Indicator reflects colleges’ sound finances
With collective annual expenditures of over $1.5 billion, the 17 nonprofit colleges that are members of the Minnesota Private College Council are large organizations with complex budgets. Given that, one way to gauge their financial health comes from the U.S. Department of Education, with financial responsibility composite scores that are calculated annually. The latest data released this winter is for fiscal 2015 and show that the 17 Minnesota Private College Council member institutions are on sound ground financially.
“Looking at the publicly available data from Department of Education, we certainly stand out as financially responsible institutions,” said Linda Brown, vice president for finance and treasurer, Concordia College. “As a whole, the ones I know are managed well in light of very challenging times. There have been volatile markets, demographic changes that have impacted most of us, and a recession that impacted our families and families of prospective students.”
Built on three different financial ratios, the composite scores range from -1.0 to 3.0, with institutions scoring above 1.5 being considered financially responsible. (Colleges with scores between 1.0 and 1.4 still have access to federal financial aid funds but are subject to additional oversight.) For our institutions, the latest scores for fiscal 2015 were well above the minimum threshold; they ranged from 2.4 to 3.0, with an average of 2.8.
“Minnesota’s private nonprofit colleges, these 17 in total, are all vibrant and very healthy, as evidenced by their Department of Education composite scores,” noted Thomas Rooney, CFO, vice president for finance and treasurer at Gustavus Adolphus College.
While the Department of Education’s composite score offers a window into college finances, many in higher education are aware of the limitations as well. In 2012, a taskforce was formed by the National Association of Independent Colleges and offered recommendations for improving the accuracy and consistency of the scores; one of the taskforce members was Karen L. Angell, a partner with the Minneapolis-based accounting firm of Baker Tilly Virchow Krause, which works with many nonprofit colleges. Angell described problems with how the department has at times failed to follow its own methodology or accounting standards in calculating the scores. However, the department has not adopted any of the recommendations made by the task force and as a result, the way the composite scores are calculated remains a concern for the National Association of Independent Colleges and Universities, among others.
Meanwhile, there aren’t many similarly standardized ways to get a handle on college finances that are publicly available. For someone looking for a more holistic picture, Angell recommends considering other factors, such as the way colleges are managing their expenses, their fundraising efforts and their enrollment, as well as the looking at the percentage of students who graduate in four years as that helps keep student costs, and therefore, debt down. Another key factor to weigh in gauging financial health of the institution is student outcomes and satisfaction, Rooney said.
Sometimes people misunderstand just how different these private nonprofit colleges are from for-profit businesses, Rooney said. For these colleges, mission always trumps other concerns. And if people are trying to keep private nonprofit colleges distinct from those that are public, he notes how public institutions receive a significant share of their funding from government, which is not the case for private nonprofits.
For private nonprofit colleges, continuing to ensure the financial health of the institutions and ability to continue to pursue their missions involves several priorities. Rooney said these include maintaining the equity of the physical and financial assets, managing risk and establishing strong financial controls in accordance with generally accepted accounting principles.
For Minnesota Private College Council member institutions, the big picture perspective is that they remain financially sound. Yes, there are challenges for any large nonprofit, including these colleges, that require adjustments over time to manage the bottom line. “There are good times and less easy times,” Brown said. “But the colleges that are part of the Council are strong institutions and will weather challenges.”