College watch list a 'caution light'

LOS ANGELES (Reuters) - Regulators recently made public a once secret watch list of around 550 colleges under scrutiny for financial irregularities. But inclusion on the list doesn't automatically mean the schools are about to fail, according to Department of Education regulators, college officials and even the reporter who triggered the release of the list with his Freedom of Information Act requests.

The list gained attention because of the Corinthian Colleges collapse last year. The education department placed Corinthian on the "heightened cash monitoring" watch list over concerns about the for-profit chain's practices and finances, and then last summer restricted its access to federal financial aid, including loans, grants and work study. Within weeks the already weakened chain ran short of money and agreed to sell or close most of its 107 campuses.

Some of the chain's 72,000 students are eligible for student loan forgiveness because their campuses closed. Those whose campuses were sold, however, are typically stuck with their debt even if their programs are no longer offered.

So the risks of attending a troubled school are significant. Until last week, though, the education department kept the list a secret, citing concerns that revealing a school's regulatory status could cause it "competitive injury," said Michael Stratford, a reporter with trade publication Inside Higher Ed who filed repeated FOIA requests over several months for the information to be made public.

In a blog post that accompanied the watch list's release, department Under Secretary Ted Mitchell said publicizing it was "another step to increase transparency and accountability," but said inclusion on the list "is not necessarily a red flag to students and taxpayers, but it can serve as a caution light."

Mitchell wrote, "It means we are watching these institutions more closely to ensure that institutions are using federal student aid in a way that is accountable to both students and taxpayers."

Stratford agreed that being on the list "is not an obvious indication of a problem" but is "certainly not a badge of honor."

"A college can land on this list for any number of reasons, ranging from the really mundane things like not filing paperwork with the department on time to serious things such as the department having concerns about the financial viability of the college on a short-term, immediate basis," Stratford said.

More than half of the institutions on the list (http://bit.ly/1yPAcWu) are for-profit programs, including beauty, trade and healthcare training institutes. The list also includes small religious colleges and other private non-profit schools, a few public colleges and several foreign institutions, including The Hebrew University of Jerusalem and Middlesex University in London.

The majority of the institutions are subjected to the less stringent of two levels of monitoring. Instead of the federal government advancing them money for financial aid, which is normally the case, they must finance themselves and apply for reimbursement. Colleges subject to this "level 1" scrutiny include several Le Cordon Blue campuses, which are owned by Career Education Corp, and the Art Institutes, part of Education Management Corp, which has said inclusion on the list has not harmed students' ability to access financial aid or its financial standing.

But 69 institutions are subjected to the higher level of review, which requires they submit detailed documentation for each aid recipient. Education department employees must review and approve the documentation before the financial aid is reimbursed.

The education department initially redacted the names of several of the 69, citing ongoing investigations, before releasing the names Monday. Most of them are flagged as having "severe findings" after audits.

Six public institutions also are under increased review, including Roxbury Community College in Boston; Fort Berthold Community College in New Town, North Dakota; VEEB Nassau County School of Practical Nursing in Uniondale, New York; Taylor Technical Institute, Perry, Florida; Pike Lincoln Technical Center in Eolia, Missouri; and Eastern Oklahoma State College, a community college in Wilburton.

Although the list can give families a heads-up that a college is facing extra regulatory scrutiny, it's not really "a consumer information tool," Stratford cautioned.

"It might be a good jumping-off point for students and families that want to do more in-depth research," he said.

(Reporting by Liz Weston; Editing by Lauren Young and Ted Botha)