The Covert For-Profit: How College Owners Escape Oversight through a Regulatory Blind Spot

By Robert Shireman

Each year, more than half a billion tax dollars have been flowing to four educational institutions that were once for-profit colleges. However, their regulatory treatment as nonprofit schools may not be justified.

That is one of the central findings in The Century Foundation's latest report, The Covert For-Profit by TCF senior fellow Robert Shireman. The report's findings are based on previously undisclosed documents obtained under public records requests from the Internal Revenue Service and U.S. Department of Education.

Our investigation reveals a dangerous regulatory blind spot exists, with the IRS and Department of Education each assuming, wrongly, that the other is monitoring the integrity of the “nonprofit” claims by previously “for-profit” colleges.

In case studies of four college chains, The Covert For-Profit reveals:

  • The four nonprofit chains all have signed contracts committing them to pay the former owners hundreds of millions of dollars for the colleges, while the former owners remain heavily involved in the governance of the nonprofit.
  • The former owners also own property that is being rented, for millions of dollars, by the nonprofit colleges.
  • In at least three cases a majority of the controlling board is composed of people who are being paid directly or indirectly by the institution, a practice that is highly unusual for nonprofit colleges.
  • In the case of a former owner who was paid more than $34 million in one year by his “nonprofit” institution, newly-available documents show that the IRS was reluctant to okay the college’s tax-exempt status due to concerns the nonprofit entity would be used inappropriately for personal gain. The IRS approved the college’s tax exemption only after months of pressure.


Source Documents from The Covert For-Profit

Herzing University

Remington Colleges, Inc.

Everglades College

Center for Excellence in Higher Education

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