Effort to Combat Covert For-Profit Colleges Continues

Tuesday, April 9, 2019

SACRAMENTO – Today, a bill authored by Assemblymember Marc Berman (D-Palo Alto) to prevent covert for-profit colleges from evading state oversight passed out of the Assembly Higher Education Committee with bipartisan support.  This legislation is joint-authored by Assemblymembers Rebecca Bauer-Kahan, David Chiu, Susan Talamantes Eggman, Evan Low, and Kevin McCarty.

AB 1341, one of seven bills being considered by the Legislature to regulate the for-profit college industry, would require 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. 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.

“Without enforcement or oversight, covert for-profit colleges will continue to mislead and prey on students,” said Assemblymember Berman. “Because we cannot rely on the U.S. Department of Education to solve this problem, California must step up to protect our students. I am proud to author AB 1341, which will prevent covert for-profit colleges from evading state oversight and hold them accountable to our students, not their shareholders.”

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 nonprofit 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 nonprofit college. Further, the President of the nonprofit Grand Canyon University is also the CEO of the for-profit Grand Canyon Education, Inc.

“For-profit colleges are trying to fool consumers and regulators by laying claim – illicitly – to the “nonprofit” and “public” labels, capitalizing on, but ultimately destroying, the good reputation of public and nonprofit schools,” said Robert Shireman, Senior Fellow and Director of Higher Education Excellence at The Century Foundation. “It is unfortunate that state action is necessary to stop this abuse. But the failure of oversight at the federal level, combined with some cynically opportunistic for-profit school owners and executives who have taken advantage of the situation, has made state action essential.”

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.”

“As a former Enrollment Services Advisor for Ashford University, I saw first-hand how its business is run, and calling it a “nonprofit” does a disservice to students when it is still owned by Bridgepoint Education, Inc.,” said Eric Dean. “When education is used as a tool to boost the profits of the owners, we have failed California students, which is why I fully support AB 1341.”

Assemblymembers David Chiu, Evan Low, Susan Talamantes Eggman, Rebecca Bauer-Kahan, Kevin McCarty, and Jose Medina are also authoring legislation to provide appropriate oversight and scrutiny of for-profit colleges.

 

Contact: Kaitlin Curry, (916) 319-2024