Northland President Responds To Poor Financial Report

Despite Northland College receiving low marks in financial responsibility this week, college officials say the school is on solid footing.

On a scale of negative 1.0 to positive 3.0, a report from the U.S. Department of Education gives Northland College a score of 1.2, but the college president says those numbers don't tell the whole story.

“Our current financial situation is not accurately portrayed,” said President Mike Miller in an interview Thursday.

A score greater than or equal to 1.5 indicates the institution is considered financially responsible, a score of between 1.5 and 1.0 shows the institution is financially responsible but is now subject to cash monitoring and other requirements, while a score of less than 1.0 indicates a school is not financially responsible, according to the U.S. Department of Education.

In a letter to Northland College faculty and staff members sent Thursday, Miller writes, “In FY10, our endowment recovered, and we posted a letter of credit for 50% of financial aid funds that we receive. Doing so moved our classification to the status of “financially responsible”. It removed us from the watch list. Sadly, this updated list was not the one used for this publication.”

For a number of years institutions of higher education have been given financial responsibility ratings by the federal government. The data used in the most recent report are from 2009 and 2010, Miller explained, and at no previous time has Northland College received a failing grade.

“It was just the one year,” Miller said. “Our endowment suffered a bit when the market crashed a couple of years ago. Our endowment has come back at record levels and we are more financially sound.”

When the U.S. economy tumbled over the past few years the Northland College endowment fell by $6 million but has since fully recuperated, Miller said, thanks to a more conservative investment strategy.

A low debt, attributed in part to a large gift to the school this year that cut the college debt by half, and a larger incoming class, have also contributed to the college's recovery, Miller said. The percent increase in the size of the college's incoming class this year was the largest reported by any college in Wisconsin, he said.

The U.S. Department of Education uses a composite of three ratios from audited financial statements from institutions of higher education. These ratios are a primary reserve ratio, an equity ratio, and a net income ratio. These ratios do not show educational performance and only gauge financial health, the department emphasizes in its report.

Other factors used by the government to assess colleges are having sufficient cash reserves, meeting all financial obligations, and being current with payments on debt, according to information from the federal agency.

Were the federal numbers reported this week to be based on the school's current financial situation, rather than the situation in 2009 and 2010, Miller says a different outcome would be readily apparent.

“Our score this year is anticipated to be in the 2.5 range,” Miller said.

The National Association of Independent Colleges and Universities is calling for an overhaul of the U.S. Department of Education's method of measuring financial responsibility.

“While we support the federal government’s goal of identifying institutions in dire financial straits
so that Title IV funds are not lost or misappropriated, we question whether the current responsibility test does that,” reads a statement from the association. “For example, although the endowments held by hundreds of private colleges and universities are a critically important source of future equity and stability, formulas used by department financial analysts inappropriately penalized institutions that weathered endowment value deflation during the 2008 market collapse.”

The association is setting up a task force of business officers from colleges and universities, representatives from a Council of Independent Colleges, independent accountants, and individuals representing college associations to make a recommendation to the U.S. Department of Education next year about how the financial report scoring method can be improved.

“Inclusion on the list does not mean a college is in danger of closing. The overwhelming majority
of institutions that have appeared on the list in previous years continue to provide a quality
education to their students,” the association's statement reads. “Students and parents who are concerned about a college’s inclusion on the list should talk to the school about the reasons for it.”

Financial responsibility scoring released by the U.S. Department of Education is attached below.