The U.S. Government Accountability Office (GAO) found three key limitations of the composite score the Department of Education uses to assess the financial health of institutions that participate in the federal student aid programs. In report GAO-17-555, published on September 20, the GAO called the score an imprecise risk measure, arguing that it had predicted less than half of school closures since the 2010-11 academic year.
The limitations included:
- Failure to reflect updates in accounting practices.
- Use of outdated financial measures rather than new metrics such as liquidity, historical trend analysis, or future projections.
- Vulnerability to manipulation by allowing schools to inflate their scores by taking out additional debt.
The GAO also criticized ED for inadequately explaining how it calculates schools’ composite scores, noting that administrators at seven out of the 10 schools analysts consulted were confused about their calculations. NACUBO staff met with GAO investigators during their examination and shared concerns about shortcomings in ED’s methodology and application of its rules.
The watchdog agency recommended that ED:
- Update the financial composite score to better measure schools’ financial conditions.
- Improve its guidance to schools on how it calculates the composite score.
- Provide public data on final composite scores for all schools.
In its formal response to the GAO, ED disagreed with the first recommendation even though it is in the process of establishing a negotiated rulemaking committee to update the composite score calculations in light of accounting changes.