August 12, 2016

At Risk: For-Profit College Converts To Non-Profit Status


The U.S. Department of Education yesterday took a momentous step, deciding that the CollegeAmerica / Stevens-Henager / CEHE chain of colleges, despite formally converting from a for-profit to a non-profit enterprise, is still acting like a self-interested business corporation, rather than a charitable institution, and thus should remain subject to the handful of rules that apply only to for-profits. These rules include the bare requirement that for-profit colleges, to demonstrate their worth, get no more than 90 percent of their revenue from the Department of Education itself; many for-profit chains have been coming perilously close to that line.

The CollegeAmerica chain, the source of enormous riches for founder Carl Barney, vows to “fight” this outcome. Meanwhile, as agitated as Barney was Steve Gunderson, the former congressman (R-WI) who runs the for-profit colleges’ depleted and defeated trade association APSCU/CECU.  That organization was overtaken and then abandoned by the surviving big for-profit college chains after its strategy of all-out confrontation against reasonable regulation failed.

Now some of the biggest and most influential APSCU/CECU members are college chains, like CollegeAmerica, Keiser, and Ultimate Medical Academy, that have converted from for-profit to non-profit. Such conversions were made after lawyers proposed that they could keep owners in the money while keeping schools out of regulatory peril. (Two other converted for-profits, Herzing University and Remington Colleges, were APSCU members but are no longer.) Those lawyers and those owners, such as Arthur Keiser, who named his college after himself and who has long been the biggest boss in APSCU, may have miscalculated.

The Department of Education has been giving temporary provisional participation agreements to these for-profit colleges as they convert to non-profit status and then taking its time toward a final decision; College America/ Stevens-Henager CEO Eric Juhlin thus complained that yesterday’s decision came 44 months after his chain submitted its change of ownership application. The Department has not issued similar final determinations regarding Herzing and Ultimate Medical Academy. The Department did approve the Keiser (2011) and Remington (2103) conversions. But comparing the terms of their conversions to the substance of the Department’s findings yesterday, all these schools might have reason to be worried.

It was fairly asked yesterday what College America/ Stevens-Henager / CEHE and the others are supposed to do now if they want what they had expected — to get the regulatory advantages of a non-profit college. That seems clear to me — start acting like a non-profit college. Swap out your board of directors for one that is independent and uncompensated, instead of highly compensated. Spend more on education and stop engaging in predatory, deceptive recruiting. It’s also quite possible to undo the self-interested structure of your conversion: End all the self-dealing, all the leasing of buildings and planes by the former owners to the new non-profit.  And the former owner can say, I’ve done well, I have enough money, name some buildings after me, I will convert my multi-million dollar loans for the sale of the school into charitable grants.

UPDATE: I edited the penultimate paragraph to correct an error: The Department of Education has already approved the conversions to nonprofit of Keiser and Remington.

This article also appears on Huffington Post.