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177 Private Colleges Fail USDE Financial Responsibility Test

MARCH 27, 2017

According to a Chronicle of Higher Education analysis of data recently released, 177 private colleges that grant degrees failed a U.S. Department of Education test for financial responsibility in the 2014-2015 academic year.  That's 18 more than the previous year.  Of the institutions that failed the financial responsibility test, 112 are not-for-profit, and the remaining 65 are for-profit.  In the previous year, 93 of the 159 were not-for profit.  

The Department of Education considers the institution's debt and assets, among other factors, in calculating a score ranging from -1.0 to a +3.0.  Scores lower than 1.5 are considered failing.  The Department's methodology in devising the scores has drawn sharp criticism from some higher education groups.  This is one of the reasons why the Consolidated Financial Index (CFI) has become a popular financial measurement alternative for many colleges and universities with the score ranging from 0 to 10.  Scores below 3.0 are considered unacceptable.  However, the USDE financial responsibility test is still the required instrument of measurement for all institutions that receive Title IV funding.  

This report from the Chronicle of Higher Education is one that I anticipate receiving each year.   I even take the the time to go through the alphabetical list of hundreds of institutions with their respective financial responsibility scores and to identify those that are the most troubled financially.   As I review the list each year, I am no longer surprised that a number of the the financially challenged institutions are small and faith-based.  In fact, some of these institutions are members of either the Association for Biblical Higher Education or the Council for Christian Colleges and Universities, the two primary agencies that serve evangelical postsecondary education.   These are often  the very institutions that I have the privilege of serving as a higher education consultant specializing in institutional effectiveness, strategy, and change.  Knowing the challenges that so many private colleges and universities face with respect to smaller enrollments and limited resources, I count it a privilege to work with these institutions in bringing about enrollment and financial turnaround.  I understand what it means to effect change.  I want to help institutions develop a bright and sustainable future.  I am about solutions!

Larry J. McKinney
Higher Education Consultant

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