- Proposed legislation from three House Democrats would codify and expand oversight of the process by which for-profit colleges convert to nonprofit status, a move several institutions have made in .
- The would also require public notice about a potential conversion, treat the school as a for-profit for at least five years after its change is approved, and establish an office within the U.S. to oversee the deals.
- The bill from the U.S. Office that found issues with how the department and Internal Revenue Service reviewed the transactions.
The Ed Department and IRS are meant to ensure the conversionsstakeholders. The GAO’s review of 59 transactions between January 2011 and August 2020 indicated that the agencies weren’t catching all potential conflicts of interest and recommended they ramp up their oversight processes.
The newly proposed legislation would update theAct with more details about how the department should regulate these transactions. Though the agency already unfairly benefit insiders, spelling it out would help give the department more explicit authority when making a decision and let the private parties know what to expect, said Brian Galle, a law professor at Georgetown University, in Washington, D.C. Galle testified Tuesday about the GAO’s report.
The bill would require that “none of the core functions” of the institution applying for a status change “are under the control of, or subject to significant direction from” an entity that isn’t aor other nonprofit, according to the legislative text. Several institutions that have recently changed status separated from their former parent companies as part of the process, but their new nonprofit owners retained those providers. These include and Ashford University, bought by Indiana’s Purdue University and the University of Arizona.
“Significant direction,” according to the bill, would include if an employee or an owner of the for-profit entity is also aor executive at the resulting nonprofit college. The department request in 2019, citing that its president is the head of both the institution and its former parent company, which now provides services to the college, as a reason why.
Though the involvement of executives of a former for-profit in the resulting nonprofit can be abused, it can also be positive, said Andrew Gillen, a seniorPolicy Foundation. Gillen also testified during Tuesday’s hearing. Gillen pointed out in an interview Thursday that the GAO report didn’t audit any of the institutions to determine whether its status change unfairly benefited insiders. However, two ofthe three in-depths-esh benefit.
“I would be skeptical of an effort to outlaw it completely,” Gillen said. Under the proposal, colleges that change status would be subject to regulations for proprietary colleges for at least five years after the conversion is approved. StatusRegister with a comment period before they are finalized.
Galleand their advocates to weigh in. The GAO report states colleges whose nonprofit conversions are approved face a probationary period of at least one to three years. But Gillen said the five-year would be excessive, noting there may already be a few years between IRS and Ed Department approval.
nonprofit status also would be banned from marketing themselves as a nonprofit until the department, the IRS, and their accreditor and state have approved the change. During Tuesday’s hearing, a GAO representative said the department has already started to enforce such a requirement.
Thefor the department to create an office to oversee the conversions. The department already reviews and determines .
Rachel Tripp, a spokesperson with Career Education Colleges and Universities, arepresenting for-profits, criticized the bill in a statement emailed to Higher Ed Dive on Thursday. While the conversions should be subject to oversight, “this to address this narrow issue,” Tripp wrote, noting relatively few for-profit schools have converted in the last decade.
Purdue and the University of Arizona inherited tens of thousands of. However, many of them are large schools. And critics of the deals say some institutions once they converge, putting students at a disadvantage by being more focused on profit generation than a nonprofit college is meant to be. A set of for-profit colleges sold to the nonprofit Dream Center . Among the institutions was Argosy University, whose resulting closure,e one of the bill’s sponsors said, was an impetus for the proposal.