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ERIC Number: EJ847402
Record Type: Journal
Publication Date: 2009-Jun-12
Pages: 1
Abstractor: ERIC
Reference Count: 0
ISSN: ISSN-0009-5982
More than 100 Colleges Fail Education Department's Test of Financial Strength
Blumenstyk, Goldie
Chronicle of Higher Education, v55 n39 pA21 Jun 2009
A newly compiled analysis by the U.S. Department of Education and obtained by "The Chronicle" shows that 114 private nonprofit degree-granting colleges were in such fragile financial condition at the end of their last fiscal year that they failed the department's financial-responsibility test. Colleges that fail the test are subject to extra monitoring on their use of federal student-aid funds. The 65 of these that scored the lowest also have to post letters of credit with the department to help protect the safety of the loan and grant money that flows through their institutions. Although not designed as such, failing the test can be an indicator that a college is in danger of not surviving. Over the past year, at least five of the institutions that show up as failing the financial test based on data from their 2007 or 2008 fiscal years have either shut down, merged with a wealthier nonprofit college, or sold themselves to a for-profit college company. Some institutions on the list have recently made headlines for failing to make their payroll (Lambuth University in Tennessee), or for cutting retirement contributions for employees (Dana College in Nebraska). Those that scored below 1.0 (on a scale of minus-1 to 3) must post letters of credit with the department equal to 10 percent of the federal aid they award, which further crimps their liquidity. Although colleges that do not meet the test can continue to award federal student aid, the added scrutiny that comes with a failing score can be a management and financial burden. "Our goal is to get ourselves out of the letter-of-credit situation," said Joyce Hanlon, vice president for finance and chief financial officer at Newbury, which was required to secure a letter of credit guaranteeing $550,000 in February 2008 because of its 2007 financial condition. The financial circumstances of every institution differ, so it would be wrong to assume that every college that fails the test is in financial trouble. Tiffin University, in Ohio, said its finances are strong, but it has failed the test for the past few years because of the way it accounts for liabilities related to a university-owned retirement complex. Still, with so few other public indicators of colleges' financial health available, particularly of smaller colleges that are not subject to scrutiny by credit-rating agencies, this roster of colleges may be a bellwether of trouble. Or, for a growing cadre of companies, investors, and entrepreneurs who scour the country in search of ailing nonprofit colleges as acquisition targets, it might also become a shopping list.
Chronicle of Higher Education. 1255 23rd Street NW Suite 700, Washington, DC 20037. Tel: 800-728-2803; e-mail:; Web site:
Publication Type: Journal Articles; Reports - Descriptive
Education Level: Higher Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A