No Dice for Nonprofit Conversion

U.S. Education Department denies a Utah-based for-profit college's application to change its tax status.

August 12, 2016
 
A campus of Stevens-Henager College, part of the Center for Excellence in Higher Education

The U.S. Department of Education on Thursday denied a request by a Utah-based for-profit college chain to convert to nonprofit status for federal financial aid purposes.

The decision means the Center for Excellence in Higher Education, which operates four colleges in six states as well as an online degree program, will have to continue to meet financial aid and accountability rules targeted at for-profits. It also continues a trend in recent actions by the department to implement stronger consumer protections, many of them specifically aimed at for-profit institutions.

Converting to nonprofit status is attractive to those institutions because they would no longer face a federal requirement that at least 10 percent of their revenue come from sources other than Title IV federal student aid -- such as loans and Pell Grants. Also, fewer of their degree programs would be subject to gainful employment regulations, which impose new standards for students’ success finding work and paying off student loans. Going the nonprofit route would also allow them to avoid the stigma increasingly associated with the for-profit sector.

“This should send a clear message to anyone who thinks converting to nonprofit status is a way to avoid oversight while hanging onto the financial benefits: don’t waste your time,” Education Secretary John King Jr. said in a statement.

Under King, the department has issued a number of decisions and new regulations that have drawn frequent complaints from the for-profit industry. Only a handful of for-profit institutions have pursued nonprofit status -- Keiser University in Florida, Herzing University, Remington Colleges and now CEHE. Plans at Grand Canyon University to convert to nonprofit status were blocked by the institution’s accreditor earlier this year. And now the Center for Excellence in Higher Education has seen its efforts to convert to nonprofit status stymied by the Department of Education.

The letter from the department indicates that future applicants will have to demonstrate actual restructuring of the college’s operations.

Eric Juhlin, CEO of the Center for Excellence in Higher Education, called the department’s decision a “politicized attempt to smear our good colleges and our amazing students” and promised to appeal the denial.

“This decision, containing lie upon lie, is an example of a federal agency operating outside the law to advance a political bias,” he said in an unusually harshly worded statement.

Asked about Juhlin's comments, a department spokeswoman, Dorie Turner Nolt, said, "The facts speak for themselves."

As the department noted in a release, CEHE is recognized by the IRS as a nonprofit for tax purposes but tuition revenue from its students goes to paying off debt owed from acquiring the colleges. The organization first applied for nonprofit status nearly four years ago after acquiring the four for-profit colleges from the Carl Barney Living Trust. Even though ownership of the colleges was changed to the center, Barney is now the board chairman of the organization and, the department found, retains significant control.

Bob Shireman, a senior fellow at the Century Foundation who has written extensively on evidence of for-profits looking to skirt regulatory frameworks (and who as an Education Department official early in the Obama administration engineered a crackdown on for-profit colleges), said the department’s decision on the application should put an end to colleges’ attempts to dodge oversight by converting to nonprofit status.

“The department has made clear that they are not going to just blindly accept an IRS letter that often is out of date or inadequate in determining whether a college is actually operated as a nonprofit,” he said.

Shireman said for-profits are considering options like nonprofit status partly because they are being subjected to much greater scrutiny by regulators like the Department of Education. But he said those institutions cannot expect to receive less oversight while continuing to operate in the same manner.

Steve Gunderson, president of Career Education Colleges and Universities, which represents for-profit colleges, said the Obama administration should apply the same set of standards to all institutions.

“There is no standard we will oppose if it is fairly and uniformly applied to all institutions of postsecondary education,” Gunderson said in a statement. “But when some institutions elsewhere are alleged to have committed academic fraud -- probably the worst of all actions for a school -- and the department does nothing, their rhetoric is exposed for the intellectual inconsistency it is.”

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