It Shouldn’t Have to Be Students’ Job to Know if a College Will Permanently Close

Blog Post
May 11, 2020

For more information on this topic, check out a recent report by experts from New America, Southern New Hampshire University, the State Higher Education Executive Officers Association, the University of Wisconsin-Madison, and WASC Sr. accrediting agency; and this primer from New America and the National Governors Association.

When college-advising company Edmit planned to publish its estimates of colleges’ financial viability last year, the lobbying association representing private nonprofit colleges pushed back hard. They pushed back hard against even having a public conversation about colleges that were so financially stressed that they might be at risk of closing unless something changed. They pushed back against a methodology that was vetted by college finance experts, using publicly available data. They pushed back against a tool that could be used by schools and policymakers to better understand which schools needed to do some contingency planning to minimize harm to students if the school needed to close. Some colleges even pushed back against Inside Higher Ed, which was planning on writing about Edmit’s data, with a cease and desist letter. And that was pre-coronavirus.

Since COVID-19 hit higher education, the nonprofit-college lobbyists and the umbrella lobbying association for all of higher education have pushed even further, not just against transparency--but against the rules of financial accountability, by asking Congress and the Education Department for a blanket, three-year waiver of the financial responsibility scores calculated annually by the Department and all associated financial responsibility regulations. The scores are part of a long-standing, statutorily mandated method of assessing the financial risk colleges present to taxpayers and ensuring adequate financial protection is in place. In other words, it’s designed to make sure that--if colleges do close or incur other liabilities--taxpayers aren’t left holding the bag.

If it seems like it would be short-sighted for policymakers to ignore those requirements, it’s because it would be. Higher education is experiencing the sudden loss of tuition revenue, costly reimbursements for housing and other expenses, the onset of cuts to state aid for colleges, the drops in revenue from facilities rentals and conferences and parking, and mass uncertainty over whether students will be on campus in the fall--and whether they’ll want to be online if they can’t be on campus. An entirely real possibility is that some colleges--particularly those that were struggling before the pandemic--will be forced to shutter their doors. In fact, a few have already said they’ll close, some noting that while coronavirus didn’t cause their financial troubles, it has exacerbated them to the breaking point. No one wants this to happen, but it will likely happen. And we have to plan now to reduce the harm to students.

Too often in recent years, college closures have come without warning to students and faculty. Given the increased likelihood of some college closures, Edmit has decided to give a financial-health grade to colleges through its consumer-facing website. The grading system identifies private colleges at high risk of closure, based on their revenue and expenses over time. And it assumes the COVID pain keeps coming, with tuition revenue decreases over the next two years, investment declines as the economy tanks, and salary reductions as institutions lay off faculty. Edmit also considered information on colleges’ experience with online education and their enrollment of international students--both particular challenges for colleges during the pandemic.

All told, the Edmit analysis finds almost 350 high-risk private colleges -- over 100 of which were pushed into that category by the added financial risk of COVID-19. (For reference, just shy of 270 institutions had a failing score with the Department of Education for the 2017-18 award year.)

But while this is useful information for students to have before they find themselves on the receiving end of an email announcing they won’t be able to finish out their program at the school where they started, it’s not enough. Given how hard an impending college closure is for a school to swallow, often meaning that school leaders don’t let students know before it’s too late, regulators need to do more -- not less.

Accreditors, states, and the Education Department alike need to up their monitoring of institutions. Metrics on a two-year lag, like the composite score, can help identify colleges that were already struggling -- but they won’t be enough to spot a closure in real-time and help manage the closure so students are minimally harmed. All three regulators should be looking for signs of severe distress in shorter-term measures. The Century Foundation recently published one such suggestion for a short-term measure, similar to the Edmit concept -- measuring liquidity to identify colleges that won’t be able to pay their bills in a matter of months. The commonwealth of Massachusetts has developed another, looking at colleges’ ability to continue teaching their students in the event of a teach-out. Regulators need to look at colleges’ outcomes in as close to real-time as possible -- and share that information across entities, to ensure all members of the so-called program integrity triad are in the know. That isn’t happening now.

For institutions at severe risk of closure, the planning needs to start now. Establishing agreements with neighboring institutions to finish teaching the college’s students in the event of a closure will make sure students have a real opportunity to graduate. A plan for passing on students’ records so they can access free transcripts and financial records will ease some of the chaos seen in past closures. Clear and open communication with students will give them an opportunity to decide their futures: whether to proceed with their education or get their money back through a closed school discharge and, in some states, a tuition recovery fund.

No doubt, some of the financial challenges colleges are experiencing now will be temporary, and most will weather the storm. But it shouldn’t be the responsibility of students alone to know the difference. Accreditors, states, and the federal government should keep a watchful eye on colleges -- and take the necessary steps to ensure students aren’t left harmed.

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Higher Education Accountability & Consumer Protection