April 13, 2020

DeVos Reversed Obama Decision, Recognized Predatory Colleges As Non-Profit

DeVos Reversed Obama Decision, Recognized Predatory Colleges As Non-Profit

I’ve been asking for some sixteen months to know why the Center for Excellence in Higher Education dismissed its lawsuit over the Department of Education’s refusal, during the Obama administration, to recognize the controversial for-profit college operation’s troubling conversion to non-profit status. The Obama administration had concluded that the conversion was a sham that mostly benefited the schools’ former owner, Carl Barney.

Whether the DeVos Department decided to treat CEHE as a non-profit or not is a basic fact that it should have disclosed when the case was resolved back in December 2018. At last, the Chronicle of Higher Education found out: The Department, under Trump education secretary Betsy DeVos, agreed to reverse course and treat the CEHE schools as nonprofit, which gives them some regulatory advantages, such as elimination of the obligation to obtain at least ten percent of revenues from sources other than the Department’s grants and loans.

According to the Chronicle, CEHE had to agree in return that Carl Barney, the ultra-wealthy owner of the schools when they were for-profit, “would sever any financial ties [to the non-profit CEHE] by July 2019, and that he would no longer exert any control over the new nonprofit owner.” Yet, as the Chronicle notes, Barney,  who previously was board chair and sole “member” of the non-profit, still serves on CEHE’s five-man board of directors with the title “chairman emeritus.” Barney’s long-time lieutenant, Eric Juhlin, is the new board chair. Juhlin is also CEHE’s CEO, for which he received for 2017, according to the organization’s latest available IRS filing, about $570,000.

Barney now insists that his role on the board is not a problem because, according to the Chronicle, he says the board “it is not involved in actually running the colleges.” Barney told the Chronicle, “Does the board steer the ship? No.” Except that a non-profit board is supposed to govern and oversee an organization.

UPDATE 04-15-20: The Chronicle story noted that Barney ended up getting more than $130 million from his sale of the schools to the non-profit CEHE.  As we originally said in this piece, that’s a huge amount of money. But we should also have pointed out that the original deal for the sale included a $431 million loan that Barney made to CEHE and, by the terms of the deal, expected to have repaid to him, even though that amount appeared to greatly overstate the value of the assets. Later, in 2015, as CEHE sought approval from the Obama Department of Education for its conversion, CEHE devalued the assets and Barney acted to dramatically reduce the debt owed him — down to $75 million. Juhlin told the Chronicle that the devaluation represented a “common practice.” 

For its part, the DeVos Department told the Chronicle that Diane Auer Jones, DeVos’s top higher education aide, recused from the decision on CEHE’s status. That would have made a lot of sense. Jones, before entering the Trump administration, got paid $50,000 to be CEHE’s expert witness when Colorado’s Republican attorney general sued the company for deceptive practices. Jones made some ridiculous assertions on behalf of the predatory company in the case, which remains pending with a Colorado judge after a 2017 trial.

CEHE, which runs CollegeAmerica, Stevens-Henager, and Independence University, has a terrible record of deceiving, overcharging, and under-educating students, and of being in big trouble with law enforcement agencies and accreditors. The schools continue to get tens of millions from taxpayers, and, even though many of their students already take their classes online, they just got another $5.5 million from the new COVD-19 emergency relief bill, which aimed to help schools and students adjust to the disruptions of the pandemic. Apart from the troubling conversion to non-profit, there is a more fundamental question: Should CEHE’s schools get taxpayer aid at all?