TRENTON – Aiming to provide better oversight of universities, colleges, and career training centers that operate for profit, the Senate Higher Education Committee advanced legislation sponsored by Senators Troy Singleton and Joe Cryan that would establish a process to monitor a proprietary institution that converts to a nonprofit corporation for transactions that would improperly benefit private interests.

In a December 2020 report from the U.S. Government Accountability Office (GAO), between January 2011 and August 2020 roughly one-third of 59 for-profit college conversions to non-profit status involved insiders. The GAO suggests that these conversions risk improper private benefit, wherein insiders can potentially influence a tax-exempt purchaser to pay more for a formerly for-profit college than it is actually worth or otherwise seek private gains.

“As colleges and universities across the nation face declining enrollment, for-profit colleges have increasingly been converting to nonprofits,” said Senator Singleton (D-Burlington). “Putting proper oversight in place to monitor these conversions will help ensure that any bad actors are not able to illegally benefit, while still allowing for conversions when they are done for the right reasons.”

The bill, S-3730, would require proprietary institutions that convert to a nonprofit corporation to annually submit its Internal Revenue Service Form 990 to the Secretary of Higher Education for a period of five years following its incorporation as a nonprofit. The Secretary would annually review the aforementioned form to ensure that there are not reportable incidents that would constitute private inurement. The Secretary would be permitted to, upon the discovery of a reportable incident, recommend to the Secretary of State that the institution’s certificate of incorporation as a nonprofit corporation be revoked.

“Though the Federal Government has instituted reforms to assist in identifying instances of improper private benefit in these conversions, establishing a monitoring process on the state-level can provide an extra layer of oversight,” said Senator Cryan, the Chair of the Senate Higher Education Committee (D-Union). “In doing so, this bill will protect the integrity of nonprofit educational institutions and crack down on any bad actors.”

S-3730 was advanced in a unanimous vote.

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