In a flush economy, it’s easier to look the other way when things aren’t going well. In a tight economy, however, we’re much more aware of where our dollars are going – especially our tax dollars. This year, more than ever, organizations that receive government funds are under increasing pressure to provide information about not only their finances but also their bottom line: what benefit are these organizations providing to taxpayers?

Under the terms of the Higher Education Act of 1965, both for-profit and non-profit educational institutions must submit audited financial statements each year to the Department of Education. The idea, as Congress indicated in 1995, was to reduce unnecessary government spending and to ensure that the colleges could demonstrate they are maintaining the standards of “financial responsibility” required to participate under Title IV programs.

This year, using those reports, 149 US colleges were ranked “not financially responsible” by the US Department of Education. That’s an increase of about 15% from the previous year and nearly 40% from the year before that. Schools that are considered “not financially responsible” have received a school of 1.5 or less on a scale of -1.0 to 3.0. Those schools have to take certain steps to prove to the Department of Education that they don’t have substantive cash problems.

Four colleges sit together on the top of the private non-profit list: City College (FL); Cochran School of Nursing, Saint John’s Riverside Hospital (NY); Long Island College Hospital School of Nursing (NY); and Robert B. Miller College (MI). All four have been on the list for the last three years.

The state by state breakdown is quite interesting, as the colleges appear to be “clumped” across the country. Four states have the distinction of having 10 or more colleges which made the list: Pennsylvania (13), Illinois (13), New York (12) and California (11). A number of states have the honor of having no colleges on the list, including Louisiana, Montana, Maine, Arizona, and New Mexico.

Statistics aside, the report raises an interesting question: should taxpayers continue to fund higher education? Unlike many other countries, while the US pays into funds that support higher education, we require students to shell out their own money to pay for tuition. According to the College Board website, the cost of tuition and fees for a public four-year college is, on average, $7,020 per year for in-state students; full-time out-of-state students at these institutions is $11,528. The cost of attending a private four-year college, on average, is $26,273 per year. These costs don’t include the cost of living, room, and board and other expenses like books. It is a considerable amount of money.

Tuition and fees from students make up only a portion of the revenue associated with colleges and universities. Additional funds come from lucrative deals from sports programs and alumni donations, almost all of which can be attributed to the federal tax-exempt status of schools, scholarships, and sports programs. On top of that, most schools receive federal government aid in some form. But should they? Should the government continue to fund higher education in our country? And if so, should the Department of Education play a bigger – or smaller – role in oversight? These are questions that are increasingly important as tuition continues to rise while the economy continues to fall. What do you think?

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Kelly Erb is a tax attorney and tax writer.


    • Gah, it was California. This is what happens when I’m forced to make my own coffee in a hotel room…

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