Last week the Department of Education denied the request of the Center for Excellence in Higher Education (CEHE), a chain which operates several colleges in the western United States, to have its regulatory classification changed from for-profit to private nonprofit. This comes despite the IRS recognizing the organization as a 501(c)(3) nonprofit and the Education Department’s own database listing CEHE’s schools as nonprofits.
Why is the distinction so important? The Department of Education regulates for-profit institutions much more stringently than it does nonprofits. For instance, for-profit colleges are subject to the 90/10 rule, which stipulates that an institution may receive no more than 90% of its revenues from federal student aid, such as Pell Grants and student loans.
Another regulation, the gainful employment rule, cuts for-profit colleges (and a handful of programs at nonprofit and public schools) off from eligibility for aid programs if their graduates have a high debt-to-income ratio. Finally, the recently-issued defense to repayment regulations require for-profit colleges whose former students have low rates of loan repayment to prominently disclose that in promotional materials.
In principle, these regulations make varying degrees of sense. Most reasonable people would agree that the repayment rate warnings and the 90/10 rule are particularly justified. So why only apply these provisos to for-profit colleges?
In defending his Department’s denial of CEHE’s request for nonprofit status, Education Secretary John King said: “This should send a clear message to anyone who thinks converting to nonprofit status is a way to avoid oversight while hanging onto the financial benefits: don’t waste your time.”
In his quote, King implicitly acknowledges that nonprofit schools can “avoid oversight” simply by virtue of their preexisting classification. The Department’s toughest regulations will not apply to the select group of colleges that have been pre-approved for nonprofit status. Schools labeled for-profit – even if they do not actually make a profit – must comply in order to keep receiving aid, while their peers in the nonprofit sector may go on receiving billions in taxpayer dollars even if they would not have survived the regulations without special treatment.
The public and private nonprofit institutions within this inner circle are hardly paragons of virtue. A report released last week by the centrist think tank Third Way shows that many students at four-year public colleges do not finish. Private nonprofits fare better, but many still have problems.
In my public comment on the Department’s most recent batch of regulations, I show that were the aforementioned repayment rate warnings expanded to include public and nonprofit colleges, 1.3 million additional students would be protected. Of the students attending institutions that would be affected by the warnings, only 47% go to for-profit schools. The Department, by its own admission, leaves the other 53% vulnerable simply because of their school’s classification.
In effect, the Department of Education may arbitrarily decide when to enforce its regulations and when not to by applying its own definitions of “nonprofit” and “for-profit,” regardless of what those terms mean to the rest of the world. The Department not only applies its rules unequally; it also subjectively defines the regulatory categories into which different schools fall.
Secretary King argues that his department’s rules need not apply to public and nonprofit colleges because those institutions behave themselves. That is certainly not true. Even if it were, though, it would be no justification for exempting them from regulations—if King is so confident these schools will meet his standards, then let them prove it. By the Department’s logic, Katie Ledecky should receive a gold medal without actually competing, because we all know she’d win it anyway.
Selective enforcement of regulation reeks of political favoritism and is no way to run the stewardship of the hundreds of billions of taxpayer dollars which flow through the Department’s aid programs. The for-profit college sector certainly has problems– but the Department’s regulatory philosophy amounts to a war on a business model rather than a war on bad education.
This column originally appeared on Forbes.
Preston Cooper is a policy analyst at the Manhattan Institute. You can follow him on Twitter here.
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