Berman and Colleagues Introduce Legislation to Prevent Covert For-Profit Colleges from Evading State Oversight

Wednesday, February 27, 2019

SACRAMENTO – Assemblymember Marc Berman (D-Palo Alto) along with Assemblymembers Bauer-Kahan, Chiu, Eggman, Low, and McCarty have introduced legislation to prevent for-profit colleges from skirting oversight and deceiving students.

Photo credit: Democratic Office of Communications and Outreach

“As the Trump administration and Secretary of Education Betsy DeVos abdicate their responsibility to protect students, California’s role becomes even more critical,” said Assemblymember Berman. “For-profit colleges are using complicated financial schemes and shell corporations to pose as nonprofit and public institutions. They are evading state oversight and misleading students. AB 1341 will protect students from their deceptive tactics and ensure that appropriate oversight remains.”

Nonprofit colleges have traditionally been required to devote all of their revenue to their educational purpose and prohibited from profit taking. However, a decline in enforcement of nonprofit status by the federal Internal Revenue Service has opened the door for for-profit colleges to use devious financial maneuvers to claim nonprofit status – all the while skirting consumer protections that generally come with such status.

For example, Grand Canyon University was previously a for-profit college. However, it reorganized and split off its real estate and academic-related assets in order to claim nonprofit status. The remaining piece of the for-profit company, Grand Canyon Education, Inc., contracted with the non-profit college to provide recruiting, counseling, human resources, and marketing services. In exchange, the for-profit company would take about a 60% share of the tuition, fees, room, and board revenue earned by the non-profit college. Further, the President of the non-profit Grand Canyon University is also the CEO of the for-profit Grand Canyon Education, Inc.

Without enforcement or oversight, these covert for-profits will continue to mislead and deceive students. In fact, Ashford University, owned by Bridgepoint Education, Inc., has already stated that it would follow Grand Canyon University’s lead and claim nonprofit status. In November 2017, California Attorney General Xavier Becerra sued Ashford University for misrepresenting tuition fees and financial aid availability to prospective students. The Chronicle of Higher Education investigated Ashford University and published its findings online, calling the school, “a poster child for the ills of the for-profit college sector.”

AB 1341 would prevent covert for-profit colleges from evading state oversight by requiring the Attorney General to determine whether a postsecondary educational institution qualifies as a nonprofit corporation or public institution of higher education, as defined in the bill.

AB 1341 is one of seven bills in a package intended to provide greater oversight and scrutiny of for-profit colleges. The other six are authored by Assemblymembers David Chiu, Evan Low, Susan Talamantes Eggman, Rebecca Bauer-Kahan, Kevin McCarty, and Jose Medina.

 

Contact: Kaitlin Curry, (916) 319-2024