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California Association of Private Postsecondary Schools

What It Means to Fail the Education Dept.'s Financial-Health Test

07/24/2013

THE CHRONICLE OF HIGHER EDUCATION.  JULY 23, 2013.  How many nonprofit colleges failed the U.S. Department of Education’s financial-responsibility test for the 2011 fiscal year? That depends on what it means to “pass.”

According to the department, colleges with scores of 1.5 to 3.0 all pass and never hear from the department. (The scores, derived from financial information the colleges provide, run from positive 3.0 to negative 1.0.) Those that score 1.0 to 1.5 do not pass. The department considers them “financially responsible” but subjects them to additional monitoring and conditions. They can avert the monitoring, but only by posting a letter of credit equal to 50 percent or more of the federal student aid they receive.

Those that score below 1.0 are subject to additional monitoring and must post a letter of credit to remain eligible to participate in the federal student-aid programs.

In an article published on Tuesday, The Chronicle listed the scoresfor all degree-granting private institutions (based on an Education Department database) and noted that, among those, 116 nonprofit and 37 for-profit ones had “failed” the test by falling below the 1.5 score. It also noted that 54 of those nonprofit institutions had scores below the 1.0 threshold, requiring them to post letters of credit.

The article also reported on a May letter to the National Association of Independent Colleges and Universities from Martha J. Kanter, the under secretary of education. The letter stated that, in the 2011 fiscal year, only 73 nonprofit institutions were below the passing scores.

How to account for the discrepancy? Department officials explained on Tuesday that Ms. Kanter’s 73 includes all nonprofit colleges with scores below 1.0, whether degree-granting or not.

In other words, Ms. Kanter’s tally includes a broader universe of institutions but excludes colleges with scores of 1.0 to 1.4. Although those colleges failed the test—in department parlance, they are known as being “in the zone”—they are considered financially responsible because they provide the letter of credit or are subject to extra oversight and conditions. The Chronicle counted all colleges that had not passed as having flunked.