Closing and Cashing In: Coronavirus relief funding goes to colleges with histories of financial instability and plans to close

(InvestigateTV) - At the end of July, taxpayers sent MacMurray College just over $333,000. But there were no students and most of the 101 employees were terminated two months earlier.

The money came from the CARES Act and was intended to help colleges and students during the pandemic. Even before the U.S. Department of Education finalized the federal program, the college had already announced its closure.

In March, weeks after the start of the pandemic, the 174-year-old school in central Illinois announced it was closing for good.

It wasn’t a casualty of the coronavirus, the college said.

The private liberal arts college had struggled financially for years.

The U.S. Department of Education grew so concerned about the school’s finances, it officially put the college on its watch list for closure at least five years ago.

Yet the agency sent nearly $700,000 to the closing college during the summer. Half for students, the other half --- that $333,000 check --- the college was allowed to spend on costs associated with instructional changes due to the coronavirus.

While schools had 30 days to post a report on how it spent the student funds, colleges don’t have to publicly disclose a spending report on the institutional funds until October 30.

MacMurray wasn’t the only closing school to be offered funds.

The federal government allocated more than $8 million in CARES Act money to at least 30 colleges that planned on closing this year, InvestigateTV has uncovered through various federal records and public announcements. One institution announced its impending closure in 2017.

“If they’ve announced they’re closing, they shouldn’t get the CARES Act (money). That’s pretty clear,” said Robert Zemsky, University of Pennsylvania professor and author of “The College Stress Test”, a book about college closures.

The Department of Education allocated more than $478 million through the Higher Education Emergency Relief Fund (HEERF), a CARES Act program, to 402 institutions on the agency’s financial watchlist --- the majority cited for poor financial responsibility, InvestigateTV found. More than 100 of those colleges were also on that list back in 2015. Yet the Department of Education offered the funding.

The agency declined an interview request but pointed out that it was Congress that decided which institutions were eligible for funding.

“The CARES Act did not provide the Department with discretion to determine which institutions were eligible to receive HEERF grants. Closed institutions did not receive funds, but the Department was required to provide funding to all operating institutions including those that had announced closure,” according to a Department of Education spokesperson.

Closure and Lawsuits

It’s been a tumultuous year for Concordia University in Portland, Oregon. In February, the 115-year-old college announced its closure.

Soon after, students filed a class action lawsuit alleging that Concordia officials misled the students about its financial condition. The college’s former education technology partner filed a lawsuit in April for $302 million, claiming fraud. And in May, the Oregon Department of Justice announced it was investigating the nonprofit college’s closure.

But months after announcing its plan to close, Concordia University officials signed up for CARES Act funds. The government sent two checks totaling almost $1.6 million in late April and May.

Half was doled out to students as required, according to disclosure records. It’s unclear where the other $786,000 went. Schools don’t have to submit a spending report to the federal government until the end of October.

While the Department of Education allocated CARES Act funds to multiple schools that closed this year, unlike Concordia, the majority ended up not taking any of the money.

Attorney Michael Fuller, who is representing the named plaintiff William Spaulding in the class action lawsuit, continues to hear complaints from former Concordia students.

To his knowledge, none of his clients, now totaling 86, have received a portion of the $786,000 intuitional government aid. The Department of Education sent two rounds of funding to the colleges. The first, the direct student aid, was sent to Concordia University on April 28th. The second was received on May 7th. Three former Concordia students InvestigateTV interviewed stated they didn’t receive a second check.

The class action lawsuit continues to move forward. Both parties are currently exchanging documentation.

“Concordia University disputes the allegations in Mr. Spaulding’s lawsuit and will have no further comments,” said the college’s attorney C. Robert Steringer.

Proving to the Department of Education how money was spent may be difficult for closed colleges.

When asked how Concordia spent the institutional funds, a now-former spokesperson responded, “I can say that everyone in finance has left the university and does not have access any longer to the records you would like to reference.”

The university is overseen by the Lutheran Church-Missouri Synod. The church declined an interview, but emailed a statement that said, in part, “Circumstances often necessitate decisions that do not reflect our hopes and goals. Yet even in the midst of trials and travails, we trust that God, who gave His only Son in love for us all, will work in all things for good.”

Agency Monitoring

The Department of Education has had a long history of struggling to properly monitor recipients' spending of grants, according to multiple federal audits.

The Office of Inspector General (OIG) has not reviewed how the Department of Education allocated CARES Act money, according to an OIG spokesperson.

Instead it will focus on whether the schools are using the funds for intended purposes and whether the Department of Education is properly overseeing the program.

Since at least 2008, oversight, monitoring, data quality, and reporting have been persistent challenges for the agency, according to the OIG.

The Department of Education may face similar struggles, such as oversight and monitoring, with CARES Act programs as it did with the last stimulus package, the American Recovery and Reinvestment Act in 2009, according to a September OIG report.

“With the CARES Act—unlike the Recovery Act, Race to the Top, or State Fiscal Stabilization Fund—the Department was under enormous pressure by the Act’s own terms to expeditiously distribute the funding, and to do so with maximum flexibility. We did so and on top of the already busy workload of getting grants out the door in ordinary course,” said Deputy Education Secretary Mick Zais in response to OIG’s report.

After Congress authorized the CARES Act, the Department of Education took two weeks —lightning speed in government time—to formulate how it would allocate the funds.

In the rush to get students aid as quickly as possible, some institutions stated the agency’s instructions were confusing.

Almost two weeks after giving colleges discretion to distribute student funds, the Department of Education came out with new eligibility requirements. It created new difficulties, higher education associations told the U.S. Government Accountability Office (GAO).

“They have wrapped the CARES Act in such uncertainty that it can’t do the good that was intended, except it will give some students more cash in their pockets,” Zemsky said.

‘MacFam’

During his college search, Zane Reining did his homework. MacMurray College in Jacksonville, Illinois was one of his top choices to study criminal justice. He had read the college had some financial struggles in the past.

“I thought it was far enough behind that it wouldn’t affect me,” he said.

In December 2019, Reining’s first semester, a local news report hinted at a risk of closure, which concerned some MacMurray students. Reining applied to other colleges, “in case worst came to worst.”

Reining, 19, remembers the date of closure announcement: “March 27.”

“It was kind of a bombshell. We were expecting to spend four years here for our education,” he said.

March 27 was also the date the CARES Act was signed into law triggering the Department of Education to sort out the logistics of giving higher education institutions help during the pandemic.

The agency knew MacMurray College had struggles. It put the institution on its Heightened Cash Monitoring list, which identifies colleges that are at risk of closing.

MacMurray had been on the list almost every year since 2015.

“The reason why the federal government is concerned about this is when a college closes, students can have their loans forgiven, which is a big cost to taxpayers. And they also don’t want students to have to go start somewhere else,” said Seton Hall University Professor Robert Kelchen, a higher education finance expert and author of “Higher Education Accountability”.

A school can be placed on the watch list for a variety reasons from late financial audits to outstanding liabilities. The most common reason is poor financial responsibility.

The vast majority of colleges on the Heightened Cash Monitoring list--- 402 out of the 447 institutions--- were offered CARES Act education funds totaling $478 million.

While the Department of Education declined to comment on its decision-making process, it stated that Congress did not give the agency power to exclude colleges on the Heightened Cash Monitoring list.

“There’s an argument that they definitely should because if they don’t they’re at even greater risk of closure. But, then you can make an argument that that money could be better used at colleges that are more likely to make it through,” said Kelchen. .

MacMurray initially had issues trying to get the CARES Act funding from the Department of Education.

“We disagreed with the review and worked diligently to convince the Department to disburse the funds to us,” according to the college’s disclosure on its website.

The college said it enlisted the help of Congressman Darin LaHood, R-Illinois. His office did not respond to a request for comment.

“The Department worked with MacMurray College to ensure that funds were spent in accordance with the statutory requirements in the CARES Act. Additionally, the Department took extra administrative steps to monitor the MacMurray’s compliance with Department requirements, given their impending closure,” said a Department of Education spokesperson.

While some colleges gave both portions of the CARES Act funding to students, Reining said he only received one check, which went straight to his student loans. He admits a second check would have been helpful.

“I mean the extra money is always going to help. That would’ve definitely helped me in the long run,” he said.

Even though Reining spent just one year on campus, he said he’s made friends for life. He still proudly wears his red MacMurray College sweatshirt.

“Shout out to MacMurray. You guys did what you could,” said Reining. “But MacFam lives on forever. Something we will never forget.”

InvestigateTV News Content Specialist Peter Buffo contributed to this report.

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