When public colleges and universities in West Virginia were placed under cash restrictions for federal student aid last month, it was a rare -- and possibly unprecedented -- instance of the federal government sanctioning an entire state’s higher education system.
But it’s not unusual at all for public universities to find themselves subject to this form of sanction, known as heightened cash monitoring, which requires them to seek reimbursement from the feds only after they’ve handed out aid to students.
Ninety public institutions were subject to heightened cash monitoring as of March, when the most recent data were released by the U.S. Department of Education. Jim Justice, West Virginia's governor, has promised “heads will roll” over the failure to submit the audit statements on time. But for three years, the No. 1 reason public universities landed on the sanction list was the same one that tripped up his state -- late or missing financial audit statements.
State higher education officials say students' access to federal aid shouldn't be affected, but the sanctions add serious administrative burdens for campus administrators. And the sanctions will slow their ability to offer new academic programs as well.
Diane Auer Jones, a senior fellow at the Urban Institute and formerly assistant secretary for postsecondary education at the Education Department, said heightened cash monitoring is typically the result of failing the financial responsibility test, which does not apply to public universities.
“The reason an institution would be put on heightened cash monitoring is the department is concerned that it wouldn't have the ability to refund excess student aid drawdowns or have the administrative capacity to manage their programs well, or because they feel as though taxpayer and student dollars are at risk,” she said. “HCM gives the department more tools to monitor the institution more closely.”
States are given the benefit of the doubt that they will back public institutions so these institutions aren’t subject to the financial responsibility test. As a result, submitting the audit reports on time is really the only benchmark they are required to meet for continued access to federal aid.
"You could argue that if a state three years in a row couldn't file the required audit report on time, that's a sign they could have administrative issues," she said.
Unlike private colleges that fail the financial responsibility test, public institutions are subject to a less severe version of the sanction, called Heightened Cash Monitoring 1, that is burdensome but won’t put any colleges out of business. The next step up, Heightened Cash Monitoring 2, would require institutions to submit documentation of all expenses on student aid, which can significantly slow reimbursement from the department.
The department hit for-profit college chains Corinthian Colleges and ITT Tech with those cash restrictions, among other sanctions, in 2014 and 2016, respectively. Both eventually shut down, partly because of lost access to federal aid.
Consequences Beyond Cash Flow Concerns
Paul Hill, chancellor of the West Virginia Higher Education Policy Commission, said the heightened cash monitoring sanction is primarily a liquidity issue. At the beginning of the fall semester last year, the state disbursed about $245 million in federal aid to students. The state expects to disburse a similar amount of aid to students this upcoming fall, but it will have to draw down institutional funds first before being reimbursed by the feds.
In the meantime, the state is looking at moving some state treasury funds to those institutions to make sure they have enough cash on hand after disbursing aid. Longer-term complications from the cash restrictions are harder to anticipate, Hill said.
There are consequences for West Virginia universities that go beyond the sanctions’ cash restrictions, however. While the state’s higher education system is under heightened cash monitoring, universities won’t be able to launch new academic programs -- including majors or classes at extension campuses -- without federal approval.
Because falling under HCM means there is either a financial or administrative problem at a college, the department more closely monitors activities like the launching of new programs or new branch campuses until the institution proves it has the capacity to handle them.
That could mean a delay of months or years for a new program, potentially causing institutions to miss opportunities to respond to local or national work force needs.
Some accreditors also put time limits on how long institutions can go before enrolling their first students after receiving program approval. If the department does not give them the OK before that period ends, an institution would need to start the whole process over again.
West Virginia higher education officials point out the administrative failing that triggered the extra monitoring wasn’t theirs -- it was elsewhere in state government, which collects audits from multiple state agencies and submits them as a package to the feds.
“We were in on time. That’s why we think the U.S. Department of Education sanctions against us are unwarranted,” Hill said. “That would be different had our own higher education audit shown that there was some sort of abnormalities, improprieties or sloppy accounting. None of those things occurred.”
A department official confirmed that new programs will require extra approval while West Virginia universities are subject to heightened cash monitoring but said new programs planned to launch this fall shouldn’t be affected.
Higher ed officials say they are examining the impact of those new requirements on the system. Casey Sacks, vice chancellor the Community and Technological System of West Virginia, said it's not clear whether those additional approval requirements will apply only to for-credit programs eligible for federal aid or if they will apply to noncredit programs as well. The Education Department has offered mixed signals so far, she said.
Community colleges in the state launched 17 new credit-bearing programs (such as associate degrees or one- to two-year certificate programs) last year. The colleges are especially responsive to the work force needs of employers -- in the same year, they offered more than 800,000 hours of noncredit instruction time in the classroom or lab. Those instructional programs could last from weeks to months, depending on employer needs.
While community colleges won't post spring semester schedules for at least another couple of months, the uncertainty over the new approval requirements is already creating uncertainty for short-term training programs.
"That noncredit training is a really big part of what community colleges do in the state," Sacks said. "It's immediately problematic."
Some observers doubt the department will keep the sanctions in place for the full period of five years, particularly as Betsy DeVos, the education secretary, receives political pressure to reverse or modify them. West Virginia’s federal congressional delegation appealed directly to the secretary to reverse course, while the state higher education system will appeal to the regional Federal Student Aid office.
DeVos has already granted some leeway to institutions after the department rejected several TRIO applications over formatting issues. After protests from elected officials, the department said in May that it would reconsider those applications.
The secretary has shown a willingness to disregard some of the technicalities of operating higher education programs, said Clare McCann, a senior policy analyst with New America's education policy program.
“My guess is Secretary DeVos will come under a pretty substantial amount of pressure and FSA will reverse course,” McCann said. “I’m not sure any administration responds to that level of political pressure very differently.”
Ben Miller, senior director for postsecondary education at the Center for American Progress, said that’s a playbook that emerges every time public colleges face accountability.
“It just speaks to how, actually, any accountability, regardless of how minimal, is very difficult, because we do not exist in a political vacuum,” he said.