Through an open-records request, trade publication Inside Higher Ed obtained and published the names of all schools with outstanding letters. Many are trade schools or small religious-affiliated colleges that failed a federal review of their income, debt and assets, known as the financial responsibility test. Others made the list for turning in late financial reports, changing owners or mishandling federal financial aid.
The largest letters of credit are posted by career-college chains. Education Management Corp., which operates the Art Institutes, Argosy University, Brown Mackie College and South University, is putting up the most money with $271.5 million. It is followed by Walden University parent Laureate Education with $85.6 million and ITT Educational Services $79.7 million.
Given the sharp declines in enrollment at many for-profit institutions and small private colleges, it goes to reason that some of these schools are facing enough financial strain to run into trouble with the feds. But the appearance of some marquee private schools is a bit surprising.
Bryn Mawr, the exclusive women’s college in suburban Philadelphia, was asked to post a $16,330 letter of credit last year for failing to refund students financial aid in a timely manner, the same reason Drexel University had to post a letter for $287,253, according to the Department of Education.
Meanwhile, Rensselaer Polytechnic Institute in upstate New York is required to post a $4 million letter for flunking the department’s financial responsibility test. The research university is mired in debt, with nearly $1 billion in liabilities from issuing bonds to cover construction and years of operating at a deficit.
It is rare for the department to tap the funds schools set aside. Just 10 colleges that posted letters of credit had their funds drawn between January and November last year. During that time, the government drew down $1.9 million from Sojourner-Douglass College, a small private school in Baltimore, that closed last year.
There is a lot of interest in the financial health of colleges these days because of the stunning collapse of Corinthian Colleges. The for-profit company, which ran Everest, Heald College and WyoTech schools, stood accused of steering students into high-cost loans and running dubious programs, yet received $1.4 billion in federal financial aid a year.
Despite mounting evidence that the school was in trouble, it was not required to post a letter of credit, though it was put under a form of financial scrutiny known as heightened cash monitoring. Still, critics say the department took too long to cut off Corinthian’s access to federal funds, a move that crippled the company and forced the sale of more than half of its 107 campuses.
Now the department is proposing expanding the kinds of events that could trigger a letter of credit. Colleges could soon find themselves heading to the bank if they are placed on probation by an accreditor, have a high number of students defaulting on loans for two years, fail to meet debt obligations or are sued by state or federal authorities — which would have resulted in a letter for Corinthian.