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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