Dept of Ed Turns Down For-Profit’s Request to go Non-Profit

(Photo: Mike Groll, AP)

(Photo: Mike Groll, AP)

A request made by the Center for Excellence in Higher Education, the Utah-based chain of career colleges, seeking the ability to change its status to nonprofit for federal financial aid has been denied by the Department of Education.

Education Secretary John B. King, Jr. considered the request to be an end-around accountability measures:

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

The Education Department noted that the Center would have received the tax breaks offered to nonprofits, while at the same time pushing money into the hands of its former owner, Carl Barney, through what the department called a complicated financial arrangement.  In addition, Barney would have been allowed to continue to serve as board chairman, retaining his control over the schools, reports Molly Hensley-Clancy for BuzzFeed.

The Center released a statement on the decision, saying the government was “operating outside the law to advance a political bias” and that the statements it had made about the school contained “lie after lie.”

Eric Juhlin, chief executive of the Center for Excellence, added that the company plans to contest the department’s decision, calling the agency’s analysis “wrong and derived solely from this administration’s political agenda against private colleges.”  He added that the law is not on the side of of the department’s decision.

A number of benefits exist for schools designated as nonprofit.  Not only are millions of dollars in taxes saved, but nonprofit schools would avoid being subject to the 90/10 rule, which bars for-profit schools from receiving more than 90% of their operating revenue from federal student aid funding.  In addition, few non-profits have to handle the rules limiting the amount of debt students can take out in order to participate in career-training programs as well as requiring them to ensure that their graduates find “gainful employment,” writes Danielle Douglas-Gabriel for The Washington Post.

In order for for-profit schools to change their status, they must receive the approval of both the Department and the IRS.

Some schools have already been able to convert, including Keiser University, which became a nonprofit last year while continuing to pay large sums of money to its former owners.  A class-action lawsuit was filed against the school last week, claiming it had continued a number of for-profit practices in addition to employing 350 telemarketers that auto-dial prospective students. Keiser continues to deny the claims.

Meanwhile, Grand Canyon University tried to become a nonprofit with plans to purchase the school from shareholders.  However, the school’s investors had a number of concerns about the plan, with the college’s accreditor finally deciding to reject it.

“Schools that want to convert to non-profit status need to benefit the public,” said U.S. Under Secretary of Education Ted Mitchell in a statement. “If the primary beneficiary of the conversion is the owner of the for-profit school, that doesn’t meet the bar. It’s not even close.”