For-profits converting to nonprofits to escape government scrutiny?

Some question if a genuine change is happening when considerable profit can still be made below the surface


[Editor’s note: This story has been updated to reflect comments from Grand Canyon University and clarify the University’s in-process conversion.]

As the government cracks down on for-profit institutions, some schools are choosing to convert to nonprofits to avoid the heat. However, they also are facing renewed criticism for what some say are the same profit-making tactics, different name.

Of course, not every for-profit institution focuses on making money over the actual needs of their students, but the concern is there–primarily thanks to the government’s recent scrutiny of for-profit colleges and federal student loan schemes. Mainly, that scrutiny stems from the fact that despite their focus on career-training, many graduates have proven unprepared to secure fruitful careers in today’s job market, which has left them unable to earn enough money to actually repay the government, forcing them to default on their loans.

For example, according to a recent New York Times report, the Obama Administration estimates that “about 1,400 programs that enroll 840,000 students would fail” new standards of gainful employment, which could lead to governmental sanctions and even a cutoff of federal student aid and loans for offenders.

Thus, going from for-profit to nonprofit has become an appealing option for many owners looking to get out from under the microscope while avoiding losing their accreditation or even closure.

While it is still a relatively new phenomenon for higher education, a number of schools have continued to exist and prosper upon conversion, or during conversion, including Keiser University (now Everglades College) in Florida, the Center for Excellence in Higher Education (an amalgamation of previous for-profit schools) in Denver, Remington College in Florida, Herzing University of Wisconsin, and Grand Canyon University in Phoenix. [Requests for comment from Everglades, the Center for Excellence, Remington, and Herzing were declined as of press time.]

“Many are doing it to evade the rigorous scrutiny of the for-profit sector because if they go nonprofit, they’ll be treated more benignly,” said former George Washington University President and current Rimon Law P.C. partner Stephen Trachtenberg. “It’s perfectly legal, but if I were a regulator for the government, I’d want to be sure transactions were transparent, with negotiations at arms-length.”

But are these conversions more than just a name change? Some say absolutely.

(Next page: What conversion entails and why it’s being scrutinized)