NAICU Washington Update

House Committee Holds Hearing on College For-profit Conversions

April 23, 2021

College conversions from for-profit to nonprofit status were the subject of a full committee hearing this week by the House Committee on Education and Labor. The committee is concerned there is a lack of federal oversight of the conversion process and subsequent college operations.  

The hearing was in response to a recent Government Accountability Office (GAO) report regarding a lack of sufficient oversight by both the U.S. Department of Education and the Internal Revenue Service and the questionable practices of a few colleges after conversion, including maintaining the same leadership and self-dealing.

Witnesses included representatives from GAO, The Century Foundation, a professor of nonprofit law from Georgetown University, and a nonprofit analyst from the Texas Public Policy Foundation.  While committee Democrats focused on the fraud and abuse resulting from conversions cited by both the GAO and The Century Foundation, the Republican members expressed views that the focus on conversions was far too narrow to warrant a full committee hearing and would have preferred an examination of all sectors of higher education on issues like college costs and student loan debt.

Rep. Alma Adams (D-NC) formally submitted a letter from NAICU President Barbara Mistick for the Congressional Record on for-profit conversions.  In the letter to Chairman Bobby Scott (D-VA) and Ranking Member Virginia Foxx (R-NC), Mistick wrote that the federal government has a responsibility to provide appropriate oversight of for-profit to nonprofit conversions of colleges and universities, not just during the approval process, but also during operation of the new nonprofit.  While NAICU would welcome more for-profit colleges to convert to nonprofit status, they must do so with the intent to function as a true nonprofit, having a distinct mission that focuses on the students and communities they serve. Any violation of nonprofit law or self-dealing should be addressed.

Rep. Lucy McBath (D-GA) indicated she will introduce legislation shortly to help prevent fraud and improve accountability of for-profit conversions.  The bill is similar to language included in the College Affordability Act, the House Democratic Higher Education Act bill from the past Congress. The proposal would create a new review process housed at the Department of Education to examine conversions and provide ongoing oversight, and it would also create strict penalties for self-dealing or other violations of nonprofit law.  NAICU was involved in the drafting of the bill language so that any new regulations or penalties would not harm the ability of nonprofit, private colleges or their boards to operate.

Staff for the Senate Committee on Finance have indicated that Chairman Ron Wyden (D-OR) is also interested in for-profit conversions and the committee could move forward with a hearing or other type of investigation this year.

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