Education Secretary Betsy DeVos listening to President Donald Trump during a Cabinet meeting in the … [+]
Here’s something you don’t hear very often, “Good job, Department of Education.”
Earlier this month, the Department (ED) decided they were going to treat Grand Canyon University (GCU) as a for-profit institution, even though it’s registered with the IRS as a non-profit entity. In their letter to the school, ED decided that they would view the school based on how it acted, not the forms they filed. And in the case of GCU, they decided it behaved like a for-profit. The University’s response to the ED determination is here.
Without digging too deeply, the school hired a company to manage many of the school’s functions such as marketing and enrollment and management. That’s not unusual. Quite a few schools do that, especially the for-profits, most of which don’t invest in building or maintaining education infrastructure. Schools that contract out those services also frequently cut the for-profit companies in on student tuition as payment. They call it revenue sharing.
In this case, the for-profit management company GCU hired was run by the same people who run the school. The CEO of the for-profit was also the President of the school. They hired themselves. It was difficult to tell where one started and the other ended. In their decision, ED called the school a “captive client” of the for-profit company that lurked behind the marquee. That sounds right.
It’s not clear how far up the ED chain of responsibility this decision went, whether Secretary DeVos pushed this outcome, approved it or even knew about it. Under her leadership, the Department has made backstopped for-profit colleges and adopted numerous policies to exacerbate student debt. ED has made it more difficult to review and regulate colleges and considered far worse ideas such as changing the meaning of “instructor” and a “credit hour.” When it’s all over, it will be a shameful legacy.
But on this one, whether she knew about it or not, the decision was right. And important.
It’s important because GCU is not nearly the only institution that’s registered with the IRS as a non-profit but deeply interconnected with, captured by, a for-profit company.
For many for-profit schools, the pattern has been deeply cynical. Faced with a catastrophic collapse of the for-profit market, more than a few business leaders running these schools created a new non-profit entity, then “sold” the school to their new non-profit for a symbolic fee of like a single dollar. In turn, the new non-profit would “hire” the original for-profit business to “run” the school – presto, creating a non-profit university even though next to nothing actually changed.
And, of course, the newly whitewashed non-profit schools run to advertise their status, both confirming the contaminated brand of for-profits and clinging to the coattails of centuries of academic success earned by actual non-profit schools. Like I said, cynical.
The core though is that in this even in arrangement, profits from taxpayer grants and loans, student tuition and student debt still flow to investors. And just as crucially, regardless of what the IRS says, if profit potential exists, there are incentives to recruit as many students as possible and spend as little as possible on actual teaching.
There’s no debate anymore that for-profit colleges were, and are, bad. Their outcomes have been well below even the most mundane averages. On balance, students who go to for-profit colleges are left with more college debt, are less likely to graduate and, even when they do, their degrees don’t hold much value compared to others.
But it’s not the for-profit colleges’ legal designation with the IRS that has produced those awful results, it’s been their behavior. A letter from the IRS saying a school is a non-profit isn’t changing that. That’s what this new, correct ED decision makes clear. And that’s unquestionably positive.
As good as this new policy is, ED needs to do more to stop the rush of profit-seeking schools claiming to be otherwise. And the IRS should adopt a rule that a finding by the Department of Education that a school acts like a for-profit would revert their tax designation appropriately. The IRS is not positioned to make that decision and they should trust the experts who are.
Until then, good for the Department of Education. It would be nice if we heard that more often.
