Integrity of nonprofit institutions of higher education

Part B of title I of the Higher Education Act of 1965 (20 U.S.C. 1011 et seq.) is amended by adding at the end the following:

124.

Integrity of nonprofit institutions of higher education

(a)

Determination

The Secretary may approve the conversion of an institution of higher education to a nonprofit institution of higher education only if the Secretary determines that such institution of higher education meets the requirements under subsection (b).(b)

Application

To be eligible to convert and participate as a nonprofit institution of higher education under this Act, an institution of higher education shall submit an application to the Secretary that demonstrates each of the following:(1)That the institution of higher education that submits such application is controlled, owned, and operated by one or more nonprofit corporations or associations, no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual.(2)That any assets or services acquired by the institution of higher education that submits such application from former owners of such institution of higher education were not acquired for more than the value of such assets or services.(3)That no member of the governing board of the institution of higher education that submits such application (other than ex officio members serving at the pleasure of the remainder of the governing board and receiving a fixed salary), or any person with the power to appoint or remove members of such governing board or any immediate family member of such a member of the board or such a person with power of appointment, receives any substantial direct or indirect economic benefit (including a lease, promissory note, or other contract) from such institution of higher education.(4)That the institution of higher education that submits such application is an organization described in section 501(c)(3) of the Internal Revenue Code of 1986 and is exempt from taxation under section 501(a) of such Code.(5)Subject to subsection (c), that none of the core functions of the institution of higher education that submits such application are under the control of, or subject to significant direction from, an entity that is not a public institution of higher education or other nonprofit entity.(c)

Presumption of significant direction

For purposes of paragraph (5) of subsection (b), in the case of an institution of higher education that submits an application under such subsection, there shall be a conclusive presumption that an entity (other than such institution of higher education) exercises significant direction over such institution if one or more of the employees or owners of the entity serves as an officer, member of the board, or person holding similar authority for such institution.(d)

Transition period

(1)

In general

In the case of a proprietary institution of higher education approved for conversion under subsection (a), for a period of at least 5 years that begins on the date such institution is approved for such conversion, the institution shall be—(A)subject to any provision of this Act and any regulation that apply to proprietary institutions of higher education; and(B)considered a proprietary institution of higher education for purposes of this Act.(2)

Definition

The term proprietary institution of higher education has the meaning given the term in section 102(b).(e)

Value

The term value, with respect to an acquisition under subsection (b)(2)—(1)includes the value of any ongoing relationship (including any contract, agreement, lease or other arrangement);(2)subject to paragraph (3), may be demonstrated through—(A)a third-party appraisal based on comparable assets acquired by, or goods or services procured by, nonprofit corporations in similar market conditions;(B)an independent financing of the acquisition based upon the assets acquired; or(C)a full and open competition in the acquisition of services or assets, as such term is defined in section 2.101(b) of title 48, Code of Federal Regulations, as in effect on the date of enactment of the For-Profit College Conversion Accountability Act; and(3)shall be subject to such other demonstration process determined appropriate by the Secretary in a case in which the Secretary does not accept a demonstration process described in paragraph (2).(f)

Publication

(1)

Application

Before the Secretary may approve the conversion of an institution of higher education under subsection (a), the application of such institution submitted to the Secretary under subsection (b) shall be published in the Federal Register with an appropriate notice and comment period.(2)

Determination

The Secretary shall publish each determination under this section, and the reasons for such determination, under the Federal Register.(g)

Public representation and marketing of nonprofit status

An institution of higher education shall not promote or market itself, in any manner, as a nonprofit institution of higher education unless—(1)in the case of an institution of higher education that seeks to convert to a nonprofit institution of higher education under this section—(A)the Secretary has given final approval of the conversion of the institution to a nonprofit institution of higher education under this section;(B)an accrediting agency or association recognized by the Secretary pursuant to section 496 has approved the nonprofit status of the institution; and(C)the State has given final approval to the institution as a nonprofit institution of higher education, as applicable; and(2)the Commissioner of Internal Revenue has approved the institution as tax exempt for purposes of the Internal Revenue Code of 1986.(h)

Office to monitor nonprofit integrity

Not later than 1 year after the date of enactment of the For-Profit College Conversion Accountability Act, the Secretary shall establish an office within the Department with the expertise necessary to carry out this section.

125.

Review of governance

The Secretary shall review the governance of an institution of higher education when such institution has engaged in transactions or arrangements determined by the Secretary as potential indicators of private inurement, in order to promote the highest standards of nonprofit integrity.