Question 1

What are financial responsibility composite scores?

Accepted Answer

Current regulation establishes a methodology to measure different aspects of financial health based on three ratios: Primary reserve Equity Net income These combine into a composite score to measure financial responsibility.

Question 2

What is the calculation for the financial responsibility composite score?

Accepted Answer

Combining an institution’s ratio results into a composite score requires several mathematical steps: Determine the value of each ratio Calculate a strength factor score for each ratio using HEA criteria Calculate a weighted score for each ratio by multiplying the strength factor score by its corresponding weighted percentage Add the weighted scores for the composite score

Question 3

What benefits can a financially responsible institution receive?

Accepted Answer

ED subjects institutions considered financially responsible to less oversight and they won’t need to comply with enhanced cash disbursement requirements and other consequences.

Question 4

What monitoring occurs when an institution isn’t financially responsible?

Accepted Answer

Institutions with a score below 1.0 can still participate in Federal Title IV financial aid programs under a provisional certification for up to three years. Institutions will need to provide surety to the ED of at least 10% of the previous year’s funding. This percentage isn’t a fixed determinant; it will differ from institution to institution and the ED decides the outcome on a case-by-case basis.

Question 5

What actions could an institution take to improve its score?

Accepted Answer

The three ratios stem from year-end amounts, so improving the statement of financial position at year-end is key to a successful composite score. An institution could consider reducing reliance on related party receivables. Although scores are calculated at year-end, a best practice could be for schools to calculate more often to plan for any necessary year-end action steps.

Question 6

How do you report this information?

Accepted Answer

For ED to calculate the ratios, you need to present a supplementary schedule to the financial statements or a footnote to the financial statements that contains all critical information. The audit opinion should address the supplementary information. Ultimately, the financial statements with this information must accompany the institution’s eZ-Audit filing, which is due within nine months of the institution’s fiscal year-end.

How to determine your institution’s financial responsibility composite scores

What are financial responsibility composite scores?

What is the calculation for the financial responsibility composite score?

Calculate the primary reserve ratio

Calculate the equity ratio

Sasha Correnti

Calculate the net income ratio

What is a good score?

What benefits can a financially responsible institution receive?

What monitoring occurs when an institution isn’t financially responsible?

What actions could an institution take to improve its score?

How do you report this information?

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