At Odds Over Accounting: Examples That Critics Cite as Errors

The U.S. Department of Education calculates Financial Responsibility Composite Scores, on a scale of 3.0 to minus 1.0, for all institutions participating in federal student-aid programs. Colleges with scores below 1.5 face additional requirements, such as providing letters of credit. Several colleges and higher-education groups contend that the department is misapplying its formula in several ways, and that, as a result, the scores are inaccurate. Here are two ways the department is in error, according to the groups.

Treatment of Endowment Losses

The value of Converse College’s endowment dropped from $71.4-million to $52.9-million between June 2008 and June 2009. The South Carolina college says the department’s decision to add the $18.5-million in losses on paper to the $26-million of the college’s actual annual expenses for the year turned a composite score that should have been a passing 2.2 into a failing 0.6.

Treatment of Long-Term Obligations

The department required Dallas Theological Seminary to factor all $7-million of its unfunded long-term pension liability into one of three ratios, rather than counting just its actual expenditure of $1.3-million for the costs of pension payments in the 2009 fiscal year. The seminary says the requirement lowered the institution’s score from a passing 1.5 to a failing 1.0.