Join Career College Central In Supporting A Uniform Definition Of Financial Responsibility

The May/June edition of Career College Central features a “Letter to the Editor” from Dr. James Hutton of Hutton Education.

If you support his suggestion to adopt the Department of Education’s definition of financial responsibility, contact your accrediting body directly today! Feel free to submit the letter below – or one of your own – to make your appeal for simplifying the reporting process for our schools.

Also, be sure to participate in our LinkedIn poll to express your opinion on this issue.

Here’s the text of Dr. Hutton’s open letter to all accreditors and state regulators:

This is a request for your Council, Commission, or Regulatory Agency to make the definition of financial responsibility uniform for all for-profit and non-profit post-secondary colleges and schools. Currently, there are numerous definitions and measures of the very important notion that all schools and colleges be “financially responsible” and able to meet their obligations to various stakeholders, including most importantly students. With several dozen accreditors and fifty states, the possibility exists for literally dozens of ways to define financial responsibility, along with the responsibility to comply with those definitions. Our suggestion is that accreditors and regulators adopt the U. S. Department of Education’s (DOE) well established measure and definition of financial responsibility.

In 1995, the DOE hired respected accounting firm KPMG to undertake a thorough and complete analysis of the definition of financial responsibility. The process was reviewed by hundreds of schools, CFOs, CPAs and other interested parties. A clear and understandable set of rules and procedures was established and implemented in 1997 and has been used ever since. Any Title IV eligible school must be audited by a qualified CPA, and the DOE acknowledges receipt of this audit and advises the school if it (DOE) considers the school financially responsible. This is based on a “score” of 1.5 or greater, or the posting of a Letter of Credit (LC). This system has worked well for fifteen years.

Schools and colleges often must undertake year end planning to assure they meet all requirements for financial responsibility. Such planning may include bank loans, LCs, owner capital contributions, sale of stock, or donor solicitations (these rules apply to for- and not-for-profit colleges). It seems unnecessary for schools and colleges to plan for multiple financial “targets,” to provide evidence of likely resources to meet its obligations. In this environment of ever increasing emphasis on streamlining regulations, it seems wasteful and unproductive to have various rules and definitions for financial responsibility. The current circumstance is both time-consuming and costly; diverting management attention that could be better spent assuring quality education programs for students. Our suggestion is that other regulators and accreditors adopt as necessary the DOE rules to determine Title IV schools’ financial responsibility.

James D. Hutton, PhD
Owner, Hutton Education

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