- Associated Press - Wednesday, June 1, 2016

Financially strapped St. Catharine College has decided to shut down, blaming a dispute over federal education funding for its “unsurmountable” challenges posed by shrinking enrollment and debt.

The small Catholic school in central Kentucky announced Wednesday that faculty and staff were informed at a campus-wide meeting that the school will shut down at the end of July.

St. Catharine faced a $5 million deficit in its operating budget amid declining enrollment and faced mounting debt after building a series of residential and academic buildings in recent years to accommodate its expansion from a two-year to a four-year college. The new library opened just three years ago.

After an audit found “severe” problems with the school’s handling of financial aid, the U.S. Department of Education last year began requiring the school to spend its own funds on students first, and then seek federal reimbursement.

The college said its enrollment had fallen to fewer than 475 students for the upcoming fall semester, down from about 600 full-time students before the financial aid dispute. There were 118 full-time faculty and staff, plus many part-time workers.

After weighing multiple options, the school’s board of trustees decided St. Catharine’s challenges were “insurmountable,” said board Chairman John Turner.

“Without the enrollment and with the DOE’s chokehold on our cash flow, the debt is simply not manageable,” Turner said in a statement.

St. Catharine sued in February, claiming Education Department officials put the college “at the brink of extinction” by refusing to reimburse hundreds of thousands of dollars in student aid. The college’s leaders tried to raise enough money to keep operating, but cash flow trickled because the department’s action “irreparably damaged” their ability to attract students, the statement said.

The U.S. Attorney’s Office for the Western District of Kentucky, which represented DOE in the case, said Wednesday that the Education Department “worked diligently” to assist the college in correcting deficiencies in its financial aid submissions.

Of the nearly $3.9 million requested by the college between April 2015 and February 2016, DOE paid $3.16 million, the office’s statement said. “The Department of Education also has been working with SCC (St. Catharine College) to process new financial aid submissions in a timely fashion,” it said.

Both sides entered mediation, but the effort failed. School leaders tried unsuccessfully to form an alliance with other institutions.

The school’s closure leaves hundreds of students looking for options.

St. Catharine’s statement said it’s “committed to ensuring this difficult situation is not exacerbated by a difficult transfer situation,” and that agreements are being made to ensure the students’ academic credits will transfer.

Washington County Judge-Executive John A. Settles said the closure would be “quite devastating” for the rural area. Job losses loom, and the county will miss having “that student population in our community and the vitality that brings,” he said.

U.S. Senate Majority Leader Mitch McConnell said he was disappointed that federal education officials and the college couldn’t settle the dispute. The Kentucky Republican added that “my heart goes out to the students, faculty and community members who will most be impacted by the closing.”

Summer camps and classes will proceed as scheduled at St. Catharine, but no classes will begin in the fall, the school said.

St. Catharine was founded in 1931, but the school traces its roots to more than a century earlier. The Kentucky Sisters of St. Dominic established the first school in a converted whiskey still house in 1823, according to the school’s website.

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The third paragraph of this story has been edited to correct the spelling of St. Catharine.

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