The U.S. Department of Education on Tuesday released the names of the more than 550 colleges required to operate under more restrictive conditions and extra scrutiny because of concerns about their management or administration of federal financial-aid dollars.
The department’s extra scrutiny, known as heightened cash monitoring, “is not necessarily a red flag to students and taxpayers, but it can serve as a caution light,” Ted Mitchell, the under secretary of education, said in a written statement.
The department released the information following a report last week by Inside Higher Ed, which had filed an open-records request last summer seeking the names of the colleges on the list. That request was denied, and the department then failed to respond to the publication’s November appeal of that decision.
Of the 556 colleges on the list as of March 1, 69 face the stricter form of heightened cash monitoring known as HCM 2. Institutions under that level of scrutiny must first disburse to students the loans and grant money that they are entitled to, and must then provide detailed information on each recipient before being reimbursed by the department. The 69 institutions on the HCM-2 list include six public universities, 18 private nonprofit colleges, and 39 for-profit colleges in the United States, plus six institutions overseas.
Under HCM 1, colleges must also disburse the funds before getting reimbursed, but they don’t have to be as specific when seeking the reimbursements. All other colleges are allowed to operate on an “advanced pay” method, which allows them to receive the money they expect to award before they actually pay it out.
Like the “financial responsibility” scores the department calculates every year — which it began to make public in 2010 following open-records requests from The Chronicle — the list of colleges under heightened cash monitoring can be an indicator of financial or other problems facing colleges. Many colleges made the list, for example, because they had previously failed to pass the financial-responsibility test. Others are on the list because of unspecified problems with their accreditor or because they are under investigation by the Office of the Inspector General, an independent arm of the department.
In releasing the list, the department redacted the names of several colleges under monitoring that are now facing some form of investigation.
The monitoring list could be a better indicator of the overall health of colleges than the financial-responsibility scores because the heightened scrutiny can be applied to both public and private colleges. It also applies to institutions outside the United States that are eligible to award federal student aid.
The number of institutions now under HCM 1 or HCM 2 represents close to 10 percent of all colleges that participate in federal student-aid programs. Mr. Mitchell said that in deciding whether to release the list, the department had looked back on the number of colleges under monitoring in previous years and found that 10 percent was in line with earlier trends. He said there had been an “uptick” in the number under monitoring during the Great Recession, but that rise has since subsided.
The department now plans to release the list of colleges being monitored on a “regular” basis — though it did not say how often it would do so — as another indicator of the overall financial health of colleges.
‘Not an Indictment’
Department officials initially told Inside Higher Ed they wouldn’t disclose the names because doing so would “likely cause the institutions substantial competitive injury.” But Mr. Mitchell said the department had reconsidered and decided to release the names in the interest of transparency.
The department also took pains to note, as Mr. Mitchell said in a conference call with reporters on Monday, that being subject to heightened cash monitoring “is not an indictment” of a college. “It’s a suggestion that we as a department need to be paying attention.” In some cases, he noted, colleges are placed under the lesser of two heightened-cash-monitoring conditions, HCM 1, for “less troublesome” problems like failing to provide audits or financial statements in a timely fashion.
Colleges in the Minnesota State Colleges and Universities System appear on the list, for example, because the State of Minnesota, working through an accounting-system conversion, missed the deadline for submitting materials to the federal government. Laura King, vice chancellor for finance in the Minnesota system, said the colleges appeared on the list in the fall of 2013. Once on the list, a college remains there for five years.
“We’d rather not be on the list, but it hasn’t affected our service to students or our financial performance,” Ms. King said.
Newberry College, in South Carolina, also appears on the list, even though it received a letter from the department, dated March 4, saying that it was no longer subject to HCM 1.
Concerns Over Transparency
When the more-stringent HCM 2 is imposed, Mr. Mitchell said, it’s because of “serious concerns about the financial integrity of the institution or its administration.”
But Terry W. Hartle, senior vice president of the American Council on Education, said the criteria for placing colleges on HCM 2 are “not terribly transparent” to anyone outside the department. He said he strongly supports the department’s role in ensuring that colleges properly manage federal student-aid funds, but he believes the department relies too heavily on a flawed process for calculating financial-responsibility scores.
“The financial-responsibility regulations are seriously out of date and in urgent need of an upgrade,” said Mr. Hartle. The council and other groups have urged the department to undertake a review of the regulations, and the process for calculating the scores, but they say the department has not responded to those requests.
While the imposition of heightened cash monitoring is fairly routine, it became an issue last summer when the department imposed HCM 1 — plus an additional requirement of a 21-day delay of reimbursements — on Corinthian Colleges Inc., a for-profit-college company. The conditions, combined with the 21-day hold, left the company with such a severe cash crunch that it said it would not be able operate.
Within a few weeks, Corinthian and the department had negotiated a deal under which the company agreed to sell or close its American campuses, many of which were later acquired by the ECMC Group.
Casey Fabris contributed to this article.
Goldie Blumenstyk writes about the intersection of business and higher education. Check out www.goldieblumenstyk.com for information on her new book about the higher-education crisis; follow her on Twitter @GoldieStandard; or email her at goldie@chronicle.com.
