More than 150 degree-granting colleges failed the U.S. Department of Education’s “financial responsibility” test for the 2011 fiscal year, data released on Monday show.
The number of nonprofit degree-granting institutions that flunked in that year, 116, was lower than in the 2010 fiscal year, when 150 nonprofits and 30 for-profits had failing scores.
Of those failing in the 2011 fiscal year, 54 nonprofit institutions and 25 for-profits had scores below the threshold that requires them to post letters of credit in order to continue to participate in federal student-aid programs. The rest were subject to additional monitoring by the department.
A sortable table with the scores for all degree-granting nonprofit and for-profit colleges, prepared by The Chronicle, can be found here. Public universities are not subject to the financial-responsibility requirements.
The scores are one of the few broad-based nationwide indicators of private colleges’ financial health, although for two years groups like the National Association of Independent Colleges and Universities and the National Association of College and University Business Officers have contended that the Education Department calculates them in an inconsistent and erroneous manner and has been unwilling to reform its practices.
Frustrated by what they consider “dismissiveness” by the department, Naicu officials said this month that they would ask Congress to reform the calculation as part of the next reauthorization of the Higher Education Act.
Financially Fragile Institutions
Naicu and the Council of Independent Colleges have also noted that many institutions that fail the test are not necessarily in imminent danger of closing. In some cases a low score results from a dip in the endowment at the end of a fiscal year or the particular way a financial transaction is accounted for.
Still, some for-profit colleges and investor groups have made it a practice to scour the list in search of financially fragile institutions ripe for acquisition. Waldorf College and National Hispanic University are two institutions that received failing scores before being acquired. Others, like Dana College, made the list and subsequently closed.
(In a letter to Naicu written in May and made public this month, Martha J. Kanter, the under secretary of education, said 73 nonprofit colleges had received below-passing scores in the 2011 fiscal year. It could not be immediately determined what criteria she had used to arrive at that number, so the discrepancy between that figure and those in The Chronicle’s analysis could not be resolved. [The department provided on Tuesday an explanation that is described in this new article.])
The new list of failing institutions includes Concordia University of Michigan. This month the university’s accreditor approved a deal that allowed the institution to be acquired by Concordia University of Wisconsin. Officials said the Michigan institution “could not obtain needed cash flow.”
A Push for Greater Transparency
The scores are calculated on the basis of three financial ratios derived from such factors as colleges’ debt, assets, operating surpluses, or deficits. All colleges that participate in federal student-aid programs provide the information to the department in audits they complete at the end of their fiscal year, which is typically June 30.
The final “composite score” runs from negative 1.0 to positive 3.0. A score greater than or equal to 1.5 indicates the institution is considered financially responsible. Colleges below 1.0 are typically required to post letters of credit equal to 10 percent to 50 percent of the amount of federal student aid they receive.
The Chronicle began publishing the list of colleges with failing scores in 2009, and the department subsequently started publishing the scores itself for all institutions, saying it was part of a push for greater transparency.
In the past the department published the scores within 16 months of the end of the colleges’ fiscal year. For the 2011 fiscal year, it took more than 24 months. Three weeks ago, when The Chronicle inquired again about the delay, department officials said they had held off publishing the 2011 scores because some were still being appealed.
In releasing the 2011 scores on Monday for all private colleges (not just degree-granting ones), the department said it had omitted the scores of colleges for which appeals were still pending.
The department is also in the midst of processing appeals on scores for the 2012 fiscal year.
Brian O’Leary and Josh Hatch contributed to this article.
Correction (7/23/2013, 11:55 a.m.): Because of an editing error, this article originally stated that the Education Department had omitted dozens of colleges for which appeals were pending. It should have said that the department had omitted the scores of such colleges. The article has been updated to reflect this correction.
