Yesterday, BuzzFeed News reported Secretary of Education Betsy DeVos and the Department of Education have cleared the way for two for-profit institutions — Kaplan University and Education Management Corp (EDMC), the parent company of Argosy University, South University, and The Art Institutes campuses — to become nonprofit organizations.
Although the institutions face one more regulatory hurdle, many view this as yet another nod from DeVos to for-profit education — and a disturbing sign of what could lie ahead.
How Kaplan and EDMC could become nonprofits
Back in April, Purdue University announced its plans to purchase Kaplan University for $1. For the next 30 years, it’ll also give Kaplan’s parent company a percentage of revenue, according to Inside Indiana Business.
The Department of Education’s approval of their bid for nonprofit conversion was welcome news to both universities.
“Purdue is appreciative of the Department of Education’s swift action,” Frank Dooley, Purdue’s senior vice provost for teaching and learning, said today in a press release. He added the decision will allow Purdue to make access to affordable education “even more broadly available to those who stand to benefit the most.”
The EDMC deal, on the other hand, is a bit more unusual. The Dream Center Foundation — a nonprofit originally created to fund Christian missionary centers that has no experience running a higher education institution — is purchasing EDMC.
Although the Dream Center Foundation hasn’t released a statement, BuzzFeed reported it obtained emails in which the Department of Education stated it “does not see any impediment to EDMC’s request for approval of the change in ownership or its request for approval of nonprofit institution status.”
If BuzzFeed’s sources are correct, the Department of Education has signed off on both deals. This means that, for both schools, only one hurdle remains: approval by their regional accreditors.
For the Kaplan-Purdue deal, that’s the Higher Learning Commission. The accreditor plans to decide within the next few months, according to the Indy Star.
One of the accreditors for the Dream Center deal — the Western Association of Schools and Colleges — has already shown some reservations, but hasn’t yet announced when it will make a decision.
Why Kaplan University and EDMC want to become nonprofit colleges
While it might seem bizarre that a for-profit college would want to convert to a nonprofit, several motivators could be at play. For example:
1. It might increase enrollment. Over the past several years, for-profit colleges have earned a bad reputation for predatory recruiting tactics, expensive tuition, and high dropout rates. Prospective students have wisely begun to avoid for-profit colleges — and enrollment rates have declined. Becoming a nonprofit could boost enrollment.
2. It would make them tax-exempt. Unlike their for-profit counterparts, nonprofit colleges don’t have to pay taxes.
3. It would free them from certain regulations. Nonprofit colleges are exempt from the 90/10 rule, which prohibits colleges from earning more than 90 percent of their revenue from federal student aid. Most nonprofit programs are also exempt from the gainful employment rule, which punishes colleges whose graduates are unable to find good jobs.
If this all sounds like a loophole to you, you’re not alone.
“The owners of some for-profit institutions have sought to switch their schools to nonprofit status, freeing them from the regulatory burdens of for-profit colleges, while continuing to reap the personal financial benefits of for-profit ownership,” wrote Robert Shireman, a senior fellow at The Century Foundation, in a 2015 report.
How this decision could affect for-profit colleges
History suggests becoming a nonprofit might not be a harmless change. Just look at Keiser University, a for-profit university owned by Arthur Kaiser. In 2011, it sold itself to the nonprofit Everglades College — an institution also created by Kaiser.
After the sale, Kaiser, president of Everglades, received a salary of nearly $856,000. He also earned interest on a $321 million loan he’d given to Everglades, and had stakes in several companies that worked with the college.
Perhaps alarmed by the possibility of a similar outcome, when the Center for Excellence in Higher Education applied to convert to a nonprofit in August 2016, the Obama administration denied the request. It was the fifth school to apply for this conversion, according to Inside Higher Ed, and the second to be denied.
After the denial, John B. King Jr., Education Secretary at the time, said in a press release: “This should send a clear message to anyone who thinks converting to non-profit status is a way to avoid oversight while hanging onto the financial benefits: Don’t waste your time.”
The current administration, it seems, feels differently.
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
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2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Savings example: average savings calculated based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were disclosed. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
Application detail: 5 minutes indicates typical time it takes to complete application with applicant information readily available. It does not include time taken to provide underwriting decision or funding of the loan.
Instant rates mean a delivery of personalized rates for those individuals who provide sufficient information to return a rate. For instant rates a soft credit pull will be conducted, which will not affect your credit score. To proceed with an application, a hard credit pull will be required, which may affect your credit score.
Total savings calculated by aggregating individual average savings across total borrower population from 9/2013 to 12/2017. Individual average savings calculation based on single loans refinanced from 9/2013 to 12/2017 where borrowers’ previous rates were provided. Assumes same loan terms for previous and refinanced loans, and payments made to maturity with no prepayments. Actual savings for individual loans vary based on loan balance, interest rates, and other factors.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
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