Checking On Your College’s Financial Health

We need to make sure that the college we are going to will probably be there for all 4 years. With the current environment we have, it is possible that we will see 25% to 50% of colleges fail in the next 20 years.

Here is consumer Forbes article: College Financial Grades 2021: Will Your Alma Mater Survive Covid?
Here is a more inside industry discussion.

The Department of ED

The DOE’s HCM list underreports the number of American colleges and schools that are in financial trouble. Nevertheless, the list is useful, it shows a significant number of small, private nonprofit colleges are in trouble, including many with religious ties. It also shows that many small for profit institutions are in trouble, especially those focused on cosmetology.  The HCM list for March of 2021 can be downloaded here.
The methodology can be found here.

The U.S. Department of Education may place institutions on a Heightened Cash Monitoring (HCM) payment method to provide additional oversight of cash management. Heightened Cash Monitoring is a step that FSA can take with institutions to provide additional oversight for a number of financial or federal compliance issues, some of which may be serious and others that may be less troublesome. There are two levels of Heightened Cash Monitoring: Heightened Cash Monitoring 1 (HCM1): and the more severe Heightened Cash Monitoring 2 (HCM2).

Financial Responsibility Composite Scores reflect the overall relative financial health of institutions along a scale from negative 1.0 to positive 3.0. A score greater than or equal to 1.5 indicates the institution is considered financially responsible.

The following provides additional detail about the reasons institutions are placed on HCM 
Accreditation ProblemsIncludes accreditation actions such as the school’s accreditation has been revoked and is under appeal, or the school has been placed on probation.
Administrative CapabilityConcerns about the institution’s ability to manage the Title IV programs including student file maintenance, record retention, and verification.
Audit Late/MissingSchool did not submit their audit by the due date and is considered not financially responsible.
Audit – Severe ProblemsSchool has severe audit findings which could include financial statements, internal controls, and compliance with laws, regulations, and provisions of contract or grant agreements.
Default RateA school’s cohort default rate for Perkins loans made to students for attendance at the school exceeds 15% or the cohort default rate for Federal Stafford loans or for Direct Subsidized/Unsubsidized Loans made to students for attendance at the school equals or exceeds 30% for the three most recent fiscal years or if the most recent cohort default rate is greater than 40%.
Denied Recert – PPA Not ExpiredSchool’s recertification was denied but its Program Participation Agreement has not yet expired.
F/S Late/MissingFinancial statements were not submitted to FSA by a specific due date, depending on the institution’s type (public, private non-profit, proprietary).
Financial ResponsibilitySchool has a failing or a zone composite score or other concerns such as unreconciled accounts.
OIGUnder investigation by the Office of the Inspector General.
Other (Common Ownership)The common ownership of certain institutions that had issues identified at some of their schools.
Other -CIO Problems (Eligibility)Issues identified with information needed on a Change in Ownership application such as missing/incorrect same-day balance sheet or other needed documentation; or an unreported CIO is discovered.
Outstanding Liability/OffsetSchool has outstanding liabilities that resulted from an audit or program review.
Payment Method ChangedUsed in various other scenarios not otherwise identified where funds control are needed, such as a foreign school has lost eligibility but provisions allow for additional disbursements to students for an extended period of time.
Program ReviewSchool is being reviewed by the Department as part of its normal oversight and monitoring responsibilities or as a result of concerns regarding the school’s administrative capability and financial responsibility.
Program Review – Severe FindingsSchool has potential of severe program review findings such as failure to make refunds or return of Title IV funds.
Provisional CertificationSchool is participating in Title IV programs under a provisional certification which imposes certain restrictions.

Does it feel like 2021 yet?

Does it feel like 2021 yet?

The twists and turns so far make it seem like 2020 is dragging into a second season.

As an American, I’m a little shocked and worried, and I’m musing onhow political disagreements turned into excuses for violence for both sides of the red-blue spectrum.

As a father, I am concerned about the type of world my kids will have to grow up in.

As a financial professional, I know that the politics, protests, and rioting in DC are just one small factor affecting markets.

I honestly don’t know what will happen over the next few weeks, but I can help you understand how it affects you as an investor.

Why did markets surge the day the Capitol was rioted?

While the world watched the craziness in DC with popcorn, markets quietly rallied to new records the same day.1

That’s weird, right?

Well, not really.

I think it boils down to a few things.

  1. Computers and algorithms are dispassionate, executing trades based on the biases programmed in, regardless of the larger world.
  2. Markets don’t always react to short-term ugliness. Instead, they reflect expectations about economic and business growth, plus a healthy dose of investor psychology.
  3. With elections officially at an end, political uncertainty has reduced some.

Personally, I disagree with much of the implementation of the lockdowns, not protecting the vulnerable, shutting down small businesses, and how the economic stimulus bills have been approached. 
But it’s not about my viewpoint, it’s about what the whole market thinks.  I think most investors are looking past the immediate future and hoping that vaccines, increased economic stimulus, and economic growth paint a positive picture of the future. 

The Democrats control the White House and Congress. What does that mean for investors?

If you’re like a lot of people, you might think that your party in power is good for markets and your party out of power is bad.

That makes for a stressful experience every four years, right?

Fortunately, that’s not the case for our markets.  Market are pretty rational and efficient in the long term, especially with respect to politics and government policy.

While businesses and investors generally dislike increased taxes and corporate regulation, the Democrats hold such slim majorities in the House and Senate that it limits their ability to pass many big policy changes.

Also, the Democrats’ immediate agenda is very likely to be focused on fighting the pandemic and passing more stimulus aid, both of which should support stock prices.

Does that mean markets will continue to rally?

Maybe; no guarantees, unfortunately. With all the frothy market activity and rosy expectations about the future, bad news could knock stocks down a peg or two.

A correction is definitely possible, and some strategists think several sectors are in a bubble.

Bottom line, expect more volatility.

Well what comes next?

I wish I could tell you. If somebody tells you they know, then they need a dose of humility or wisdom.

I’m HOPING that the vicious cycle of divisive politics will slow down some after the inauguration, and the politicians can get something done. But, they are usually disappointing, even when it is bipartisan. 

I am optimistic that the light at the end of the tunnel is getting closer, and we can start getting a little bit closer to normal.

I’m proud of what scientists and medical professionals have been able to accomplish in such a short amount of time.

I’m grateful for the folks around me.

I’m still rationally optimistic, and hopeful about the future.  Human innovation is the ultimate resource and we are making great progress in science, medicine, technology, etc and it all makes the world a better place.  

How about you? What’s your take? I’m interested to hear your thoughts.
Email me your thoughts at Daniel@blackswancfp.com
P.S. Tax laws are likely to change under the Biden presidency. We don’t know exactly when they’ll happen or what they’ll look like, but I’ll be in touch when we know more. We will be releasing an Insights guide to the major tax changes.

1 https://www.cnbc.com/2021/01/07/stocks-rally-to-record-highs-traders-on-whats-next-for-markets.html

The Psychology of Human Misjudgment, by Charlie Munger

The Psychology of Human Misjudgment is a great speech given by the legendary Charlie Munger. He explains how behavioral psychology can be applied to life, business, and problem-solving.

Here Charlie lays out the 24 Standard Causes of Human Misjudgment, with wit and wisdom.


You can find Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger Here.

“This book is something of a publishing miracle—never advertised, yet year after year selling many thousands of copies from its Internet site.”
– Warren Buffett

Navigating Market Uncertainty

Everybody gets affected by uncertainty. It may be different things to different people, but uncertainty can be scary. 

We want to be that safe harbor that you can pull into and make sure everything is ok.  It is part of our responsibility.
You might not need anything changed. Your plan might be perfectly on track.  But sometimes, there are good course correction to be made. 

What we want to do is find the space and time to process the anxiety, to get the monkey off your back.
Often, that is just having a conversation about your plan; the why, what, and how.