Education Department plan to squash sham nonprofit conversions draws mixed response

Higher Ed Dive

Natalie Schwartz

September 12, 2022

In July, the U.S. Department of Education proposed regulations meant to crack down on for-profit colleges converting to nonprofit schools in name only. So far, the department’s ideas have drawn mixed reactions from lawmakers, colleges and policy advocates.

For-profit colleges are run like businesses to generate profit for owners or shareholders, while nonprofit colleges are supposed to reinvest their surplus revenues back into their missions. But some policy advocates say many for-profit colleges are converting into nonprofit institutions even though their operations are improperly benefiting insiders, such as their former owners.

The Education Department’s regulatory proposals attempt to squash potentially problematic deals.

Under the draft regulations, for instance, the agency would generally not consider a college a nonprofit if it owes money to a former owner. The rules would also require a college changing hands to provide financial collateral if the Education Department deems the transaction risky. And an institution would have to notify students that it was being purchased three months in advance of the sale.

While several policy advocates hailed the potential changes, they argued the regulations contain loopholes that will allow for-profit colleges to continue gaming the system. On the other hand, some colleges and higher education associations said the proposals go too far and put unnecessary restrictions on institutions.

Public comment on the regulations closed last month. The Education Department must now respond to all the feedback it received before issuing final rules, which could take effect as soon as July 2023.

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