Senate Democrats Criticize Nonprofit Conversions

October 26, 2015

A group of Democrats in the U.S. Senate sent a letter Friday to Education Secretary Arne Duncan and Internal Revenue Service Commissioner John Koskinen urging them to stop for-profit colleges from converting to nonprofit status.

Those colleges, they argue, are looking to evade federal income taxes, gainful employment regulations and the so-called 90/10 rule, which restricts for-profits from receiving more than 90 percent of their operating revenue from federal student loans and grants.

"These sham nonprofits make a mockery of traditional nonprofit governing and accountability structures with incestuous leadership arrangements, troubling debt structures, while continuing to make hefty profits for those in charge with questionable results for students," the senators wrote in a news release. "As the agencies responsible for granting nonprofit, tax exempt status and protecting students, the [IRS] and [Education Department] must work together to better assess these conversions based on the priorities and authority of both agencies."

The senators were spurred to action following a recent report from the Century Foundation's Robert Shireman, a former Education Department official who joined the foundation as a senior fellow. Shireman described how several for-profits became nonprofits, arguing that they did so to avoid federal regulations. He also wrote that the IRS and the Education Department haven't cracked down on these entities because of a "regulatory blind spot," so each agency assumes the other is doing the monitoring.

Delaware Senator Tom Carper, Ohio Senator Sherrod Brown, Illinois Senator Dick Durbin, Massachusetts Senator Elizabeth Warren, Rhode Island Senator Jack Reed and Connecticut Senators Chris Murphy and Richard Blumenthal signed the letter.

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