Feds give 5 Minn. colleges failing financial grades

Hamline University's Old Main
Hamline University's Old Main building, on its St. Paul campus.
MPR Photo/Tim Post

A report from the U.S. Department of Education gives five nonprofit Minnesota colleges poor grades when it comes to their financial strength.

The scores released Thursday are based on the colleges' revenue, how much money they have in savings and how much debt they're carrying.

The Minnesota school that earned the lowest grade is Crossroads College, a small Christian college in Rochester.

"The college has been struggling financially, that is true," said Michael Kilgallin, the school's president.

The problem, Kilgallin says, is that the college took on debt a few years ago when it financed $3 million worth of construction on campus. Combine that debt payment with losses in the school's endowment and losses in real estate holdings, and its fiscal year 2009 books closed in the red by $340,000.

The Department of Education ranks financial strength on a scale from -1 to +3. Crossroads score was -0.6, which is considered failing.

But that label doesn't mean the college is about to shut its doors, Kilgallin said. The school has no problem paying its bills or paying employees. But like other colleges, the money it has socked away was hit hard by the downturn on Wall Street.

"Those ratios often are not a fair depiction of what is taking place inside the college," he said.

Kilgallin says he's optimistic about the college's future financial picture. One indicator is enrollment, which stands at 172 students -- a 6 percent increase over last year.

The other Minnesota schools that received failing financial scores from the Department of Education were the United Theological Seminary of the Twin Cities and the Mayo Clinic College of Medicine.

Officials at Mayo say their score is artificially low because the Mayo is a different kind of enterprise than a typical university.

The Department of Ed compares tuition revenue with overall expenditures. And in Mayo's case, the amount of tuition revenue coming in is a relatively small portion of the $7 billion the entire clinic makes and spends in a year.

Two other Minnesota schools received poor grades in the report. Although they weren't failing scores, White Earth Tribal and Community College and Hamline University received scores of less than 1.5.

Hamline University's vice president of finance, Douglas Anderson, says the score comes because Hamline's endowment lost $18 million, or 25 percent of its value, during fiscal year 2009.

"This particular score from the Department of Education -- the main impact was solely related to the endowment," he said.

Anderson says the Department of Education report is a lagging indicator. He says the college's endowment is creeping back up, and that should help Hamline bump up its score next year. Anderson anticipates it will be around 2.4 at that time.

A low score on the Department of Education's financial responsibility report has consequences for college administrators.

For instance, Hamline University isn't allowed to withdraw federal financial aid until it reports how many students need financial aid. In Hamline's case that won't matter, because that's how it already operates.

For schools with failing grades, like Crossroads college, it means obtaining a line of credit covering at least half of the money the get from the government in student financial aid.

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