The U.S. secretary of education should immediately place a moratorium on for-profit colleges claiming nonprofit status following the release of a new Century Foundation report revealing that a trend in the abuse of college students and federal education dollars may be under way: the creation of the covert for-profit college.
An investigation of four colleges by TCF senior fellow Robert Shireman reveals that the owners of some for-profit institutions have claimed to be nonprofit to free themselves from the regulatory and public image burdens of operating for profit, while continuing to reap the personal financial benefits of for-profit ownership.
Read the full report, “The Covert For-Profit,” or download a PDF version
“Each year, more than half a billion tax dollars have been flowing to just the four institutions examined for this report: Herzing University; Remington Colleges, Inc.; Everglades College; and the Center for Excellence in Higher Education. Based on our analysis, however, their regulatory treatment as nonprofit schools may not be justified,” said Shireman.
In case studies of four college chains, “The Covert For-Profit” reveals:
- The four nonprofit chains all have signed contracts committing them to pay the former owners hundreds of millions of dollars for the colleges, while the former owners remain heavily involved in the governance of the nonprofit.
- The former owners also own property that is being rented, for millions of dollars, by the nonprofit colleges.
- In at least three cases, a majority of the controlling board is composed of people who are being paid directly or indirectly by the institution, a practice that is highly unusual for nonprofit colleges.
- In the case of a former owner who was paid more than $34 million in one year by his “nonprofit” institution, newly available documents show that the Internal Revenue Service (IRS) was reluctant to okay the college’s tax-exempt status due to concerns the nonprofit entity would be used inappropriately for personal gain. The IRS approved the college’s tax exemption only after months of pressure.
“A dangerous regulatory blind spot exists, with the IRS and Department of Education each assuming, wrongly, that the other is monitoring the integrity of the nonprofit claims by previously for-profit colleges,” said Shireman.
“The IRS and Department of Education both need to step up and ensure that students and taxpayers are adequately protected, and that covert for-profit colleges are held accountable.”
The report relies on previously undisclosed documents obtained under public records requests from the Internal Revenue Service and U.S. Department of Education to outline instances of possible covert for-profits, where owners have managed to affix a nonprofit label to their colleges while engineering substantial ongoing personal financial benefits for themselves.
The report recommends the secretary of education:
- Aggressively review recent nonprofit conversions to determine regulatory compliance.
- Place a moratorium on Department of Education approval of any additional institutions seeking to be treated as nonprofit.
- Revise the documentation and assertions required of institutions claiming nonprofit status.
- Seek the assistance of states and accreditors to identify any institutions that are claiming to be nonprofit but may be operating in a manner that inappropriately benefits an individual or shareholder.
Fully assess any conflicts of interest and changes in governance before federal aid is made available to an institution.
“Immediate action must be taken to prevent colleges from exploiting students and taxpayers via regulatory or enforcement loopholes. We need a comprehensive review of federal financing of colleges claiming they have converted from for-profit to nonprofit governance, and a moratorium on any new nonprofit institutions until stronger safeguards are in place,” said Shireman.
Read the full report, “The Covert For-Profit,” or download a PDF version
Access the full set of source documents used in the report here
Tags: for-profit colleges, covert for-profit
Covert For-Profit Colleges Leave Students and Taxpayers Vulnerable
The U.S. secretary of education should immediately place a moratorium on for-profit colleges claiming nonprofit status following the release of a new Century Foundation report revealing that a trend in the abuse of college students and federal education dollars may be under way: the creation of the covert for-profit college.
An investigation of four colleges by TCF senior fellow Robert Shireman reveals that the owners of some for-profit institutions have claimed to be nonprofit to free themselves from the regulatory and public image burdens of operating for profit, while continuing to reap the personal financial benefits of for-profit ownership.
Read the full report, “The Covert For-Profit,” or download a PDF version
“Each year, more than half a billion tax dollars have been flowing to just the four institutions examined for this report: Herzing University; Remington Colleges, Inc.; Everglades College; and the Center for Excellence in Higher Education. Based on our analysis, however, their regulatory treatment as nonprofit schools may not be justified,” said Shireman.
In case studies of four college chains, “The Covert For-Profit” reveals:
“A dangerous regulatory blind spot exists, with the IRS and Department of Education each assuming, wrongly, that the other is monitoring the integrity of the nonprofit claims by previously for-profit colleges,” said Shireman.
“The IRS and Department of Education both need to step up and ensure that students and taxpayers are adequately protected, and that covert for-profit colleges are held accountable.”
The report relies on previously undisclosed documents obtained under public records requests from the Internal Revenue Service and U.S. Department of Education to outline instances of possible covert for-profits, where owners have managed to affix a nonprofit label to their colleges while engineering substantial ongoing personal financial benefits for themselves.
The report recommends the secretary of education:
Fully assess any conflicts of interest and changes in governance before federal aid is made available to an institution.
“Immediate action must be taken to prevent colleges from exploiting students and taxpayers via regulatory or enforcement loopholes. We need a comprehensive review of federal financing of colleges claiming they have converted from for-profit to nonprofit governance, and a moratorium on any new nonprofit institutions until stronger safeguards are in place,” said Shireman.
Read the full report, “The Covert For-Profit,” or download a PDF version
Access the full set of source documents used in the report here
Tags: for-profit colleges, covert for-profit