For-Profit College Converts to 501(c)(3)

January 16, 2015 Posted by Jessica Shofler in News, Nonprofits

In recent years we’ve converted a university and other 501(c)(3)s into for-profit corporations. But is the trend now reversing? Last year, the Law Firm for Non-Profits helped a for-profit private school become a nonprofit. And at the beginning of 2015, Herzing University, one of Wisconsin’s oldest and largest for-profit career colleges, was converted to 501(c)(3) status.

Why is this occurring? In the case of Herzing, it appears to be a combination of economics and changes in the law. For example, the federal rules now require for-profit colleges to demonstrate that they are preparing students for “gainful employment.” This includes setting a cap on annual student loan payments to the colleges at 20% of the student’s discretionary income or 8% of their total earnings. Failing to keep to these caps may result in a college being ineligible for federally funded student aid. Such aid is crucial to the financial success of most for-profit colleges.

It could have also helped that students of 501(c)(3) colleges in Wisconsin are able to tap into state financial aid that is not available to for-profit schools in that state.

Does Herzing’s conversion herald a new trend? For-profit colleges currently enroll 13% of all U.S. college students and take in more than a quarter of federal aid – over $30 billion a year. Unless the new law is reversed (it’s been challenged by the Association of Private Sector Colleges), we believe it will.

In the meantime, if your nonprofit school or college is considering converting to or from nonprofit status, call on the Law Firm for Non-Profits to successfully guide you through this process.

NOTE: The information contained herein is not intended to be legal advice and the reader should know that no Attorney-Client relationship or privilege is formed by the posting or reading of this article which is also not intended to solicit business.

Casey Summar, Partner, The Law Firm for Non-Profits, 4705 Laurel Canyon Blvd, #306, Studio City, CA 91607

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