Some conversions in recent years have led to what critics have called “covert for-profit colleges.” This term largely refers to new nonprofit colleges that operate in significant ways like their for-profit predecessors. Yet the new nonprofit status means such institutions can evade the additional federal scrutiny applied to proprietary colleges.
“Most people have an impression that a nonprofit is somehow dedicated more clearly to what is best for students or the public. But most people are not aware of what the technical differences are between a nonprofit and for-profit,” said Robert Shireman, director of higher education excellence and senior fellow at The Century Foundation, a nonprofit, nonpartisan public policy think tank. “That has created an opportunity for mischief on the part of some for-profit colleges that have wanted to call themselves nonprofits to gain that positive image without abiding by what has actually made nonprofit higher education less predatory toward students.”
In 2015, Shireman published a report for The Century Foundation outlining four case studies of for-profit colleges that converted to nonprofits but continued to practice much of that same "predatory" behavior. Shireman found, for instance, that several former owners continued to reap personal financial benefits from the institutions after the conversions.
“The difference between a for-profit and nonprofit is a basic question of incentives,” said Brian Galle, a professor of law at Georgetown Law and an expert in nonprofits and tax law. “With a for-profit, someone can get rich even when the college’s educational standards are lowered. So, someone can aggressively recruit students because this is supposed to be a money-making operation. You’re not about serving the needs of students. The bottom line is the main incentive. Whereas with a nonprofit, there is less of an incentive for that. Usually, a nonprofit educational institution is run by people who can’t get rich from the choices they make—they work there for reasons other than to get wealthy.”
Shireman and Galle said that a nonprofit has no owners and is run by a board of trustees. These individuals make major decisions about the organization, but they cannot personally make money from the nonprofit, unlike the shareholders of a for-profit entity. Yet Shireman said that what he has called “covert for-profits” tend to happen when former owners still make money from the new college, post-conversion. In some cases, past owners have been on the nonprofit's board of trustees.
“Certainly, plenty of us have complaints about nonprofit higher education in general,” he said. “But those for the most part are not complaints about students being deceived or misled, about a failure to provide an adequate education for the price.”
