Dive Brief:
- 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 recent years.
- The For-Profit College Conversion Accountability Act 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. Department of Education to oversee the deals.
- The bill follows a report from the U.S. Government Accountability Office that found issues with how the department and Internal Revenue Service reviewed the transactions.
Dive Insight:
The Ed Department and IRS are meant to ensure the conversions don’t unfairly benefit stakeholders. 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 the Higher Education Act with more details about how the department should regulate these transactions. Though the agency already requires that such deals don’t 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 during a hearing 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 a public college or 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 firms as service providers. These include Kaplan
University and Ashford University were bought by Indiana’s Purdue University and the University of Arizona, respectively. “Significant direction,” according to the bill, would include if an employee or an owner of the for-profit entity is also a board member or executive at the resulting nonprofit college. The department denied Grand Canyon University’s status change request in 2019, citing that its president is 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 senior policy analyst at the Texas Public Policy 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, in two of three cases it reviewed in-depth, it found the potential for insider benefit.
