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Senate Democrats are trying to stop for-profit colleges from converting into nonprofits

Some of these institutions would continue operating as for-profits even once they have shed the for-profit label.

A banner advertising new courses hangs outside Everest College, Everest College on April 27, 2015. CREDIT: Getty Images
A banner advertising new courses hangs outside Everest College, Everest College on April 27, 2015. CREDIT: Getty Images

Senate Democrats sent a letter to an advisory body at the Department of Education that urged them to address what they call a “troubling pattern” of for-profit colleges trying to convert to nonprofit institutions so they can avoid scrutiny for predatory conduct. The body makes recommendations on college accreditors.

Senate Democrats, including Sen. Elizabeth Warren (D-MA), Sen. Patty Murray (D-WA), Sen. Richard Durbin (D-IL), Sherrod Brown (D-OH) and Sen. Richard Blumenthal (D-CT) say that the advisory body, the National Advisory Committee on Institutional Quality and Integrity, should approach such a request from for-profit colleges with “extreme caution.”

The panel is meeting next month and Democrats say it should address the issue of conversions and communicate that it “will closely scrutinize accreditors that do not carefully review such potentially fraudulent deals and create guidelines requiring increased scrutiny when these deals are brought to accreditors,” they wrote.

For-profit colleges want to convert for a few reasons. These colleges get to skirt the kind of regulatory scrutiny they normally receive while continuing to operate in a similar manner, and they could also escape the poor reputation of the for-profit college industry. For-profit colleges are often associated with scamming and manipulating students by misrepresenting a graduate’s success, providing laughably poor instruction and training, and encouraging students to take out a lot of private loans.

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Last week, Grand Canyon University said in an SEC filing that it decided to ask its accreditor, Higher Learning Commission (HLC), to approve a conversion from a for-profit to non-profit institution. Its accreditor rejected this request in 2016, but the for-profit is making the request again because it says the HLC adopted new guidelines on shared services arrangements, according to Politico. If the request is approved, Grand Canyon Education Inc. — the for-profit whose net income increased by 13 percent in 2016 — would enter into a long term agreement with Grand Canyon University and provide the school ( a non-profit) marketing and recruitment. This is similar to what some other for-profit colleges have proposed to do.

In 2015, Robert Shireman, a senior fellow at the Century Foundation who focuses on education policy, released a report that argued more for-profit colleges were converting to nonprofit status as they continue to operate as for-profit colleges. In the report, he said the Department of Education and Internal Revenue Service (IRS) both believe the other agency is reigning in predatory for-profit colleges. After the Obama administration began scrutinizing for-profit colleges more closely, for-profit colleges know they were were on the defensive, so they switched to what he calls a “covert for-profit” under a nonprofit status. This way for-profit colleges can enjoy the financial benefits of for-profit ownership while they avoid the regulatory burdens. After the report came out, accreditors appeared to be more alert to the problem.

“But if you can get away with claiming to be a nonprofit but not actually comply with what it mean to be a nonprofit, you can get the best of both worlds … so they can claim they converted but in fact they just rented the entire college to a lender or landlord who used to be the owner, for example,” Shireman told ThinkProgress.

And there are obvious incentives for for-profit colleges to avoid truly converting into non-profit institutions.

“Being a nonprofit is usually a lot harder than being a for-profit because you have to be accountabe to trustees who do not have a financial interest, so you’re not paying trustees with stock prices. So they’re not getting excited about ways to take advantage of consumers. They get excited about ways to help students,” Shireman said.

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Shireman said that instead of leaving the issue to the IRS, which won’t find the kind of information that the Department of Education is looking for, the advisory body and accreditors could look in more detail at financial arrangements with trustees and key employees.

“Is the president the treasurer? There are basic questions to ask such as, ‘Is anyone who works for the school a lender to the school? Who has made loans to school?’ If they are individuals, especially if they used to be an owner, and they are basically still acting as the owner of the school, the school is on the hook to them for millions of dollars,” Shireman said.

For-profit colleges are also eager to shed the reputation of being a for-profit college, since for-profit college chains, such as Corinthian Colleges, have been in the news for scamming students in the past few years. A 2012 Senate report warned of a lack of federal oversight over for-profit colleges. Grand Canyon CEO Brian Mueller said “stigma” was one key reason behind the decision to convert. But the reputation has been earned, Shireman said.

“It’s worrisome to me that the leadership of Grand Canyon does not seem to recognize that there are legitimate reasons for that taint,” Shireman said. “There are legitimate differences that explain why nonprofits are not seen as being as predatory as for-profits.”