The Department of Education (ED) on Thursday denied a request from the Center for Excellence in Higher Education (CEHE), a for-profit chain that operates campuses in six states, to convert its status to a non-profit in order to avoid being held accountable to ED’s gainful employment rules.
Although the overall number of for-profit institutions that have converted to a non-profit status remains small, some have made the switch as a way to combat declining enrollments and revenues, and to avoid increased scrutiny in federal regulations. If the transition to a non-profit status was successful, CEHE would no longer be subject to the federal 90/10 rule, which prohibits for-profit institutions from garnering more than 90 percent of their revenue from federal student aid.
“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,” said Education Secretary John B. King Jr., in a statement.
CEHE first applied for non-profit status in 2012, not long after it purchased four for-profit college companies from the Carl Barney Living Trust. But after the purchase, Barney became the board chairman of CEHE, and “retained significant control of the colleges, despite the change in ownership to CEHE,” ED said. Although CEHE is recognized as a non-profit itself, ED denied the request in part because the tuition revenue from the four colleges continues to flow to Barney.
“Schools that want to convert to nonprofit status need to benefit the public,” said Undersecretary of Education Ted Mitchell, in a statement. “If the primary beneficiary of the conversion is the owner of the for-profit school, that doesn’t meet the bar. It’s not even close.”
Publication Date: 8/12/2016