The Critics Are Wrong about For-profit Colleges Going Non-profit
While the U.S. Department of Education was conducting a recently completed rulemaking process regarding for-profit colleges and universities, a small cohort of activists was lobbying Congress and the department to make it difficult for these schools to make the transition to nonprofit status. These critics assert that these transitions are a disaster waiting to happen. The facts say otherwise.
In a world where talent is the currency driving our economy, most employers aren’t asking graduates about the tax status of their alma maters. Yet, while those opposing such transitions seem to solely focus on a university’s tax status, the beneficiaries of these changes – graduates, employers, entrepreneurs, and community members – argue that these conversions only broaden and strengthen America’s system of higher education.
The track record of these schools clearly demonstrates that business conversions to nonprofit entities have helped the institutions in fulfilling their missions while expanding and enhancing the valuable services they provide to their students and communities. Colleges and universities have made these transitions for a long time as a part of their natural evolution to further their missions.
Schools such as Embry Riddle Aeronautical University, founded by two aviation pioneers, evolved and became a nonprofit in 1959. This transition helped it become one of the foremost aviation technology institutions in the world. In 1963, Johnson and Wales University changed its corporate status to become a nonprofit. Southern New Hampshire University took the same step five years later. Our country benefited from these changes: Johnson and Wales is one of the leading hospitality institutions in the world; Southern New Hampshire is one of the top schools in the U.S. in providing affordable distance education.
Similar transformations have long occurred in other sectors as well. More than 270 hospitals responded to the needs of their communities and changed from for-profit status to nonprofits in the late 20th century. According to most observers, this trend has been a positive transition for our healthcare system.
In recent years, 59 educational institutions have made changes in their corporate structures. They have taken many forms, from sales of assets to nonprofit organizations, to corporate conversions. Some of the sales have included public universities acquiring for-profit institutions and developing management agreements with the former owners to operate innovative online educational components. Well-known public universities such as Purdue, the University of Arizona, and the University of Arkansas have entered similar types of arrangements.
The critics argue that these institutions make these changes to enrich the owners of the former for-profit institutions or to allow them to escape the burdensome regulations created to limit for-profit education. In truth, these transparent transactions take place under the watchful eye of the Internal Revenue Service. The IRS has specific rules requiring such transactions to occur at fair market value. The IRS forbids personal inurement in these transactions. Institutions are required to produce an annual report that discloses any relationship between the former owner or executives who benefit.
History has demonstrated that transitions like these are positive additions to today’s higher education system which must continue to adapt to the changing marketplace and the needs of today’s students. Rather than make broad and unfair assumptions about the intent of such transitions, we should consider them for the benefit they provide to the students and the communities.
Each institution of higher learning should be judged on its own merits and outcomes, the success rate of its students, the diversity of its student body, the benefits it provides the communities it serves, and the needed professionals they graduate into society. Many of these institutions being attacked are not part of the problem. They are part of the solution.
