• April 18, 2014

Hundreds of Colleges Fail to Make the Grade on Financial Responsibility

A total of 319 degree-granting private institutions have failed the Education Department's financial-responsibility test at some point in the past three years, receiving a composite score below 1.5.

Notes: All private colleges that award federal student aid must participate in the Department of Education's financial-responsibility test, which is based on information from their audited financial statements. The department develops a composite score on a scale of 3.0 to minus 1.0, based on financial ratios that measure factors such as net worth, operating losses, and the relationship of assets to liabilities. Institutions with scores of 1.5 to 3 pass. In addition to extra monitoring for all institutions that "fail," those with scores below 1.0 are required to post a letter of credit with the department equal to 10 percent of the federal student aid that goes to their students annually. For institutional fiscal years ending between July 1 and June 30. Institutions without a score provided for the selected time periods are indicated as N/A.


1. saun17701 - August 12, 2010 at 05:54 am

We live in scary times. Tiffin and Ashland made the list....as did Alderson Broaddus where I used to work. some are seminaries or other highly specialized institutions, but many are the struggling small colleges.

2. dwcox - August 12, 2010 at 08:59 am

Can someone tell me why this is newsworthy. Are we supposed to be surprised that an increasing number of non-profits are struggling financially these days? Shouldn't it be expected that the Department of Education would take steps to secure Title IV funds at those schools? So, what's the point?

3. muntzp - August 12, 2010 at 09:24 am

What does N/A in the 2008-09 column mean in this chart? Does it indicate that the institution didn't file a report?

4. haohtt - August 12, 2010 at 09:35 am

Why do they not also look at public non-profit institutions? Many of them operate in the red.

5. trendisnotdestiny - August 12, 2010 at 10:09 am

This is one of the first salvo's on shifting higher education into a gear for the larger economic engine of profit.... Reconfiguring institutions to emulate the desired goals by 2020? or 2025....

6. checch - August 13, 2010 at 10:12 am

Has anyone considered the total enrollment of these small institutions? Most of these "colleges" have enrollments in the hundreds.Overall this is less than 2% of the total collegiate population, just a guesstimate. Many of these religious schools, and they seem to be in the majority should merge or close down, instead of continuing to bleed our government of our tax dollars to preach their "special" word. Hasn't anyone heard of the separation of church and state?

7. blesch - August 13, 2010 at 03:25 pm

HMMM. The Senate is on a witch hunt after for-profits, there are 75 for-profits on the list above 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 data, and on and on--it appears the whole higher ed system needs an overhaul.

8. 1criticalmass - August 16, 2010 at 12:38 pm

Why do they not also look at public non-profit institutions? Many of them operate in the red.

Public, as in taxpayer owned, non-proits are presumed to have the power to tax. At least their "owners" typically have that power and are unlikely to be closed down. I'm guessing. More likely is that the politics of identifying a "state" institution as failing would be problematic to say the least.

9. arrive2__net - August 16, 2010 at 05:31 pm

As I understand it, if a nonprofit received government loaned money as tuition, then declared bankruptcy before delivering the classes, the government's money would have disappeared, so the government wants to make sure the college is not about to do that.

10. collegeadminstrator - August 17, 2010 at 06:16 pm

The problem with these types of articles is that the authors do not understand the whole situation -- instead deciding to make this a somewhat inflammatory approach that victimized the many colleges. Most of the colleges and universities are fine, upstanding institutions whose finances are relatively strong. What had happened to many institutions is simply that the fair market value of their endowments has decreased substantially, causing these paper ratios to TEMPORARILY -make it look like the colleges are failing. I would hazard to say that the vast majority of these colleges have never missed a payroll, are paying their bills, are able to get loans, etc.

You will see the number of institutions that fail these tests decrease substantially when the following year results are reported. Why? Because the investment markets improved. Nothing else changed for the institutions. The institutions are not using their endowments to pay bills (other than their endowment payouts). They are living within their means. But -- their financial statement is a little weak because the market value of their endowments decreased.

Responding to checch -- you do not know what you are talking about. These institutions are not bleeding "our government of our tax dollars to preach their "special" word." What an ignorant comment. Private institutions have the impact of reducing the government spending -- because otherwise, the students going to these schools would be going to public schools which are subsidized by the government. The monies coming from the government are not used to subsidize the private schools, they are used to provide direct financial aid to students. The government not only provides the same aid to students going to public schools, but also subsidizes the very operations of the publis schools. These subsidies has the impact of driving up salaries and other costs of the public schools, which then forces other schools to compete with them -- leading to high education inflation -- which then leads to the need to increase the public school monies. If more students went to provate schools, the amount of government spending would decrease, not increase.

11. projectopat - August 26, 2010 at 11:23 am

The problem is that For-Profits serve as diploma mills, most of the degrees aren't transferable to other schools, as they are nationally accredited, but that's not the only problem, I quote from Wikipedia:

For-profit institutions were randomly sampled by the GAO in mid 2010; Out of the 15 sampled, all of the institutions were found to have been engaging in deceptive practices promising unrealistically high pay for graduating students and 4 were engaging in outright fraud, as per a GAO report released on the August 4, 2010 Health, Education, Labor and Pensions Committee hearing.

It was found that 14 out of 15 times, the tuition at a For-Profit sample was more expensive than its Public counterpart, and 11 out of 15 times, it was more expensive than the Private institution. Examples of the disparity in full tuition per program include: $14,000 for a certificate at the For-Profit, when the same diploma cost $500 at the Public college; $38,000 for an Associate's at the For-Profit, when the comparable program at the public college cost $5,000; $61,000 for a Bachelor's at the For-Profit, compared to $36,000 for the same degree at the Public college.

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