Methodology for Regulatory Test of Financial Responsibility Using Financial Ratios
Archived Information

December 2, 1997

Ms. Jamienne Studley

  • Acting General Counsel
  • U.S. Department of Education
  • 7th and D Streets ROB-3
  • Washington, DC 20202

    Dear Ms. Studley:

    KPMG Peat Marwick LLP (KPMG) is pleased to have had the opportunity to assist the U.S. Department of Education (ED) on this very important project.

    The objective of this project was to assist in developing a methodology, using financial ratios and building upon our August 1, 1996 recommendations, that could be used as a regulatory test of financial responsibility. To meet that objective, we compiled data from financial statements of 395 private non-profit institutions and 507 proprietary schools. We analyzed data, reviewed the comments you received during the recent NPRM comment period, and obtained additional input from the higher education community. As a product of those efforts, we formulated recommendations for a methodology that could be employed as a regulatory test of financial responsibility. We have reviewed relevant information from other independent sources such as Dun & Bradstreet, Moody's, and Robert Morris Associates as a further refinement of the results obtained. Throughout the project we assessed results using our professional judgment. Our final recommendations, presented in this report incorporate many of your comments and answer some of the questions you raised.

    The report is organized as follows:

    We appreciate the assistance provided by the Department of Education throughout this project and particularly the thoughtful exchange of ideas and concepts that are an integral part of this final report. As always, should you have any questions or comments, please feel free to call Ron Salluzzo at (202) 530-6306, or Larry Huff at (202) 467-3026.

    Very truly yours,

    KPMG Peat Marwick LLP

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    Last Modified: 09/06/2004