Private Colleges Urge Changes to U.S. Test of Institutions' Finances

November 29, 2012

A task force convened by the National Association of Independent Colleges and Universities released a final report Wednesday that recommends changes to the Department of Education's annual financial responsibility measurement, a combination of three financial ratios that helps determine whether institutions can qualify for federal financial aid. In 2010, many independent colleges were surprised to find their names on the list of institutions that fell below the department's threshold despite what they viewed as stable finances, forcing them to prove their financial solvency through other costly measures.

The association's review found that the department inconsistently applied its standards and that consistent application would have kept many institutions off the list. The department also interpreted some accounting terms in a way that was inconsistent with updated accounting guidelines, including counting endowment losses -- a common feature of university balance sheets in 2010 -- as expenditures. The task force said officials will work with the department and Congress to make changes to the test.

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