Yesterday, BuzzFeed News reported Secretary of Education Betsy DeVos and the Department of Education have cleared the way for two for-profit institutions — Kaplan University and Education Management Corp (EDMC), the parent company of Argosy University, South University, and The Art Institutes campuses — to become nonprofit organizations.
How Kaplan and EDMC could become nonprofits
Back in April, Purdue University announced its plans to purchase Kaplan University for $1. For the next 30 years, it’ll also give Kaplan’s parent company a percentage of revenue, according to Inside Indiana Business.
The Department of Education’s approval of their bid for nonprofit conversion was welcome news to both universities.
“Purdue is appreciative of the Department of Education’s swift action,” Frank Dooley, Purdue’s senior vice provost for teaching and learning, said today in a press release. He added the decision will allow Purdue to make access to affordable education “even more broadly available to those who stand to benefit the most.”
The EDMC deal, on the other hand, is a bit more unusual. The Dream Center Foundation — a nonprofit originally created to fund Christian missionary centers that has no experience running a higher education institution — is purchasing EDMC.
Although the Dream Center Foundation hasn’t released a statement, BuzzFeed reported it obtained emails in which the Department of Education stated 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.”
If BuzzFeed’s sources are correct, the Department of Education has signed off on both deals. This means that, for both schools, only one hurdle remains: approval by their regional accreditors.
For the Kaplan-Purdue deal, that’s the Higher Learning Commission. The accreditor plans to decide within the next few months, according to the Indy Star.
One of the accreditors for the Dream Center deal — the Western Association of Schools and Colleges — has already shown some reservations, but hasn’t yet announced when it will make a decision.
Why Kaplan University and EDMC want to become nonprofit colleges
While it might seem bizarre that a for-profit college would want to convert to a nonprofit, several motivators could be at play. For example:
1. It might increase enrollment. Over the past several years, for-profit colleges have earned a bad reputation for predatory recruiting tactics, expensive tuition, and high dropout rates. Prospective students have wisely begun to avoid for-profit colleges — and enrollment rates have declined. Becoming a nonprofit could boost enrollment.
2. It would make them tax-exempt. Unlike their for-profit counterparts, nonprofit colleges don’t have to pay taxes.
3. It would free them from certain regulations. Nonprofit colleges are exempt from the 90/10 rule, which prohibits colleges from earning more than 90 percent of their revenue from federal student aid. Most nonprofit programs are also exempt from the gainful employment rule, which punishes colleges whose graduates are unable to find good jobs.
If this all sounds like a loophole to you, you’re not alone.
“The owners of some for-profit institutions have sought to switch their schools to nonprofit status, freeing them from the regulatory burdens of for-profit colleges, while continuing to reap the personal financial benefits of for-profit ownership,” wrote Robert Shireman, a senior fellow at The Century Foundation, in a 2015 report.
How this decision could affect for-profit colleges
History suggests becoming a nonprofit might not be a harmless change. Just look at Keiser University, a for-profit university owned by Arthur Kaiser. In 2011, it sold itself to the nonprofit Everglades College — an institution also created by Kaiser.
After the sale, Kaiser, president of Everglades, received a salary of nearly $856,000. He also earned interest on a $321 million loan he’d given to Everglades, and had stakes in several companies that worked with the college.
Perhaps alarmed by the possibility of a similar outcome, when the Center for Excellence in Higher Education applied to convert to a nonprofit in August 2016, the Obama administration denied the request. It was the fifth school to apply for this conversion, according to Inside Higher Ed, and the second to be denied.
After the denial, John B. King Jr., Education Secretary at the time, said in a press release: “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.”
The current administration, it seems, feels differently.
Interested in refinancing student loans?
Here are the top 6 lenders of 2017!
Student Loan Hero Advertiser Disclosure
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.