Nonprofit Conversions and Student Success

In recent years, many for-profit institutions of higher education have entered modified their corporate structure to change their tax status to nonprofit. But the corporate behaviors that have plagued students attending many for-profit colleges do not end simply because an institution has shed its for-profit designation. And given that nonprofit institutions are subject to less restrictive statutory and regulatory oversight, accreditor review at a transitional moment such as a conversion is critical. Unfortunately, the entire higher education triad, including accreditors, have not devoted sufficient attention to scrutinizing and responding to these corporate transactions. 

Bottom Line

Student Defense believes that the challenges and dangers posed by the for-profit industry do not end simply by virtue of an institution changing its tax-status and receiving approval by the U.S. Department of Education. Given that nonprofit and public institutions are subject to less scrutiny by regulators, adequate accreditor review is more important than ever. By utilizing tools that include financial audits, site-visits and analysis of outcomes data, regional and national accreditors can enhance their work to protect students and improve outcomes at schools during and after the conversion process

Read Our Report

Nonprofit Conversions and Student Success: Recommendations for Accreditors

Background

When a for-profit college undertakes corporate restructuring to effectively become a nonprofit institution, the results may not always be as promised. Through simple or complex mechanisms such as engaging third party management contracts with interested parties, numerous post-conversion institutions have continued remitting revenue to the owners of the former for-profit. Accordingly, accreditors must be vigilant when scrutinizing these transactions. In recent years, we have seen some of the most controversial for-profit institutions—many encumbered by state and fed-eral law enforcement investigations—attempt or effectuate a change in tax status. Institutions such as Stevens-Henager College, CollegeAmerica, Grand Canyon University, Ashford University, Kaplan University, Argosy University and the Art Institutes chain have all undergone transactions of the sort we consider “conversions.” And while it may be too soon to claim that none of these transactions have benefited students, it is clear that many have not. 

Our Recommendations for Accreditors

• Establish a recovery fund to protect students from abrupt closures, fraud, and deception
  Given the financial risks associated with undertaking a corporate restructuring, accreditors should take strong action to protect students financially. In this regard, accrediting agencies should require a post-conversion institution to escrow or otherwise set aside funds in an appropriate financial vehicle in order to cover any liabilities to past, current, or future students resulting from institutional misconduct and the potential of abrupt campus closures or other instructional or programmatic cessation.

• Adopt strict student debt and revenue benchmarks
  Accreditors should create and enforce student debt benchmarks that post-conversion institutions must meet over a period of years or face the loss of accreditation. Accreditors should set higher expectations for post-conversion institutions with a history of misconduct than that required by federal regulation.

• As circumstances require, appoint an independent official to oversee the converting institution’s marketing and recruiting practices
  Where a pre-conversion institution has a history of law enforcement activity, accreditor scrutiny, or private litigation regarding marketing or recruitment tactics, an accrediting agency should appoint, as a condition of approval, an unaffiliated party with experience in consumer protection and higher education to monitor all marketing and recruiting efforts at the post-conversion institution.

• Limit the use of lead generators to collect consumer information
  For-profit colleges have a history of working with lead generators that have been accused of deceptive marketing. Unless an agency is going to ban the use of lead generators altogether, accreditors should require post-conversion institutions to only work with lead generators that clearly and conspicuously disclose when personal information would be sold to a third party.

• Enhance consumer-focused training for all employees or agents of the post-conversion institution who direct or engage in student recruitment or enrollment
  Accreditors should require that post-conversion institutions establish and implement strong consumer protection trainings for all officers, employees, and agents who direct or are involved in any aspect of the student recruitment process. Such a program could educate participants about fair advertising principles, recruitment tactics, and similar consumer-oriented best practices.

• Monitor and oversee contracts with online program managers
  Online program managers, or OPMs are companies that design and run online content for all types of institutions. The use of OPMs has created generous profit margins for both OPMs and the colleges that retain them. Accreditors must scrutinize the use of OPMs, and the contractual arrangement between any OPM and the converting institution to ensure that student interests are protected.

• Increased scrutiny at the crossroads of recruitment tactics and labor-market considerations
  Accreditors can use labor-market analytics to not only determine whether a converting school is designed to truly meet the employment demands, but also to assess whether a school is marketing itself in a way that is consistent with those de-mands. Schools that are promoting programs in a way that is misaligned with economic needs may, in fact, be doing so in violation of state consumer protection laws.

Further Reading

Patricia Cohen, The New York Times: Some Owners of Private Colleges Turn a Tidy Profit by Going Nonprofit

Kevin Carey, Huffington Post: The Creeping Capitalist Takeover of Higher Education

Robert Shireman, The Century Foundation: The Covert For-Profit: How College Owners Escape Oversight through a Regulatory Blind Spot