Journal of
Corporate
Renewal
June
2015
statements: a primary reserve ratio, an
equity ratio, and a net income ratio.
The ratios are considered to provide
a primary measure of an institution’s
financial health. FRC scores can
range from minus 1 to positive 3.
A score of at least 1. 5 signifies that
an institution is deemed financially
responsible, according to FSA. 2
Of the 543 schools listed by the
Education Department, 341 of them,
or about 63 percent, failed to maintain
an FCR score of 1. 5 or greater. The
second most prevalent issue cited
involved delinquent or missing
audits; 68 schools, or roughly 13
percent, comprised this category.
Reasons schools can be placed on the
watch list are shown in Figure 1.
The data also indicates that more than 50
percent of the schools listed are for-profit
institutions, an industry that has been
the subject of much scrutiny outside of
the Department of Education’s watch list.
In recent years, the government has
made efforts to ensure that potential
enrollees of certain for-profit schools
do not fall victim to predatory practices.
Corinthian Colleges, one of the
largest for-profit institutions and the
parent operator of Everest, Heald,
and Wyo Tech Colleges, is the most
significant example. The Department of
Education took notice of Corinthian’s
abnormally high post-graduate job
placement rates in January 2014 and
placed the school on the watch list. An
independent monitor was appointed
to decide on selling or closing its
programs to further protect students.
After completing a comprehensive
review, the Department of Education
concluded that Corinthian had been
inflating job placement rates as a way to
sell prospective students on enrolling on
its campuses and therefore bolster the
amount of federal student financial aid
funds it received. Corinthian received
approximately $1.4 billion a year in
federal student aid. The company
was subsequently fined $30 million.
Many of Corinthian’s campuses were
sold to Zenith Education Group,
which has since enhanced practices,
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We are who you think we are
And also, we’re not
continued on page 30
Type of Institution HCM- 1 HCM- 2 Total
Foreign Private 2 0% 4 6% 6 2%
Foreign Public 23 5% 2 3% 25 5%
Private, Non-Profit 97 20% 18 26% 115 21%
Public 68 14% 6 9% 74 14%
For-Profit 284 60% 39 57% 323 59%
Total 474 69 543
Higher Education Institutions on Heightened Cash Management Figure 2