Regulators could do more to spot colleges at risk of closing, report argues

Dive Brief: 

  • A new report examines a dozen colleges closures to spot warning signs for higher education regulators that a college may be about to close.
  • Those include falling enrollment, poor student outcomes and major lawsuits, explains the report, which was written by representatives of a policy think tank, an accreditor, two universities and an association.
  • The report comes as some predict the coronavirus pandemic could push financially struggling institutions over the edge and usher in a wave of college closures. 

Dive Insight:

More than 300 colleges closed between 2008-09 and 2016-17, the report notes. While some shutdowns have been orderly, sudden closures have left tens of thousands of students scrambling to figure out how to continue their education over the past few years. 

The authors analyzed about a dozen of those abrupt closures to determine if there were early indications they would shutter. Clare McCann, deputy director for federal higher education policy at New America, a left-leaning think tank that published the report, said in an interview that the analysis highlights a “consistent failure by regulators to take action when they see warning signs.” 

The report calls for the U.S. Department of Education to ramp up its monitoring of colleges’ financial health. This could become especially important in light of the global pandemic, which some observers say could make enrollment targets harder to hit and cause college closures to accelerate.

The Ed Department’s system for flagging failing colleges, called the financial responsibility composite score, has only predicted half of the college closures between 2010-11 and 2015-16, a 2017 report from the U.S. Government Accountability Office found. Critics of the score point out that it relies on data that lags by six months or more, meaning it doesn’t capture a colleges’ financial health in real time. 

That can leave students and other stakeholders in the dark about their institutions’ health. For instance, Mount Ida College, which closed in 2018, did not have a failing responsibility score, “despite the severity of the school’s financial struggles,” the report notes. 

Other signs of pending closures include years of enrollment declines or worsening student outcomes. High-profile lawsuits, investigations and audit concerns could also indicate trouble. 

Last year, the Ed Department issued new regulations that will require financially weak colleges to submit teach-out plans sooner than they otherwise would have. 

Yet the report argues that teach-out plans aren’t binding and often lack the details needed to be carried out. Teach-out agreements, on the other hand, better help students finish their programs at other institutions, the authors argue. 

They also suggest struggling colleges should be required to form teach-out agreements sooner, though some institutions are concerned that doing so would worry students and hasten their declines. 

Making the practice more commonplace could help, McCann said. “If we were able to require teach-out earlier from (colleges) more consistently, not everyone would take that as a sign of actual, impending closure,” she said. 

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