• November 29, 2014

149 Nonprofit Colleges Fail Education Department's Test of Financial Strength

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A total of 149 private nonprofit colleges failed the U.S. Department of Education's "financial-responsibility test" based on their condition in the 2009 fiscal year, data released on Thursday show. That's 23 more than the 126 that failed the test in the 2008 fiscal year, and an increase of about 70 percent over the number of degree-granting institutions that failed two years ago.

Chronicle Chart: See which colleges failed to make the grade.

The colleges include small, religious institutions like Crossroads College, in Minnesota, and Concordia Seminary, in Missouri; specialized institutions like the Pennsylvania Academy of the Fine Arts, the Milwaukee Institute of Art & Design, and the Dorothea Hopfer School of Nursing, at Mount Vernon Hospital, in New York; and several residential and liberal-arts colleges, including Belmont Abbey, Bethel, Guilford, Harcum, Keuka, and Ripon.

Among for-profit colleges, 37 failed the test for 2009, 11 fewer than for 2007. Nine of them had the lowest possible score.

Colleges that fail the test are subject to additional federal scrutiny of student-aid funds and, in cases of the lowest scores, extra financial obligations.

More than a third of the nonprofit colleges that failed the test in 2009 are located in nine states in the Midwest, with 13 in Illinois, the analysis showed. Another 13 are in Pennsylvania, 12 in New York, and 11 in California. (See interactive map for details on past three years.)

A Chronicle analysis also found that 34 of the nonprofit institutions on the list for 2009 failed the test in each of the previous two years as well. (The accompanying interactive table shows scores for all degree-granting institutions that failed the test in any of the three years, as well as the number of years in which they've done so.)

Failing the test is typically an indicator of a college's overall financial fragility. But for 2009, several of the nonprofit institutions said their presence on the list was due chiefly to steep declines in their endowment values. "If the market hadn't gone down, we wouldn't be a one," said Mary M. de Regnier, vice president for finance at Ripon College, referring to its score. Ripon fell below the passing score of 1.5 but above the level at which it would be required to post a letter of credit with the Department of Education. The college said it could do so without hurting its liquidity.

Rockhurst University, in Missouri, which scored 0.9, said endowment losses, the way it accounts for interest contracts on its debt, and a training company it owns that "racked up a loss last year," as the economy faltered, were all factors in its low score. "We'll be better this year," said Guy Swanson, vice president for business and finance.

Scores, which run from minus 1.0 to 3, are based on a calculation that takes several factors into account, including debt, assets, and operating deficits and surpluses.

Takeover Targets?

A failing score has also become a signal to investors that an institution could be ripe for a for-profit takeover. At least one of the colleges that appeared on the list of "failed" institutions first published by The Chronicle, in June 2009, doesn't appear on the list for the 2009 fiscal year; the institution, National Hispanic University, in California, was sold to Laureate Education Inc. Waldorf College, in Iowa was also sold. Its purchase, by the for-profit Columbia Southern University took place after the end of the fiscal year and the college appears on the nonprofit list for 2009.

The list for 2009 includes Dana College, in Nebraska, which recently announced that it would close, after its accreditor said it would not automatically continue its accreditation under the corporate owners that had hoped to buy it. (Two other institutions known to be in talks with buyers, Lambuth University, in Tennessee, and Rochester College, in Michigan, don't appear in the Education Department's data files for 2009, presumably because they are among the 115 or so degree-granting for-profit and nonprofit institutions whose scores are still being processed by the department.)

Last year the Chronicle obtained its list of 114 degree-granting nonprofit institutions in response to a Freedom of Information Act request. That list was based on Education Department data that did not reflect all colleges' most current fiscal year, or adjustments to scores the department was in the process of compiling. This year the department did not release scores until all colleges had submitted current information and had a chance to resolve questions about their scores. )

In addition, the department also released all scores for all nonprofit and for-profit colleges for the previous two years. The information is available at the department's data center Web site. Officials said they were releasing the data to give the public more information about colleges and in response to the interest resulting from the Chronicle's publication of the list last year. Public colleges, because of their government support, typically aren't subject to the assessment, which is designed to assure taxpayers that their money is not at risk.

Colleges that score 1 to 1.4 on the test are considered to have failed but are "in the zone," meaning they can continue to participate in federal financial-aid programs, but with restrictions on how student-aid funds are disbursed to them.

Colleges with scores below 1 are subject to extra requirements. They must post letters of credit equal to at least 10 percent of the federal student-aid funds they receive and face additional restrictions, or post letters of credit equal to at least 50 percent of the funds they receive and operate as if they had passed the test. Colleges that score 1 through 1.4 for three consecutive years become subject to the extra requirements.

Department officials said they rarely kicked colleges out of student-aid programs altogether, because the restrictions and letter-of-credit requirements are adequate protections for taxpayers' money if a college falls into dire financial straits.

In 2009 more than half of the failing nonprofit colleges—80 of them—scored low enough to trigger the extra requirements, up from 71 in 2008 and 48 in 2007. Among for-profit colleges, the trend was reversed; 24 scored that low in 2009, down from 33 in 2008 and 39 in 2007.

Trying to Improve

Several of the colleges with low scores said they were taking steps to improve their financial situation. A branch of City College, in Casselberry, Fla., scored the lowest possible score in each of the past three years. The college's lawyer said that it had been a separately owned two-year institution managed by City College, but that this year City College has absorbed it, and its enrollment, which had fallen to about 73 in 2006, is now above 300.

Officials of Ave Maria School of Law, which has failed the test for three years and had a score of minus 0.9 in 2009, issued a statement that its relocation to Naples, Fla., was helping to improve both its appeal to students and its fund raising. The law school, which has graduated just seven classes, said that its asset-to-debt ratio was still low, but that it expected the ratio to "reverse itself over time" as the school builds its endowment.

The vice president for finance at Eureka College, Marc P. Pasteris, said the Illinois institution has struggled with finances for decades and had been on course for a turnaround since 2005, under a tuition-pricing plan designed to eliminate most discounts, and improve retention. In the previous two years, Eureka reached scores of 1.4, but it fell to 0.8 in 2009 because of endowment losses. "We are not out of the woods," Mr. Pasteris said, "but on the right track."

As in the past, some institutions end up being subject to extra scrutiny by the department or additional student-aid-disbursement requirements because of the way the department accounts for particular transactions.

The president of Bryant & Stratton College, one of the for-profit institutions that reached the list in 2009 (with a score of 0.2), said it did so because of the way it accounts for the capital brought in by new investors and the equity granted to them.

A nonprofit, Alliant International University, said a building on its San Francisco campus, which it sold a few years ago and is now leasing back from the owner, pushed down its score. Alliant appeared on the list last year with a score of 1.4 and this year with 1.3. It's "not a list we want to be on," said Geoffrey M. Cox, the president.

In a recent Chronicle commentary, Mr. Cox noted that his university had received at least six unsolicited inquiries from investors in the past few months. It's not interested in selling itself, he added.

August 13, 2010: This article has been revised to reflect the following correction: Because of inaccurate information provided by the Education Department, Harding College, in Arkansas, was mistakenly included on the list of institutions that failed the department's test of financial strength in 2008-9. Harding received a composite score of 1.7, not 1.1, and has been removed from the list.

Comments

1. lfarina - August 12, 2010 at 06:12 am

The federal government should not be involved in education, it is a state and local matter.

The bloated bureaucracy has too much power; which is the power to destroy. What are the credentials of these career bureaucrats anyhow? Let's do a BMI on all of them any fire anyone who doesn't pass.

Tagging these institutions will cause them harm which might cause them to fail--then the bloated bureacracy can say "see I told you so."

I did not review my CHE subscription because the CHE staff does not do its job when it comes to the politicians and bureaucrats. For example, Charles GrASSley. Perhaps staff members don't want to piss them off or they won't be able to get a government job.

2. softshellcrab - August 12, 2010 at 07:32 am

I think that small, non-profit colleges are stuck between a rock and a hard place. They have been required to grossly raise tuition over the years. They have to compete with government funded state schools. Nowdays they have to compete with for-profit schools who will do anything for a buck selling degrees. They are getting it from both ends, while the country gets more socialized and poorer every year. How can anyone afford these schools today? I am surprised that more are not in trouble. It is a shame, as they include some very nice schools. Worse yet, there are many more not on the list, but nevertheless very much hurting.

3. honore - August 12, 2010 at 08:47 am

Wait...OUR government is assessing the financial responsibility of our colleges? This is a joke right?

4. jonesie - August 12, 2010 at 09:27 am

And you thought this administration was only going to take over things like business and healthcare. Guess what, they want to take over everything.

5. lakemendota - August 12, 2010 at 09:47 am

Postsecondary education has been a Federal concern since the 19th century. Anyone remember the Morrill Act of 1862? Why do you think there is a statute of Abraham Lincoln prominently situated on the UW-Madison campus. It's because of the Morrill Act. Land grant colleges? Where do you think they got the land from?

6. n2n_0131 - August 12, 2010 at 11:02 am

jonesie - these data were being collected under the last administration too. Oops.

7. cwinton - August 12, 2010 at 11:13 am

When I was a child federal aid to education was a hot button topic precisely because many recognized that it would eventually have strings attached that would inevitably tighten over time. Does anyone remember Grove City College's attempts to operate outside the federal umbrella so that it would not have to install a bureaucracy to deal with escalating reporting requirements?

We see over and over, whatever the money source (government, private donors, churches), inevitably the donor wants to impose their own ideas on how an institution operates. Federal aid to education has brought us onerous mandates such as NCLB, state aid massive testing programs of little real value, church aid religious tests for boards of trustees, private aid the mockery collegiate athletics has become, and so it goes.

The old saying applies, it's too late to lock the barn door after the horse has been stolen. Institutions on this list simply have to figure out new ways to live with the reality of the times. There is much to like about what small schools have to offer, but the same can be said about a one room schoolhouse. Small schools that are struggling need to look at how those that remain successful have evolved to cope with a changing landscape.

You may not like the idea of federal aid to education, but we're already on that slippery slope, so the real issue is how to best curb the bureaucratic appetite for interfering. A good first step would be to prohibit bureaucratic mandates, since these are the source of the massive increases we have seen in staffing (at the expense of actual teaching) and which are the major factor driving the increasing costs of higher education.

8. blue_state_academic - August 12, 2010 at 11:22 am

Given the federal government's investment of scores of billions of dollars in the Title IV student aid programs -- which funnels money to students *through* higher education institutions - it's entirely responsible of the ED to assess the financial viability of these institutions. It's protecting taxpayer dollars, and yes, this has nothing to do with the Obama administration - as another poster pointed out, this has been going on since before Obama took office.

9. thewitt716 - August 12, 2010 at 11:35 am

If you jejune commentators believe in the local governments so much, you're probably one of those tea party evangelicals. Did you notice how many of those places are bible colleges? Why don't you step in donate some money? I can't stand the total B.S. of people going on and on about how irresponsible the federal government is (even though it often is ) when they offer exactly zero realistic solutions. If you don't want your bible colleges to fail, donate to them, save them with capitalistic instincts, so they can go on producing more morons who talk about keeping the government out of higher education (impossible) and "keeping hands off their medicare."

10. softshellcrab - August 12, 2010 at 11:42 am

I think there are only two colleges/universities, Grove City, as mentioned above, and Hillsdale College in Michigan, that do not accept federal funds, nor students who get federal funds. Note it must be both: if either the school - or even its students - get federal funds, the school must comply with all government mandates such affirmative action. Thus, both those schools neither receive funds, nor do they have students who receive federal financial assistance. Tough row to hoe! Makes you wonder how they do it. I think Grove City is a religious college that might get church support, but I'm not sure. I am pretty sure Hillsdale raised a big endowment just to address this issue, again I am not positive about that.

I don't mind the government reviewing the financial security of the schools, I agree with blue-state-academic that if they pay for it, they should have the right to see if the money is not thrown away. But it's all the other stuff, like silly womens' sports teams rules and affirmative action, etc. that I resent. Most of the mandates have has nothing to do with finances and are just the government pushing an agenda (which I freely admit has continued under all administrations).

11. henr1055 - August 12, 2010 at 12:08 pm

It would be interesting to see how many of these colleges are Bible thumping institutions.

TH

12. betterschools - August 12, 2010 at 12:28 pm

As others have expressed, I wish we could return to the my junior high school debate topic of so long ago: "Resolved that there should be federal aid to education." It seemed so simple then.

Unfortunately, there is little reason to hope that independent colleges might now escape taxpayer support and therefore federal control. Here is a short list of taxpayer subordinations over and above Title IV support of students:

- Forgone taxation on endowments
- Forgone taxation on properties held
- Forgone sales and use taxes
- Forgone taxation on profits (surplus revenue in "NPspeak")
- Eligibility for a variety of federal developments grants
- Eligibility in many states for state aid to students

These contributions are not trivial. An elite college (admittedly an outlier in this conversation) can easily rack up taxpayer support in excess of $30,000 per student per year and most of it is hidden from casual public view. Do a back of napkin analysis of Harvard's endowments in times of decent interest rates, divide that by the number of students and see what you get. Add to that, say, 6% of their budget for forgone sales and use taxes and another several percent (?) for property taxes, and see what you come up with. We pay a lot to allow our elites to be elite and pretend that we don't pay most of their freight.

The only way for an independent college to get itself off the taxpayer dole is to become a for-profit or to pay taxes like one. This brings me to a proposed solution. A few of the struggling independents have managed to save themselves by restructuring internally to a more modern accounting and decision-support system and therefrom carefully managing programs based on market need, growth potential, cost of delivery, margins, etc. We may not like this approach because it shifts the full burden for offering important but unprofitable programs to the publics (they already shoulder most of this burden) but it does save the institution so that, eventually, it can begin to offer more mission-driven programs that will be supported by the carefully managed profitable programs.

Any other solutions out there?


13. drj50 - August 12, 2010 at 02:09 pm

A couple of posters commented on the number of "bible colleges" on the list. Actually, it looks to me that the far greater number added to the list this year were colleges and graduate schools affiliated with various denominations, including mainline denominations (Episcopal, UCC, Lutheran, Presbyterian), Catholic, and rabbinical schools -- hardly fly-by-night "bible thumpers." Many of these were in great shape in earlier years. The market decline affected endowments of all kinds of schools (the financial data were from 2008-09). In this economy, a one-year appearance on the list is of concern, but hardly evidence of poor management.

14. lakemendota - August 12, 2010 at 02:13 pm

What a bunch ahistorical nincompoops. How many research 1 universities would there be, and how many of you would have jobs, if it wasn't for the Federal government? The Federal government has been setting university agendas for a long time. Besides the Morrill Act, have you ever heard of the Copperative Extension Service? How did the government response to Sputnik? Or communism? Or the need to train health care adminsitrators? What about the AIDs epidemic?

The non-discrimination laws are the laws of the land. If you want the people's money you can't discriminate aginst them in the way you use it. You also have to follow Federal rules on contracting, waste disposal, treatment of animals, and a whole bunch of other stuff. The money is not free.

15. jhough1 - August 12, 2010 at 02:50 pm


There are a series of issues that need to be brought together. Clearly higher education is not efficient. Clearly an increase of on-line teaching is under way and the market is going to destroy a lot of small colleges with high tuition that have no great distintion. It is the market that is doing this, not government.

But what is the solution? Abolish state college education? Abolish student loans? As it is, we are in the worst of a lot of worlds. The for-profits are buying these colleges for their accreditation, which may take too long to change. The for-profits have a disproportionate share of loans and a disproportionate percentage of minorities with unrealistic hopes who are sucked in by recruiters as unscrupulous as those for for-prime mortgages. So the minorities get bad credit ratings and the tax payer gets stuck. Government should force through immediate re-accredidation and really crack down on sub-prime college loans to low-quality for-profit charlatans.

16. maa0162 - August 12, 2010 at 03:00 pm

softshellcrab

There is great interview with the President of Hillsdale on CSPAN. In it, he talks about the whole Title IV issue and a variety of other things related to their finance. If I remeber correctly, he also identifies some of the other institutions that do not accept dirty funds.

Go to cspan.org and go to "porgrams, Q&A." The interviwew is from summer of last year.

17. jaysanderson - August 12, 2010 at 03:23 pm

dimwitt716 has a point. Not a smart or thoughtful one, but a point.

18. 22007444 - August 12, 2010 at 04:29 pm

I have a genuine question about the Data Center data. I only see proprietary and private non-profits posted at the Data Center. Is there also a listing for the publics?

19. 11331315 - August 12, 2010 at 04:32 pm

The financial responsibility score has been around for at least 10 years, but it was never published until the Chronicle took up that task. The fragility of some of the non-profits were overlooked in the distant past until the metrics of the "composite score" came to the public eye, and for good reason. A college with a low endowment will have a low financial reserves ratio. Add to this a high dependence on Title IV coupled with a generous tuition discount spells trouble ahead. Governing Boards of these non-profits can no longer look the other way and say that being a "poor" small college is business as usual. These governing boards need to take seriously their fuduciary responsibility as part of their duties to secure the future of the college they govern.

20. shirley77 - August 12, 2010 at 06:17 pm

To the "Tea Party" complainers on this forum, if you hate government so much, move to Somalia. It has no government.

21. betterschools - August 12, 2010 at 06:23 pm

I don't know, Shirley, do you think there are a few other positions on the spectrum between Somalia and federal control of higher education . . . perhaps one or two?

While the Tea Party is not my cup, even more distasteful is the Red Neck "If you don't like my way of looking at X, move to Y" mantra.

22. maa0162 - August 12, 2010 at 06:29 pm

shirley77

See post #16.

23. rambo - August 12, 2010 at 11:03 pm

Religious is Somalia's government. Same for Sunni Saudi Arabia based on Islamic law...

24. shirley77 - August 13, 2010 at 12:05 pm

Betterschools, the federal government doesn't control higher education, but it does grant public higher education billions of dollars in research funding. And thank goodness for that; public universities with government research dollars has helped fuel the economy since WWII in a myriad of ways.

This Reagan notion that government is bad is born of ignorance; part of the long term GOP assault on FDR's New Deal. If you are so set against government, see what would happen if you fired your public school teachers, police forces, and firemen; dismantled the federal regulatory agencies (which all but happend under GW Bush leading to the present catastrophe), stopped paving hi-ways and roads, and stopped federal funding for university research. That would do us a world of good.

25. betterschools - August 13, 2010 at 01:15 pm

@shirley77,

You have me confused with someone else and, to quote your friend Ron Reagan, "There you go again" dichotomizing the world. (If I make a critical judgment against some facet of government, I must be against government . . . right? I hope you set a better example for your students.)

There is nothing in my posts or views that is anti-government, not even remotely. Like so many areas of government influence, support, or control, we sometimes overshoot the sweet spot of balance between self, local, regional, and federal oversight and control. Once we have gone past this ideal balance, it is difficult to return. How to navigate this vast grey area is the subject of this discussion. There are many valid divergent opinions to be held respect to it but none are likely to lie at such extremes as you depict.

26. blesch - August 13, 2010 at 05:43 pm

HMMM. The Senate is on a witch hunt after for-profits, there are 75 for-profits on the list above (so their investors can't be exactly raking it in) in addition to the 150 non-profits, over 400 "party schools" according to Craig Brandon's new book "The Five-Year Party," law schools are inflating grades, researcher misconduct at Harvard of all places, state colleges appear to be the black hole of any kind of performance data, and on and on--it appears the whole higher ed system needs an overhaul.
We're not exactly on a direct path to the 2020 Higher Education goals.

27. lrgriffin3 - August 16, 2010 at 11:59 pm

Thanks for posting this information for profit and non-profit colleges. As the parent of a student who had to jump ship from a college that suddenly was going to close I only wish they had this list then.

If someone wants to do some great research they can identify the schools on this list over the years and see how many of them have been cherry picked for their accrediation by for-profit colleges.

28. myrmica - August 20, 2010 at 09:37 pm

Is it not suprising to others to see the strange influx of tea-party speak here? Are there any sociolgists looking into this. I am beginning to think this is an organized effort among tea people to participate in as many blogs and news outlets as they can. Not a bad thing in itself, although I think the effort here may be wasted time...

29. gloriawalker - August 23, 2010 at 11:19 am

Well gang, what is the difference in this HBCU schools? Most HBCU schools were built 100 years ago by churches. They did not have financial problems until recent times. Competition, political issues and other things have caused problems. TO THOSE THAT CLAIM BLACK SCHOOLS BROUGHT THE PROBLEMS ON THEMSELVES HOW DOES THIS SITUATION DIFFER?

30. weilunion - August 26, 2010 at 05:17 am

See my articles on this issue at www.dailycensored.com Simply go to my name, Danny Weil, hit author posts and you will find it and many articles on this predatory industry

Danny Weil
Daily Censored
Project Censored

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