Colleges Blurring the Line Between Non-Profit and For-Profit
Posted By Carrie Wiley on March 26, 2015 at 9:52 am
Historically, there has been a strict line between non-profit and for-profit colleges and universities. The majority of schools, both public and private, are the former – the latter includes institutions like the University of Phoenix and DeVry University, as well as the struggling Corinthian Colleges.
However, that line has started to blur in recent months, as some privately financed institutions make the shift to non-profit, and other non-profit institutions become for-profit corporations. Moreover, these shifts are resulting in a new class of colleges: something between non-profit and for-profit, with elements of both. What colleges are making these changes, and why?
Making the switch
In mid- to late 2014, as regulatory pressure increased on for-profit educators, many institutions attempted to make the switch to non-profit status (generally done by selling the institution to an existing non-profit). According to Inside Higher Ed, four were able to, including Keiser University, Stevens-Henager College and Remington College, while several more are still in progress. Benefits of going non-profit include exemption from many taxes and regulations, along with eligibility for state grants and private donations. However, these advantages also come with potential drawbacks, including limited payouts and less control for owners.
Another option for for-profit schools looking to change their status is the Public Benefit Corporation, a designation relatively new to the education space that aims to bridge the gap between non-profit and for-profit institutions. Rasmussen College, a 24-campus chain of for-profit schools, became a Public Benefit Corporation last year. That means that the institution must be more accountable to their employees, their community, and the environment, and must donate employee and facility time to local groups – employee benefits now include up to 8 hours of paid time to volunteer at a nonprofit of their choice. However, the school will still technically register as for-profit for tax purposes. This option allows for-profit colleges to pursue options that may interfere with profit, as long as they are beneficial to students or the community.
Complicating the matter further, the line between non-profit and for-profit is also being blurred in the other direction – just last month, Alliant International University, a California non-profit, was the first of what is expected to be several schools to become a for-profit benefit corporation under the umbrella of Arist Education System, a new health science institution.
Although non-profit colleges have strict regulations when it comes to driving profits, some are worried that institutions may use the transition to non-profit to maximize federal funding while still raking in high returns. Just one example: Keiser University was sold to a non-profit in 2011, yet it is still generating millions for its former owner. The reason? The former owner also owns the non-profit – along with all the buildings that the non-profit leases from him. In this case, it looks more like a loophole than a true separation from the pursuit of profit.
Why does profit matter?
For most businesses, turning a profit year after year means providing customers with a valuable product or service at a price they are willing to pay. In the education sector, however, the product that customers are purchasing is the hope of a better future—and that promise is often financed by grants and loans that are provided or subsidized by federal and local governments.
Because for-profit institutions are beholden to shareholders, they must always make choices that return the most profits. This objective can be tricky in higher education, because the needs of students, teachers and the community are not always profitable for the institution. And while both non-profit and for-profit schools may aggressively seek to increase income, many for-profit colleges have been plagued by predatory marketing and recruiting practices to boost profits while failing to maintain high educational standards.