Department of Education Backs Controversial Nonprofit Conversions

The U.S. Department of Education has “preliminarily concluded” that it will allow two controversial for-profit institutions to become nonprofits. Purdue University announced its intention to acquire the for-profit Kaplan University system back in April. The acquisition has since been approved by the state of Indiana, but still needed backing from the Department of Education and the Higher Learning Commission, its accreditor. Now, with federal approval, all that is needed to finalize the acquisition is authorization from the Higher Learning Commission. The move has set a major precedent in the integration of for-profits with traditional colleges and universities.

The second deal, that seems to have jumped another regulatory hurdle on its way to becoming a non-profit, is the acquisition of Education Management Corp (EDMC)—parent company of Argosy University, South University, and the Art Institutes—by The Dream Center Foundation, a non-profit created to fund philanthropic programs across the country. The Education Department said “it does not see any impediment to EDMC’s request for approval of the change in ownership or its request for approval of nonprofit institution status.” Many are concerned that the Dream Center, which has no experience running higher education institutions, will continue to operate the schools in the same manner as before. If approved by its accreditors, the move would be one of the largest for-profit to nonprofit changeovers on record.

Critics of the acquisitions cite that nonprofit conversions are being used to skirt regulations and mask hidden financial incentives. Unlike for-profits, nonprofit schools are tax exempt. Nonprofit colleges are also excluded from the 90/10 rule, which prohibits schools from earning more than 90 percent of their revenue from federal student loans. Bob Shireman of the Century Foundation—a think tank that investigates for-profit institutions—told the USA Today that the deals are like a bad restaurant being able to claim new ownership in order to improve its reputation without making any additional changes, and cites that Kaplan has been the focal point of past government investigations and lawsuits.

According to a Department of Education spokeswoman, “the department has preliminarily concluded that, based on the information provided to the department, there are no current impediments to the requests for approval of change of ownership.” For the deals to be finalized, both must be approved by their accreditors. The Dream Center-EDMC deal is a more complicated because it requires the approval of two different accrediting agencies. Argosy University is accredited by the Western Association of Colleges and Schools, while South University is accredited by the Southern Association of Colleges and Schools. The Purdue-Kaplan deal relies on approval from the Higher Learning Commission only. The HLC is reviewing the plan now and is expected to make a decision by November 2017.


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