As many as 159 degree-granting private colleges that provide federal money for financial aid have failed to satisfy the U.S. Department of Education’s (DOE’s) financial responsibility standards for the 2013–14 academic year (the latest figures available), according to an analysis by the Chronicle of Higher Education. Ninety-three of the failing institutions were nonprofits.
The DOE calculates a composite of three ratios from an institution’s financial statements — the primary reserve, the equity ratio and the net income ratio — ranging from -1.0 to 3.0. A score equal to or greater than 1.5 indicates a financially responsible institution. Scores of less than 1.5 but more than or equal to 1.0 indicate a school that requires additional oversight. Those with lower scores are typically subject to cash monitoring requirements and may be required to post a letter of credit.