Nonprofit schools are not subject to what’s called the 90/10 rule, which bars for-profit colleges from getting more than 90 percent of their operating revenue from federal student aid funding. Plus, very few nonprofits have to contend with rules that limit how much debt students amass in career-training programs and require them to ensure that graduates of those programs attain “gainful employment.”
As the department steps up enforcement of those rules, a few for-profit schools have been trying to change their structure, which requires the blessing of the department and the Internal Revenue Service. While the IRS gave the Center for Excellence a thumbs up, the department has refused.
Eric Juhlin, chief executive of the Center for Excellence, is accusing the department of letting its disdain for for-profit institutions cloud its judgment. In a letter sent to the department Sunday, he said the very wording of the news release announcing the rejection shows the decision was based on “advancing a political agenda and not on an unbiased application of law and regulation.”
At the time of the decision, U.S. Education Secretary John B. King Jr. said it “should send a clear message to anyone who thinks converting to nonprofit status is a way to avoid oversight while hanging onto the financial benefits: Don’t waste your time.”
Juhlin called the statement “a gratuitous allegation” that the company is trying to avoid regulatory oversight, a charge he strongly denies. The chief executive said the department’s decision to release news of its denial before informing the company is further proof of “an agenda-driven judgment.”
The Center for Excellence applied for nonprofit status shortly after purchasing Stevens-Henager College and College America from Carl Barney for $636 million in 2012. As a part of the sale, Barney became the chairman of the board of trustees and retained primary control of the colleges, according to the Education Department.
Department officials took issue with the setup because becoming a nonprofit school is supposed to mean relinquishing ownership and placing control in the hands of trustees who operate with no financial benefit and in the interest of the public good. Yet tuition revenue from the center’s four campuses continues to flow to Barney, who is still owed money from the acquisition and collects rent on some of the campuses.
Juhlin claims the department never raised concerns that the schools were still operating as for-profit institutions until March. And despite several requests to meet with department officials to discuss those concerns, Juhlin said the company was rebuffed and then “ambushed” with the decision.
Barney’s involvement, Juhlin said, has nothing to do with the ownership of the company. He said the colleges are owned and operated by the Center for Excellence, which is a nonprofit organization. What’s more, he said, the rent payments are well within the laws that govern nonprofits.
“The department has fundamentally misunderstood and mischaracterized the merger,” Juhlin wrote. “The facts, evidence and precedent overwhelmingly demonstrates that the department’s decision … is incorrect and politically driven.”
Department officials were not immediately available for comment.
Higher-education experts have raised questions about the Center for Excellence deal long before the department’s decision. Century Foundation senior fellow Robert Shireman, a former undersecretary of education, discussed the structure of the Center for Excellence’s deal with Barney in a report a year ago. He noted that all but two members of the company’s board are compensated, an unusual arrangement for nonprofits, which are typically governed by unpaid trustees to ensure decisions are not skewed by personal financial interests.
At the time, Juhlin said those board members were reimbursed $12,000 as a token of appreciation for the amount of time and effort they dedicate. Barney, he said, remained involved because the schools are his legacy. Juhlin lambasted Shireman’s report as misleading and said the author had a “long history and bias against any free market principles in higher education.” In Sunday’s letter, he accused the department of being influenced by Shireman’s report and of adopting his agenda.
“It’s unsurprising that covert for-profit colleges don’t like the scrutiny brought on them by independent organizations like the Century Foundation,” Shireman said. “We make no apologies for championing students’ and taxpayers’ rights.”
Want to learn more about for-profit colleges? Check out these stories: