By Katherine Demedis and Ryan Spraker

On May 24, 2018, the National Advisory Committee on Institutional Quality and Integrity (NACIQI) welcomed twenty-two members of the public to speak on the topic of for-profit to nonprofit conversions in higher education. NACIQI, which advises the U.S. Secretary of Education on issues surrounding the accreditation of higher education institutions, declined to make a recommendation to the Secretary as a result of the session and instead formed a subcommittee to review conversion practices and policies, produce a white paper proposing solutions, and study specific instances of conversion and accreditor oversight.  The Committee arrived at this decision citing the need for more information surrounding conversion and post-conversion practices and the different viewpoints presented on the issue during the public comments.

The majority of commenters expressed concerns that converted nonprofit institutions are able to continue the same predatory practices as for-profit institutions without being subject to the additional regulatory and public scrutiny that is generally applied to for-profit institutions. Representatives from various agencies and associations including the Century Foundation and the American Federation of Teachers called for the Committee to advise the Secretary of Education to issue a moratorium on conversions until regulations can be developed to increase the federal role in the process.

The Committee did not call for the moratorium, although some members of the Committee expressed interest in pursuing the idea when more information is made available.  Several speakers indicated that regional accreditors are ill-equipped to handle the complex process of converting the for-profit state corporations to nonprofit entities under IRS code 501(c)(3). Additionally, several commenters noted that there needs to be an increase in consumer protection in higher education to remedy the lack of resources and expertise.

Three commenters spoke in favor of for-profit to nonprofit conversions and advocated for equitable treatment of for-profit and nonprofit educational institutions. The Committee actively questioned Steve Gunderson, President and CEO of Career Education Colleges and Universities (CECU), who asked NACIQI to recommend that accreditors take a holistic approach to evaluating conversions by looking at the individual operations of the institution including their education outcomes. Mr. Gunderson, along with a few like-minded commenters, believes that all institutions, both public and private, must be held accountable for student outcomes and fraudulent practices.

When NACIQI takes up this topic again, it may recommend changes to the Department’s regulations regarding the recognition of accrediting agencies that would require the Department staff to conduct a more thorough review of the agency’s substantive change procedures and recently approved substantive changes (including nonprofit conversions) when considering whether to continue the recognition of an accrediting agency.

Katherine Demedis is an associate in the Powers Education Practice Group. She regularly advises educational institutions regarding compliance with state and federal standards and monitors legislative, regulatory, interpretive guidance, and other developments on a variety of federal education matters. Katherine can be reached at Katherine.Demedis@PowersLaw.com or 202-872-6773.