A new report from The Century Foundation provides suggestions on how to more effectively foresee an institution’s financial instability.
Within the last few years, a number of institutions of higher education have closed with little notice to students, leaving them with no means of recouping the investment they’ve made in their educations. This happens despite the federal government having provided billions of dollars in the form of student loans and grants.
In the wake of these abrupt closings, “How to Stop Sudden College Closures,” argues that the U.S. Department of Education (ED) should have known about the schools’ financial issues and responded prior to their closing. The report also posits that the ED needs more comprehensive financial oversight so it can accurately foresee financial woes and implement effective interventions that can mitigate the risk of closure.
Yan Cao, a fellow at The Century Foundation and one of the report’s authors, said the study was prompted by multiple school closings. She noted that previous school closures tended to be cyclical in nature, but sudden massive closures such as The Art Institutes, a collection of for-profit schools, and Virginia College, another network of for-profit schools, demanded attention.
“There were a lot of sudden shockwaves going through the for-profit school industry,” said Cao. “Kind of a parallel thing were the not quite as sudden, but still somewhat disruptive closures of not-for-profit schools and even some public schools. We wanted to look a little bit closer at what was happening, and if we could figure out what the key levers were to alleviate some of the harm to students and taxpayers that were coming from disruptions from the most sudden and precipitous school closures.”
Reviewing available literature, Cao saw almost surprising agreement among often disparate entities that the financial responsibility system just doesn’t work. The report notes that tapping independent financial analysts or financial rating firms like Moody’s and S&P could provide insight into a broader range of indicators. Cao said the most recent borrower defense rules that came out over the summer signaled agreement that there needs to be system-wide reevaluation of the ways the ED carries out duties to make sure that schools that are enrolling students and using taxpayer money are financially stable enough to provide the promised services.
The report noted, “An enterprise’s financial health simply cannot accurately be boiled down to a single number devoid of any expert judgement,” in response to ED’s current financial composite score. Instead, it is essential to evaluate a broad array of indicators.
