by Jennifer Katz

Despite high enrollment and the ongoing negotiations to develop SugarLoaf Hill, Chestnut Hill College has another hurdle to clear before focusing solely on the future. Last week the Chronicle of Higher Education published the results of the U.S. Department of Education’s

Financial-Responsibility Test for 2010. Chestnut Hill College was among the 180 private higher education institutions that did not make the mark for the second year in a row.

Lauri Strimkovsky, senior vice president for financial affairs and chief of staff at the college acknowledged the shortcoming for fiscal years 2009 and 2010, but added that the college ended fiscal year 2011 with a passing score.

“This doesn’t mean the college is going to close. The quality of the education remains the same,?” Strimkovsky said. “It’s a thriving college with steady enrollment that still provides stellar financial aid packages.”

Since 1998 the Department of Education conducts the test, which measures private, nonprofit higher educational institutions’ fiscal capacity to administer Title IV student aid programs. The programs –  Pell grants, workstudy, SEOG (Supplemental Education Opportunity Grants) and low-interest loans – are essential for providing competitive financial aid packages to potential and matriculating students.

The test measures the institution’s adequacy of cash flow, budget surplus, and deficit, debt and net worth by calculating three key ratios and assigning a point value to each, which is then added together to create an institution’s composite score from -1 to +3.

Scores of 1.5 or above “pass,” scores between 1 and 1.4 subject an institution to special requirements and enhanced monitoring and scores below 1 prohibit institutions from participating in Title IV programs without providing additional surety.

The college’s composite score for 2010 was 1.4, a tenth of a point under the 1.5 passing score and up from its 2009 score of 1.1. The year 2009 was also the first time since the test was implemented that the college’s scores was below 1.5.

“It boils down to the market downturn and huge investment losses and financial derivatives that lost value when the interest rates dropped,” Strimkovsky said.

The college, which has 2,300 students currently enrolled, and a total operating budget of $32 million, reported realized and unrealized gains of $1.5 million in the college’s financial statements for the 2008/09 fiscal year, $813,000 of which were unrealized losses in its endowment market value.

The college also reported another $300,000 of depreciated value in a derivative instrument known as SWAP bonds to hedge interest rate risk. In 2009/10, that depreciation rose to $498,000.

The National Association of Independent Colleges and Universities has been critical of the test and recently created a task force “to make recommendations for improving the current Department of Education regulations on financial responsibility for private, nonprofit colleges.”

According to a summer 2011 article in “Trusteeship,” the current method creates inequities in the results:

“Many financially sound colleges and universities had precipitous rating slides simply because an extraordinary downturn depressed endowment values and total net assets in 2008 and 2009. How else do you explain Harvard University and Yale University at 2.2, Georgetown University at 1.6, and Leon’s Beauty School in North Carolina at 3.0?”

The test relies on end of fiscal year data and lags more than a year behind. The scores that came out last week in TCOHE are from June 30, 2010. As of June 30, 2011 (the close of the college’s last fiscal year) the college is set to score 1.51 on the test per its auditors, which prepare the documents used by the DOE. Further the college said it ended its last fiscal year with net assets of more than $1 million.

Other local schools that “failed” the test include Gratz College in Melrose Park (with a score of 1.0) the Lutheran Seminary on Germantown Avenue in Mt. Airy for the third consecutive year (with a 2010 score of .7).

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