Private-College Group Launches New Salvo On Education Department’s ‘Financial Responsibility’ Test

The National Association of Independent Colleges and Universities has renewed its critique of the U.S. Department of Education's annual "financial responsibility" scores. The private-college association argues in a report issued this month that the department's continued use of outdated accounting principles and its "pervasive misinterpretation" of its own rules have unfairly damaged colleges' reputations and their bottom lines.

The report, which Naicu delivered to the under secretary of education, Martha J. Kanter, this month and to its own members this week, highlights many of the same concerns that the private-college association and other groups first raised publicly more than a year ago.

The scores are based on financial information derived from colleges' annual audits. Colleges that fail to earn a high enough score can be barred from participating in federal financial-aid programs, or be required to post letters of credit—which can be costly—in order to continue to participate.

The department has been required to assess colleges' financial responsibility since the late 1980s to guard, as the Naicu report puts it, "against the precipitous or sudden" closure of a college because of weak finances. Such closures could leave students in the lurch and taxpayers on the hook for financial aid paid out to the college.

While the formula now used to calculate financial-responsibility scores was developed in the mid-1990s with broad input from colleges, Naicu's report says "it is no longer clear that the current regulatory process is meeting its intended goal."

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