Choosing the right college requires thorough research. Beyond reputation and campus life, there are several critical factors to consider. Important aspects include the academic, financial, and administrative stability of the institution.
Understanding who oversees universities and how they are monitored is crucial to avoid potential disruptions in your education. Here’s why the status of a school matters and where you can find this essential information.
Whose Watching Over Universities?
When evaluating potential universities, it’s crucial to understand the oversight mechanisms in place. Schools that offer federal student aid, such as grants and loans, must be accredited by an accreditor recognized by the U.S. Department of Education and licensed by the state.
Each entity—the U.S. Department of Education, the accreditor, and the state—has its own set of requirements to approve institutions and, if necessary, the programs they offer.
Even if a school does not provide federal student aid, it must still be state-licensed and likely accredited, or in the process of accreditation, to operate legally.
Federal Student Aid and Accreditation
Federal student aid is a significant factor for many students. To offer this aid, schools must meet the accreditation standards of a U.S. Department of Education-recognized accreditor. This accreditation ensures that the institution meets certain quality benchmarks, providing you with a reliable education.
Financial Health Indicators
Schools that offer federal student aid are mandated to annually submit audited financial statements. These statements are evaluated to determine a composite score, ranging from -1 to 3, which reflects the institution's financial health, or financial responsibility. A score of 1.5 or higher indicates financial stability, while scores below 1.0 will require the school to post a letter of credit and they will be placed in cash monitoring by the U.S. Department of Education. Schools with scores between 1.0 and 1.5 may also be subjected to additional cash monitoring but can opt to post a letter of credit amounting to 50% of the total federal student aid received in the most recent fiscal year.
Schools under cash monitoring must disburse federal student aid funds to students before drawing those funds from the government, ensuring correct awarding of financial aid and maintaining financial integrity. There are two levels of heightened cash monitoring: HCM1 (Heightened Cash Monitoring 1) and HCM2 (Heightened Cash Monitoring 2), with Level 2 requiring more extensive oversight by the U.S. Department of Education.
The 90/10 Rule for Proprietary Schools
For-profit schools participating in federal student aid must also adhere to the 90/10 rule, requiring them to earn at least 10% of their revenue from non-federal sources. Violating this rule, especially consecutively, can put the school's ability to offer federal student aid at risk. This helps reduce the risk of financial reliance on federal student aid by for-profit schools.
Choosing a University
Selecting the right university can be one of the most challenging decisions of your college journey. Beyond finding an academic and financial fit, it's essential to research the standing of your school to identify any red flags.
A School's Financial Health
In addition to official actions from governing bodies, there are several resources out there which rank a school's financial health. From Forbes College Financial Grades, Hechinger’s College Financial Fitness Tracker, to the reports listed on StudentAid.gov, there are several resources to determine the financial, academic, or administrative health of a school.
Program Reviews
The U.S. Department of Education conducts random program reviews to ensure participating schools comply with federal student aid regulations. Results of these reviews, including any fines or penalties, are posted on the StudentAid.gov website.
Accreditation Status
Accreditors continuously monitor the academic and financial health of institutions. They ensure quality standards are maintained. If issues arise, accreditation status may change from full to provisional or even be revoked, impacting the school’s ability to offer federal student aid.
Each accredited school must list their accreditor on their website. You can use that information to research the standing of that school on the accreditor’s website.
State Licensing
State licensing is essential for schools to operate. Loss of this license can result in immediate closure.
Why Does This All Matter?
We are currently facing a period of lower college enrollments. While many schools are navigating this challenging time, others are struggling to stay open. Some closures can be predicted based on financial performance over recent years, while others may come unexpectedly.
Impact on Students
Beyond financial stability, poor education quality can impact graduation rates and employment opportunities post-graduation. Employers may view graduates from institutions with questionable programs less favorably, affecting your long-term career prospects.
Be Informed
There is a wealth of information to consider before choosing a school. It may seem overwhelming, but the time spent researching can help you make informed decisions about your future.
Understanding the oversight of your prospective university’s academic, financial, and administrative capabilities is crucial. Whether you’re a college applicant, a financial advisor, or a concerned parent, taking the time to research and understand these elements can save you from future disruptions and ensure a stable educational experience.
Be informed. Make educated decisions. Your future depends on it.