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The Education Department Will Allow Two Large For-Profit Colleges To Become Nonprofits

The move is a sign of a shift in how the federal government will treat colleges that want to shed the for-profit label.

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The Education Department has offered its stamp of approval for the controversial sale of two massive for-profit colleges, Kaplan University and the Art Institutes, according to emails obtained by BuzzFeed News — allowing both schools to convert to nonprofit colleges. Kaplan, which was purchased by Purdue University, will become a public college.

The two high-profile conversions have been closely watched by the for-profit education industry, which sees them as a bellwether for future attempts to convert to nonprofits. More and more for-profit colleges have been eyeing conversions as the industry continues to struggle to enroll students.

But there were questions about whether conversions would be allowed by federal overseers. The Obama administration had begun to block such deals over concerns that schools would not actually operate as nonprofits, independent from the for-profit entities that once owned them. There were also worries in and out of the administration that nonprofit conversions were being used to evade regulations.

The approvals of Kaplan and the Art Institutes are a sign that under Education Secretary Betsy DeVos, the department is likely to take a far more laissez-faire approach to the conversions. The department, along with college watchdogs called accreditors, have ultimate say over whether the so-called conversions go through.

Kaplan University was bought by Purdue, the large Indiana public college, for just $1, in a deal that earned the blessing of former Obama education secretary Arne Duncan. The arrangement was orchestrated by former Indiana Republican governor Mitch Daniels, now Purdue's president.

The for-profit company will still be closely involved in the operations of the new university, an issue that raised eyebrows among some advocates. In the emails, though, the department said Purdue's Board of Trustees had confirmed "Purdue's complete control of the institution."

The deal to sell the Art Institutes, owned by the company EDMC, is much murkier, because the buyer of the troubled schools is the Dream Center, a tiny, inexperienced nonprofit with Christian roots. The sale to the Dream Center had been criticized by advocates who said it would do little to help students at the troubled college and could mask hidden financial incentives.

The sale had already run into problems: one of Art Institute's overseers initially rejected the purchase, expressing concerns about a lack of planning and a complicated financial situation that looked as though it could benefit the school's former owner.

But the Education Department concluded that "it does not see any impediment to EDMC's request for approval of the change in ownership or its request for approval of nonprofit institution status," according to the emails.

As nonprofits, many of the schools' programs will not be subject to the "gainful employment" regulations implemented under the Obama administration, which cut off financial aid to underperforming programs, and won't have to comply with rules that restrict how much of their money can come from the federal government.

When the Obama administration blocked one for-profit to nonprofit conversion late last year, then-secretary John King said in a statement, “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."

The Education Department did not immediately respond to a request for comment from BuzzFeed News.

CORRECTION

As a nonprofit, some of EDMC's programs will still be subject to "gainful employment regulations." A previous version of this story mistakenly said the new nonprofits would not be subject to those regulations.

Molly Hensley-Clancy is a business reporter for BuzzFeed News and is based in Washington, DC. She covers the intersection of business and education.

Contact Molly Hensley-Clancy at molly.hensley-clancy@buzzfeed.com.

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