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150 private colleges fail DOE financial test

A report out Thursday from the Chronicle of Higher Education says 150 private, non-profit colleges failed the U.S. Department of Education's "financial responsibility test," based on their condition in fiscal year 2009.

The number of colleges to fail the fiscal test has risen 70 percent in two years, a time of plummeting endowments.

The list includes some notable schools. One is Mary Baldwin College, an antebellum women's college in Staunton, Va. The school's rating dropped from a nearly perfect 2.9 last year to a sub-par 1.3 this year.

(Colleges are scored on such measures as net worth, operating losses and the ratio of assets to liabilities. Each receives a rating between 3.0 and negative 1.0; anything below 1.5 denotes failure.)

Mary Baldwin is one of the oldest women's colleges in the nation, and is ranked as a top-tier master's level university in its region by U.S. News & World Report.

Ripon College in Wisconsin failed the federal test this year, as did Guilford College in North Carolina.

Other mid-Atlantic schools on the list include Virginia Intermont College, a liberal arts school in Bristol; Edward Via Virginia College of Osteopathic Medicine; and Tai Sophia Institute, a holistic health graduate institution in Laurel.

The Chronicle reports that 37 for-profit colleges failed the financial test, 11 fewer than in 2007. That list includes Southeast Culinary and Hospitality College, Miller-Motte Technical College and ACT College, all in Virginia.

Failure on the federal test "is typically an indicator of a college's overall financial fragility," the Chronicle writes. But several nonprofits, including Ripon, told the publication they were on the list chiefly for plummeting endowment value.

A failing score "has also become a signal to investors that an institution could be ripe" for takeover by a for-profit company, the Chronicle reports.

But the National Association of Independent Colleges and Universities said in a statement that prospective students should not make too much of the list:

"Americans whose students attend, or are considering attending, one of the institutions on the list, should not rule out a college simply because it's listed. In many cases, colleges only appear on the list because of accounting methods that do not consider the institution's overall resources. Some schools that were initially on the list now are off because of Departmental calculation errors. Others appear on the list based on the day the snapshot was taken, and today would pass the test with flying colors."

(The full statement is in the comment section, below.)

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By Daniel de Vise  |  August 12, 2010; 2:15 PM ET
Categories:  Administration , Finance , For-profit colleges , Research  | Tags: Education Department Financial Strength test, chronicle financial strength, college endowments, college finance, colleges fail financial test, mary baldwin college  
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Comments

Statement by the National Association of Independent Colleges and Universities on the Department of Education's Financial-Responsibility List:

August 12, 2010

The financial-responsibility list issued by the U.S. Department of Education today confirms what most Americans have known the past few years: we have an economic downturn that has affected investment portfolios throughout America, whether the portfolios are those of families, businesses, colleges, or other organizations.

Americans whose students attend, or are considering attending, one of the institutions on the list, should not rule out a college simply because it's listed. In many cases, colleges only appear on the list because of accounting methods that do not consider the institution's overall resources. Some schools that were initially on the list now are off because of Departmental calculation errors. Others appear on the list based on the day the snapshot was taken, and today would pass the test with flying colors. For instance, some made the list because of endowment losses suffered when the recession first hit, but are now beginning to recover their losses. All of the institutions on the list are addressing the challenges a down economy brings. The overwhelming majority of institutions that have appeared on the list previously continue to provide a quality education to their students.

For several months, NAICU has been working with member institutions, the National Association of College and University Business Officers, and the U.S. Department of Education on improving the federal government's financial assessment methods. The Department is already reviewing its method for calculating financial responsibility scores so it more accurately reflects new accounting standards. Few schools on the list are truly in financial straits, and we are hopeful that a new formula will soon be devised to give students and parents a more accurate portrait of the overall financial health of non-profit colleges.

http://bit.ly/ald3gB

Posted by: tmp218 | August 12, 2010 2:48 PM | Report abuse

Washington Post Blog post

Mary Baldwin College’s 2009 DOE score, considered in isolation without other relevant data, can give the wrong impression. MBC is financially stable. Here are some excerpts from a letter written by MBC President Pamela Fox and several of the college’s trustees:

“MBC is celebrating its second year of record enrollments, has an endowment of nearly $30 million, and operates on a balanced budget. …In most years MBC has ranked very high on the DOE list, at 2.9 or even 3.0 out of a possible 3.0 points. So what happened in 2009 that changed our rating? In short, the stock market.

“We, like many other institutions on the list, were caught by an unusual accounting method the DOE uses which counts investment losses on our endowment as if they were a deficit in our operating budget. This would be as though a family's retirement portfolio suffered losses which were treated as a regular household expense. MBC was not immune to the recession, but we responded prudently to ensure that we ended the year in the black.

“Mary Baldwin is not alone. As this article reported, ‘the number of colleges to fail the DOE’s fiscal test has risen 70 percent in two years, a time of plummeting endowments.’ Nationally, many experts have concerns about the methodology used by the DOE, and MBC’s own auditors do not consider the DOE method to be standard. We hope the Department revises its methodology in the future, so students and parents are not misled into worrying about perfectly healthy and viable colleges.

"Mary Baldwin has been an outstanding women-centered institution for 169 years. In a few weeks we will welcome an exceptionally large and well prepared class into the College for Women. Our [coeducational] graduate and adult programs [as well as our six regional centers throughout Virginia] are booming. We have launched our four new academic Schools of Excellence. We are confident that Mary Baldwin College will play an important role in the cultural and economic life of [our region] for a long time to come.”

Crista Cabe
Vice President, Mary Baldwin College
www.mbc.edu

Posted by: ccabe | August 15, 2010 10:19 AM | Report abuse

Yikes that is a lot of schools. There are actually thousands of scholarships available for students entering college. I found them here:

http://www.youtube.com/watch?v=2n8vYp_af4I

Posted by: susieq5 | August 16, 2010 6:36 PM | Report abuse

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