White Paper: Monitoring and Assessing the Financial Health and Risk of Colleges and Universities

Monday, October 29, 2018
Motivated by reports of financial challenges among colleges and universities and requests from state higher education agencies for better methods of assessing and tracking the financial health of the colleges within their states, the State Higher Education Executive Officers Association (SHEEO) has produced a technical white paper on monitoring and assessing the financial health and risk of colleges and universities. The white paper is aimed at state higher education governing and coordinating boards and system offices.
 
Accelerated by the Great Recession, and later by increased oversight and regulation of the for-profit sector, states have witnessed a wave of institutional closures. These institutional closures have tended to be isolated in the private for-profit and nonprofit sectors. However, there have been a number of examples of institutional mergers and consolidations within the public sector and examples of public institutions risking financial viability via reduced revenues and suffocating debt. In each case, some level of responsibility often falls on the state’s higher education executive officer (SHEEO) agency (the state’s governing or coordinating board). Central responsibilities of a SHEEO agency include helping ensure that institutions are financially viable, that they are good stewards of their public resources, and that they have the resources they need to best serve their students.
 
One action that can facilitate all of these responsibilities is tracking an institution’s financial viability. Often called financial risk metrics or stress tests, the financial industry has developed a number of metrics and ratios that attempt to elucidate the financial strength of a college or university. In this white paper we discuss each of them, suggest some additional data sources and metrics, and then discuss how different SHEEO agencies, depending on their purview and resources, may attempt to more effectively monitor the financial health of their institutions so agencies may better engage the institutions, plan ahead, and serve their states. This white paper is meant to assist SHEEO agencies in carrying out these responsibilities.