With higher ed in crisis, the lack of financial oversight is glaring

Yvonne Mendez was only six months away from graduating with a registered nursing degree from Anamarc College in Santa Teresa, New Mexico, when her plans for the future fell apart. She arrived for class one day in the summer of 2014 and was met with chaos. The school, a for-profit institution with campuses in Texas and New Mexico, had just told students it was shutting down, catching everyone off guard.

“Instructors were running back and forth, coming in and out of the office,” Mendez, now 48, said. “They couldn’t find answers.”

Outwardly, Anamarc had been carrying on business as usual, providing classes for its health science programs on campus, sending students on clinical rotations and collecting tuition payments. Mendez says she had borrowed $36,000 to pay for her education; she had no idea that the college was teetering on the brink of bankruptcy.

The day news of the closing broke, Anamarc officials sent students away with nothing but promises of more information to come. Mendez returned home in disbelief, not knowing what to do next.

In theory, government agencies and accrediting bodies have safeguards to protect students from such abrupt college closures. Schools at risk of shutting down should be required to prepare smooth transitions for their students. Yet a Hechinger Report review of news reports since 2014 found more than 30 schools like Anamarc that announced their closings with little or no warning. Some students showed up to find a note on the door while others received an email in the middle of the day announcing that their school was closed, effective immediately. Even institutions that provided a few days’ or weeks’ notice often still left students scrambling, without answers about how to transfer or access their records.

“Some of those schools are just trying to continue turning a profit for as long as possible.”

Clare McCann, deputy director for federal higher education policy at New America

Such precipitous college closures expose weaknesses in the oversight of higher education’s finances, which experts say is inadequate and scattershot. To identify struggling schools, the federal government relies on data that is often outdated by the time the Department of Education receives and publishes it. Accrediting agencies collect somewhat more recent information, but act on it inconsistently. And state agencies often lack the capacity to provide much financial scrutiny. Instead, they are frequently left trying to pick up the pieces after a closing.

All three groups are supposed to work together to ensure accountability in higher education, but financially failing institutions can slip through the cracks.

“There’s no one organization or entity that is truly in charge of assessing financial responsibility,” said Daniel Zibel, vice president of Student Defense, a nonprofit that advocates for students’ rights. “There’s no one who has ‘the buck stops here’ authority.”

Related: It’s time for some frank talk about abrupt college closures

Now, as the coronavirus crisis throws college balance sheets into disarray, consumer advocates and researchers who study higher education warn that more schools could close with little notice.

Historically, the majority of abrupt college closures have happened at for-profit institutions. Some get caught up in looking for ways to save themselves before realizing it’s too late, according to Clare McCann, deputy director of federal higher education policy at New America, a left-leaning think tank. But others have a different motive, she said: “Some of those schools are just trying to continue turning a profit for as long as possible.”

Steve Gunderson, president of Career Education Colleges and Universities, the national association for for-profit trade schools, argued that schools keep the doors open as long as possible because they want their institutions — and students — to succeed, not to make money. 

“Any school that’s in trouble financially isn’t making any profit,” he said. “Their profit went out the door a couple years ago.”

Federal oversight lags

Mendez says that Anamarc never followed up with information about her options. Within a few weeks, the college had filed for bankruptcy. 

“They knew they were having those financial problems,” Mendez said. “They could have warned us.”

Anamarc’s former owner declined to comment on its closing. 

By that summer of 2014, the federal government knew that Anamarc was struggling. The Department of Education’s primary oversight of private colleges’ fiscal health comes in the form of a rating called the “financial responsibility composite score,” which ranges from minus-1 to 3. For the 2011-12 school year, Anamarc earned a 1,  just enough to be considered financially responsible but still in the warning zone, and the school was subject to additional monitoring.

The following year, its score slid to minus-0.8. By the time the government had that information, though, Anamarc was only a few months from closing. The department gives for-profit schools six months from the end of the fiscal year to submit audited financial statements and then begins reviewing them.  (Nonprofit institutions have a year to hand in their information.) The department placed Anamarc on its highest form of monitoring just 11 days before it shut down.

This lag time is one of the biggest problems with the composite score, experts say. The ratings are also poor predictors of school closures. A 2017 Government Accountability Office report found that half of the colleges that had closed since 2010 had recently received passing scores. 

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As the coronavirus pandemic strains colleges’ budgets, the National Association of Independent Colleges and Universities has asked the Department of Education to pause calculating composite scores for three years. The group, which represents private nonprofit schools, argued that officials facing the pandemic-related loss of revenue could feel forced to make drastic budget decisions simply to get passing scores.

Sarah Flanagan, the association’s vice president for government relations and policy development, said that the composite score was originally intended to be a first warning sign of precipitous closure, which the department would use to take a much deeper dive into institutional financials. But, she says, it has failed to use it as such.

Flanagan wants the government to take this opportunity to rethink how it monitors institutional financial health. “The system itself needs to be fixed,” she said.

“Accreditors are kind of loath to place added pressure on a school that’s already struggling.”

Clare McCann, deputy director for federal higher education policy, New America

But other experts say that despite the composite score’s imperfections, it still has value. It’s a key indicator to help the Department of Education decide which institutions to monitor. Under federal regulations that went into effect this summer, any school placed on the highest level of this monitoring must submit what’s known as a teach-out plan to its accrediting agency.

Teach-out plans — which typically provide students with a list of schools that offer the same programs — are meant to help guard against the chaos that Mendez encountered when her school shut down. 

Accrediting agencies ‘loath to place added pressure’ on schools

Accrediting agencies, which are charged with monitoring higher education institutions, collect financial reports from schools annually and can impose additional monitoring or sanctions. Unless the school meets a federal threshold for submitting a teach-out plan, requesting or mandating one is at the agency’s discretion.   (In some cases, accreditors also have the authority to mandate that a school negotiate transfer opportunities for students, in what’s called a teach-out agreement.)

“They knew they were having those financial problems. They could have warned us.”

Yvonne Mendez , a former student at the suddenly closed Anamark College

Gunderson says accreditors should be able to require such agreements more often and should do so, perhaps even confidentially. “A teach-out plan is nothing more than a concept,” he said. “If you don’t have a teach-out agreement, you don’t have anything in place.”

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Critics have long argued that accreditors aren’t tough enough in imposing sanctions on the institutions they oversee, and too frequently give them the benefit of the doubt, including when a school has financial problems. “Accreditors are kind of loath to place added pressure on a school that’s already struggling,” McCann, of New America, said.

Colleges argue that making their financial problems public will drive students away, thereby sealing their fate and forcing closure. But McCann said that institutions still have an obligation to be transparent to students. “It’s just fundamentally unfair and unbalanced to ask them to continue making financial commitments to a school that’s at risk of closure,” she said.

In the years leading up to its closure, Star Career Academy, like Anamarc, was on the Department of Education’s radar, on its lowest level of monitoring. Under the new federal regulations, that alone still wouldn’t have been enough to require a teach-out plan.

The Accrediting Commission of Career Schools and Colleges, which monitored Star, was aware that Star had financial troubles, the commission’s executive director, Michale McComis, said, and it had required additional financial reporting from the school. The agency never required any plans for closure. Star shut down abruptly in November 2016.

Two weeks before that, Star was still trying to recruit students. “Surprise your friends and family with your cooking talents this holiday season,” a Nov. 2 post on its Facebook page read. “Our culinary classes start this month.”

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Allanah Fischer was only a few days away from finishing an internship and earning a medical assisting certificate from Star when she heard the news. She stepped into the hall after doing an electrocardiogram with a patient and read a text message telling her that Star was permanently closed.

“I was angry, I was confused, I was so upset,” she said. “We had no warning. At least if we had warning we would be able to prepare. No one knew anything at all.”

The accrediting agency found out the same day as students did. In response, the agency required other schools it accredited that were owned by the same group to find new owners and attempted to help Star students find new schools.

“We had no warning. At least if we had warning we would be able to prepare. No one knew anything at all.”

Allanah Fischer, former student of the now-closed Star Career Academy

McComis said that Star’s case was an extreme example of disorganized closure and that, in most instances, his agency is able to work more closely with institutions to avoid stranding students. The agency recently updated its standards regarding when teach-out plans are needed.

Deciding when to require such plans can be tricky, McComis said. “Reviewing financials is part art, part science,” he said. “Even though we’re dealing with numbers, which provide a quantitative framework, there’s still a fair amount of qualitative and subjective analysis that goes into it.”

Waiting to require a plan can have serious consequences. Fischer was close enough to finishing her program that she was able to obtain her certificate without completing her internship. But she’d been counting on the school to pay for and help her prepare for a certification exam. She never took that test and was unable to get a job in her field without passing it. She decided to start over, despite her $12,000 in student loans, and is taking prerequisites for a nursing program.

The investment group that had majority ownership of Star when it closed did not respond to requests for comment. 

State agencies struggle to pick up the pieces

Like students, state officials can be caught unawares by college closures. Financial data collected by states for nonpublic institutions is limited, as state agencies often don’t have the money or the capacity for extensive oversight, according to David Tandberg, vice president for policy research and strategic initiatives at the State Higher Education Executive Officers Association.

The Georgia Nonpublic Postsecondary Education Commission is able to do more than many other state agencies. It has an external auditor examine the finances of most institutions it authorizes every year. But even its officials received only a few days’ notice before Argosy University closed in March 2019.  

A Hechinger Report review of news reports since 2014 found more than 30 schools that announced their closures their closures with little or no warning.

In general, state agencies in charge of higher education oversight are “still struggling to identify the indicators that are really going to lead us to know when the institution is going to close,” the commission’s deputy director, Laura Vieth, said.

The case of Argosy, a national for-profit chain with campuses in 13 states, demonstrated how once a school closes, the help students receive depends on where they are. In Minnesota, for instance, officials from the state’s Office of Higher Education retrieved physical copies of student records from Argosy’s Twin Cities campus and stored them in case students needed them. Students attending the Georgia School of Professional Psychology at Argosy University weren’t as fortunate.

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Kimberly Milbrandt, who was studying for her doctorate in psychology, said that she contacted the Georgia commission dozens of times, asking them to help her get her records and figure out her transfer options. The state held transcripts but did not have access to her clinical records, which included details of the thousands of hours she’d put in. They were vital for transferring and for future licensure.

When Milbrandt had enrolled in the school, she said, it was considered one of the top psychology doctorate programs on the country. Her first two and a half years were excellent, but then the warning signs began. It started when her student loan disbursement didn’t come through (she had to pick up a job to cover living expenses).  But when the school shut down, Milbrandt said that school officials, its court-appointed receiver and the state’s higher education agency all offered no help. “We were abandoned,” she said, “at all stages of closure and transfer.”

Vieth said the commission did try to help. It reached out to all Argosy students and it helped some of them access money from a state trust created to help protect students against financial losses when institutions go under, she said. But it was difficult to ensure that all students had a place to transfer, because the school shut so suddenly, she said.   

Argosy’s court-appointed receiver, Mark Dottore, said that the closure was as organized as it could be and included setting up transfer agreements and creating a call center for students. He added that 33 students were affected by the records problem Milbrandt had and that his office provided them with a letter describing the situation for any future education or licensing needs. 

Lasting consequences

Milbrandt ended up stitching together enough of her records on her own to transfer to the Chicago School of Professional Psychology’s campus in Washington, D.C. But she lost her support network, along with proof of six months of her work, which will delay her graduation a year.

“I’m going to end up having to pay over $100,000 for this degree,” she said. “That’s ridiculous.”

After Anamarc closed, Mendez never re-enrolled in school.

She recalls getting a notice from the New Mexico government with information about transferring, but says she contacted at least half a dozen schools and none would accept her credits. 

“There’s no one organization or entity that is truly in charge of assessing financial responsibility. There’s no one who has ‘the buck stops here’ authority.”

Daniel Zibel, vice president of Student Defense

“It would have opened up a lot of opportunities for me,” she said of getting her degree. “My pay would have gone up. I would have had a lot of job security.”

Instead, she continued working as a licensed practical nurse and remains disappointed by the abrupt end to her education. The year and a half that she spent in school — time lost with her three children and her husband — was for nothing.

“It’s a sacrifice that I’m doing for my kids and my family,” she said. “When all this came down, it was a slap in my face.”

This article about college closures was produced by a partnership of NBCNews.com and The Hechinger Report, a nonprofit, independent news organization focused on inequality and innovation in education. Sign up for our higher education newsletter.

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