Kendall, other Chicago colleges on federal watch list

  • By Peter Sachs
  • Staff Writer
  • June 16, 2009 @ 9:00 AM

Six Chicago-area colleges, including three in the city, posted failing grades on a financial report card issued by the U.S. Department of Education.

The scores give the federal government a way to measure the risk that a school will shut down mid-term and leave students who have paid tuition stranded.

The data, most of which is a year old but which was only recently released to the Chronicle of Higher Education.

Lutheran School of Theology in Hyde Park was one of the 114 schools who landed on the department’s list.

“In light of what’s happening in terms of the continued market losses in our endowment … we’re anticipating similar results for the current fiscal year,” says Rich Hensey, the finance director there.

But the score doesn’t necessarily reflect how healthy the institution really is, says Tom Hallett, the chief financial officer at Concordia University in River Forest. His school scored 1.4 points on a scale of -1.0 to 3.0. A tenth of a point higher and Concordia would have been deemed financially secure.

“I’m not trying to blast the ratios because they serve a purpose for the government and they serve a pretty good purpose,” he says. “They’re being used now in a different way than they’re really intended to be used by the government.”

The Department of Education generates scores yearly for every college and university that gets federal financial aid. Using a set of ratios and formulas that look at things like the amount of debt a school has, income and cash on hand, the department gives each school a score between -1.0 and 3.0. Schools with a score of 1.5 or higher are considered financially healthy.

Lutheran got a score of 0.9, placing it in a group of 65 schools with scores below 1.0. Schools in that category must give the Education Department a letter of credit – essentially an insurance policy that would refund students their loan money if the school were to shut down.

Though Lutheran had to post a $600,000 letter of credit last year, which cost it about $5,000, its finances are strong, officials say.

“Going into this market downturn virtually all our property was bought and paid for, and we don’t really get credit for that,” says Mark van Scharrel, the vice president for advancement at Lutheran.

Concordia’s score was higher, though Hallett acknowledged the school’s past financial problems and remaining debt put it in a “fragile” position.

“It’s certainly representative of the financial condition,” Hallett says. “And in our case what it says is that we’re still relatively fragile, and we are. We’re not in a bad position at all, but we can’t make any mistakes. We have to continue with our financial improvement.”

In Chicago, Kendall College got the lowest possible score on the Education Department’s scale, -1.0, placing it among five schools nationwide to get that score and suggesting that it was in deep financial trouble.

But that score was based on Kendall’s previous fiscal year, which ended in June 2008. The next month, Laureate Education bought Kendall and turned it into a private, for-profit school.

“Part of what happened once we did acquired it was, look, it’s not like an overnight improvement but it has dramatically improved,” says Debra Epstein, a Baltimore-based spokeswoman for Laureate.

Laureate doesn’t release financial information and has not said what it paid to buy Kendal, Epstein says. Nor would she give any specifics about Kendall’s current financial condition. Because the Education Department only keeps the scores for nonprofit schools, Kendall won’t show up in future rankings.

Officials at Concordia and Lutheran agree that next year, the Education Department’s list of schools with financial difficulties will be much larger.

“I wouldn’t be surprised if it was double (the number of schools on the list), because the investment markets since June 30, ’08 have declined significantly,” Hallett says.

Daily News Staff Writer Peter Sachs covers higher education. He can be reached at 773.362.5002, ext. 18, or peter [at] chitowndailynews [dot] org.