College Financial Stress Test – Is Your School in Danger of Closing?
July 6th, 2009I still remember my surprise at the closing of Bradford College in May of 2000. The previous spring, I had accompanied a family member that was considering small liberal art colleges on a campus visit.
To be frank, that family member was no longer seriously considering the school when the news of the closing was released. Still, the shock was significant.
Especially given that school had been offering students the opportunity to earn a degree for 197 years.
Important Lesson
That experience reveals the importance of the recent analysis conducted by the U.S. Department of Education. That analysis reveals that 114 private, nonprofit degree-granting colleges have failed the department’s financial-responsibility test.
The financial stress test features composite scores based on three critical ratios. The important elements include the school’s debt load, their expenses as compared to income, and the overall resources of the institution.
These institutions were in such poor financial condition at the end of their last fiscal year that they now face extra monitoring on their use of federal student-aid funds. The lowest scoring are also required to post letters of credit with the department.
In essence, the findings call into question the fiscal viability of each school moving forward. In fact, five of those appearing on the 2007 and 2008 lists have either shut down, merged with another nonprofit school, or been sold to a for-profit college company (John F. Kennedy University in California, Daniel Webster College in New Hampshire, Myers University in Ohio, Waldorf College in Iowa, and the College of Santa Fe).
Eerily Similar to Bradford?
The data is reminiscent of that accompanying the close of Bradford. The school reportedly closed when it failed to draw the requisite number of students, by a mere 31 individuals, at a time when it was running significant deficits.
In fact, most experts point to the school’s borrowing $18 million in 1996 to build new dormitories as the real issue. That move was considered very risky in light of the steadily declining percentage of students attending liberal arts institutions.
Closing was still a shock given the college’s lengthy history. Founded as a girls’ school in 1803, Bradford had begun admitting men and offering bachelor’s degrees during the Viet Nam War era. Over the next thirty plus years the school would be on the cutting edge of liberal arts education. It offered excellent student-faculty ratios and was known for its innovative teaching including its emphasis on internships and community service.
But the stellar program that once offered renowned writer Andre Dubus as a teacher for 18 years and educated Portia Marshall Washington Pittman, the daughter of Booker T. Washington, fell by the wayside when the school put itself at too great a risk financially.
The Bradford story certainly explains why students need to pay careful attention to the data released by the Department of Education.
Request Your School’s Score
In general theory, the financial circumstances of every institution differ, so it would be wrong to assume that every college that fails the test is in such financial straits that it is in danger of closing. Still, students should be extremely wary of any school on the list given the difficulty in transferring credits from institution to institution.
Students should be aware that all private colleges awarding federal student aid are required to participate in the Department of Education’s financial-responsibility test. The composite score created ranges from minus 1.0 to positive 3.0.
The full list of schools below the passing mark of 1.5 is available at The Chronicle of Higher Education but only to full site subscribers. The site does offer web passes but given the importance of this data we recommend concerned students check with the college admissions office regarding their respective school’s score.
