The number of degree-granting private colleges that failed the U.S. Department of Education’s “financial responsibility” score for the 2012 fiscal year was slightly higher than in the previous year, data released on Wednesday show.
Among nonprofit colleges, 118 failed to pass, compared with 116 in 2011. Among for-profit colleges, 50 had scores below passing, versus 34 in the previous year.
The scores, based on a calculation that takes into account such factors as colleges’ debts, assets, and operating surpluses or deficits, are devised for all private colleges that participate in federal student-aid programs.
The scores are also one of the few publicly available nationwide indicators of the financial health of private colleges. Colleges that get failing scores sometimes end up shuttered or sold soon afterward, although not always before the scores are public because of the time lag between the end of the fiscal year and the release of the scores. Indeed, the 2012 data show at least three colleges with failing scores that have or will soon merge or close: Chester College of New England, the National Labor College, and Virginia Intermont College,
A sortable table of degree-granting colleges for which the department published scores, prepared by The Chronicle, can be found here.
In recent years, organizations like the National Association of Independent Colleges and Universities and the National Association of College and University Business Officers have argued that the department’s calculation of the scores is inconsistent and sometimes in violation of its own guidelines. The groups and several colleges say the department has been unresponsive to their complaints.
Naicu officials said on Wednesday that they hadn’t yet had a chance to examine the 2012 scores to see if those concerns persisted. But they said they were surprised to see institutions like the University of Miami with a below-passing score. Miami—along with Texas Wesleyan University and Keiser University in Fort Lauderdale, Fla., a nonprofit that was once a for-profit—was one of 79 colleges that passed in 2011 but didn’t in 2012. Forty-five institutions that had a failing score in 2011 didn’t in 2012.
Costly Letters of Credit
Of institutions that failed to pass in 2012, 56 nonprofits and 23 for-profits had scores that the department considers still “financially responsible” but in a threshold zone that makes the institutions subject to additional monitoring and restrictions.
The other 62 nonprofits and 27 for-profits had scores below the threshold, which typically requires them to post letters of credit in order to continue to participate in the federal student-aid programs, an obligation that can be costly. The number of institutions facing the letter-of-credit requirement is up from the previous year, when 54 nonprofits and 25 for-profits scored that low.
The scores run from negative 1 to positive 3. Scores of 1.5 and above pass; those from 1.4 through 1.0, considered “in the zone” by the department, are subject to extra monitoring.
Bethel University of Minnesota is one of the institutions that have challenged how the Education Department calculates the scores. The university began fighting with the department last year, going so far as to get its congresswoman involved, over a score that Bethel says is based on an improper treatment of its pension liabilities.
The official listing of scores on the department’s website shows no entry for Bethel for 2012, but the department told the university last April that its score for that year was 0.4, which would have required it to obtain a costly letter of credit that it couldn’t afford. The university’s other option was to buy a less-costly letter for a smaller amount and admit that it had failed the financial-responsibility test. College officials said they could not make such an admission in good conscience.
For the 2013 year, Bethel has been told its score is 2.1, but it is not rejoicing. “We’re still fighting,” said its president, Jay Barnes, but so far the university has had little luck. The pension liabilities “are what caught us,” he said, because in essence the department is treating them as if the university would be responsible for paying out all of its pension obligations in a single year.
“We want a legislative remedy,” Mr. Barnes said on Wednesday. For a score to go from 0.4 to 2.1 in a single year, he said, “tells you that something is screwy.”
