes that the “composite scores are only one of several factors that the department uses to assess an institution’s financial-responsibility compliance.”
In recent years, groups like the National Association of Independent Colleges and Universities and the National Association of College and University Business Officers have complained that the department does not follow its own rules when calculating the scores, a concern that they say continues to this day. A fix for the score process is also a high priority for higher-education groups that have urged Congress and the department to streamline federal regulations affecting colleges.
All private colleges that participate in the federal student-aid programs receive a score annually. The scores range from minus 1 to 3. Scores of 1.5 and above are considered passing.
Of the 108 nonprofit colleges that failed to hit that mark, based on their financial condition at the close of their 2012-13 academic year, 58 had scores so low (below 1.0) that they would typically be required to post a letter of credit with the department in order to continue to participate in the federal student-aid programs. The same is true for 36 for-profit colleges on the latest list. Last year 62 nonprofits and 27 for-profits were in that position.
The rest, with scores from 1.0 through 1.4, are in a category the department calls “in the zone,” which means they are subject to additional monitoring to remain eligible. For the 2012-13 academic year, a total of 64 were in that category—50 nonprofit and 14 for-profit colleges, fewer in each case than in 2011-12, when 56 nonprofits and 23 for-profit institutions came up “in the zone.”
