Education Department Denies Request for For-Profit Colleges to Convert to Non-Profit Status

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Washington, DC – The U.S. Department of Education denied a request from the Center for Excellence in Higher Education (CEHE), a Utah-based chain of for-profit career colleges, to convert to non-profit status for purposes of federal financial student aid. The denial means that the colleges’ programs must continue to meet requirements under the federal Gainful Employment regulations.

“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 U.S. Education Secretary John B. King Jr.

• Denial does not directly affect the approximately 12,000 students who attend the four institutions owned by CEHE – Stevens-Henager in Utah and Idaho, CollegeAmerica Denver, CollegeAmerica Arizona, California College San Diego and CollegeAmerica Services
• The Department will continue to limit the colleges to getting no more than 90 percent their revenue from Title IV federal student aid
• CEHE first applied for non-profit status with the Department in the fall of 2012
• In reviewing that request, the Department determined that CEHE, which had been a small educational non-profit that did not provide educational services, acquired four for-profit college companies owned by the Carl Barney Living Trust
• CEHE promised to pay the Trust more than $400 million dollars, and the colleges were merged into CEHE
• While CEHE is recognized by the Internal Revenue Service as a non-profit company, the colleges’ tuition revenue continues to flow to Mr. Barney through the Trust to pay off the debt that CEHE owes from acquiring the colleges, and through the rent that some of Mr. Barney’s other companies receive as landlords for several of the college campuses
• Under 34 C.F.R. § 600.2 of the Higher Education Act regulations, non-profit institutions must be owned and operated by a non-profit where no part of the net earnings benefit any private shareholder or individual
• During the time the applications were under review, risk factors identified in CEHE’s financial statements – including a lawsuit against one of the institutions filed by the Colorado Attorney General – led the Department to require CEHE to provide a $42.9 million surety
• To qualify for federal student aid, the law requires that most for-profit programs and certificate programs at private non-profit and public institutions prepare students for gainful employment in a recognized occupation
• The letter to CEHE is online here.