A House Education Committee probe into Everglades College Inc., the parent entity of Keiser University and Everglades University, alleges school president Arthur Keiser and other insiders have received millions of dollars from the two Florida universities in violation of Education Department rules.
The findings add to Democrats’ concerns that former for-profit colleges are masquerading as nonprofits to avoid regulation while still reaping the financial benefits of operating as proprietary institutions.
Everglades College, a nonprofit formed by Arthur Keiser, purchased the namesake for-profit university in 2011 with his own money. Keiser, who has received payments and interest on the $321 million he lent, is still owed about $60 million, according to 2019 tax filings.
He and his family still own parts of the properties the school rents and the companies it uses for an array of services, including air travel, roofing, recruitment and legal needs. According to 2019 tax filings, Everglades College paid these Keiser-related businesses nearly $8.9 million, including $1.4 million for charter aircraft and travel.
The rise of the covert for-profit college
“The owner and the owner’s family, substantially benefit from the earnings of the institution in violation of the principles of what makes an institution a nonprofit,” House Rep. Robert C. “Bobby” Scott (D-Va.), the chair of the Education Committee, wrote in a letter to Education Secretary Miguel Cardona Monday.
Scott wants the department to investigate whether Everglades College violated its nonprofit status by allowing its leadership to profit from the school.
Education Department spokeswoman Kelly Leon would not comment on the specifics of the request but said Wednesday that the department is scrutinizing conversions and working to strengthen the process through ongoing rulemaking.
“We are committed to a thorough examination of transactions involving requested conversions from for-profit to nonprofit or public status to protect students and taxpayers,” Leon said. “We received the recent letter from Chairman Scott and look forward to responding directly.”
The department must approve every for-profit that wishes to become a nonprofit — and monitor its compliance with rules governing nonprofits. The federal agency has grown skeptical of conversions, rejecting the applications of the Center for Excellence in Higher Education in 2016 and Grand Canyon University in 2019. In both cases, the department found the former owners were too enmeshed in the operations of the schools.
Education Department stops for-profit college from sidestepping federal rules
The Education Department’s decision on whether to investigate Everglades College and Keiser University will be closely watched. Keiser is a well-known figure in higher education and was appointed by House Republicans to the Education Department’s advisory committee on college accreditation — the National Advisory Committee on Institutional Quality and Integrity — which he now chairs.
In a statement, Keiser University officials said the House Committee is attempting to re-litigate the approval of a transition that took place over a decade ago.
“Tens of thousands of students, campus based and online, have successfully advanced their careers because of those approvals,” said Jeff Laliberte, a spokesman for Keiser University. “Unfortunately, based on several inaccuracies in the referral letter, the committee has erroneously been led to believe that this issue is still relevant.”
Laliberte did not elaborate on the alleged inaccuracies in the report.
There are ample benefits to winning a nonprofit designation from the U.S. government. Beside the millions of dollars saved in taxes, nonprofit schools are not subject to what’s called the 90/10 rule, which bars for-profit colleges from getting more than 90 percent of their operating revenue from federal student aid funding.
Becoming a nonprofit school means relinquishing ownership and placing control in the hands of trustees who operate with no financial benefit and in the interest of the public good. But a 2020 Government Accountability Office (GAO) report raised concerns that insiders remained involved with converted universities, posing a risk of financial impropriety.
The GAO identified 59 for-profit college conversions that occurred from January 2011 through August 2020, almost all of which involved the college’s sale to a tax-exempt organization. In about a third of those deals, the former owners had a hand in the conversion by creating the nonprofit or retaining presidency after the sale. The GAO concluded that insider involvement in a conversion poses a risk that insiders may improperly benefit by influencing the tax-exempt purchaser to pay more for the college than it is worth.
This report has been updated.
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