The proposed bill aims to amend the Higher Education Act of 1965 to revise how changes in the ownership and control of higher education institutions are processed, primarily focusing on proprietary institutions transitioning to nonprofit status. Known as the "Change of Ownership and Conversion Improvement Act," the bill seeks to streamline and expedite the review processes involved with these transitions, primarily through the introduction of application fees. These fees are intended to fund additional staffing necessary for comprehensive reviews by the Department of Education and to address identified delays and inefficiencies.

General Summary of the Bill

The legislation imposes new rules for determining whether educational institutions meet the requirements for ownership changes, such as mergers or conversions to nonprofit status. It also introduces fees to cover the costs of expediting these processes, with revenues shared between the Department of Education and the Internal Revenue Service. Additionally, it mandates the publishing of decisions in the Federal Register and establishes annual reporting requirements to Congress on the bill's implementation. The goal is to ensure transactions are conducted efficiently while safeguarding federal student aid funds and addressing previous accountability weaknesses.

Significant Issues

A considerable concern highlighted by the bill is the administrative fee structure, which may disproportionately affect smaller educational institutions. Since fees are calculated as a percentage of total institutional revenue, they might place a heavier financial burden on institutions with less income, potentially leading to inequity across different sizes of educational organizations.

The bill also lacks detail on what makes an application "materially complete," leading to concerns over fair and consistent application processing by the Department of Education. Moreover, potential 12-month extensions for application processing may result in prolonged uncertainty for institutions undergoing vital operational changes.

Another issue is the mandatory publication of the reasoning behind application approvals or denials, which, although intended for transparency, might inadvertently expose sensitive information. The Secretary's authority to deny applications based on a "good faith effort" requirement is another ambiguous area that could lead to subjective and inconsistent decisions.

Impact on the Public

For the broader public, the bill intends to enhance efficiency and accountability in how educational institutions undergo changes in control. By speeding up the review process, it potentially minimizes disruption for students who might be affected by such changes. However, its approach of funding these improvements through institutional fees raises questions about whether these costs will be passed onto students and could result in higher tuition fees or reduced educational services.

Impact on Stakeholders

Educational Institutions: The bill's fee structure might benefit larger institutions better equipped financially to handle additional costs, compared to smaller colleges that could face significant financial challenges. Institutions seeking conversion to nonprofit status might particularly feel the strain from ongoing monitoring fees.

Department of Education and IRS: The legislation aims to provide these bodies with necessary funding to address staffing shortfalls, improving their capacity to conduct thorough reviews and post-transaction monitoring. This increased oversight could lead to more responsible management of federal student aid funds and improved assurance of compliance.

Students and Taxpayers: While students stand to benefit from institutions being required to maintain standards through enhanced oversight, the bill assumes some taxpayer funding for additional staffing needs, which may not sit well with all taxpayers, especially if perceived as unnecessary or inequitable.

The Legislature's attempt to expedite and regulate the process of ownership change in higher education institutions brings both opportunities and challenges. The intended efficiencies must be carefully balanced against fairness and transparency concerns to ensure equitable outcomes for all affected parties.

The proposed bill H.R. 7144, titled the "Change of Ownership and Conversion Improvement Act," includes several significant financial considerations and allocations that impact how changes in control and ownership of higher education institutions are processed and monitored by the U.S. Department of Education.

Administrative Fees and Financial Burdens

A key financial aspect of the bill is the introduction of administrative fees for institutions submitting applications for changes in ownership or conversion to nonprofit status. The fee structure is designed to fund the review process required by the Department of Education. Specifically, institutions must pay a fee equal to 0.15% of their total institutional revenue derived from federal funding, while proprietary institutions seeking to convert must pay 0.30%. However, these fees are capped at $120,000 per transaction application and $60,000 for annual monitoring fees post-conversion.

This fee structure may present a disproportionate financial burden on smaller institutions due to its percentage-based nature, as highlighted in the identified issues. Smaller institutions, with potentially less revenue, would proportionally sacrifice more financial resources compared to larger counterparts, potentially exacerbating existing financial disparities.

Transparency and Potential Conflicts of Interest

The bill also mandates that part of the fees collected from conversion applications be remitted to the Internal Revenue Service (IRS) to support their role in assessing tax exemption status and ensuring compliance with tax regulations. This dual-agency funding strategy ensures both the Department of Education and the IRS have resources for their respective roles.

However, concern arises regarding potential conflicts of interest, as addressed in the issues section. Institutions essentially fund the review process that determines their eligibility and compliance, raising questions about the integrity and impartiality of such processes. There could be a perceived risk of bias if an institution feels that their payments influence the review outcome, though the bill intends for these fees to solely cover administrative costs.

Monitoring Fees and Financial Strain

Once an institution has been approved for conversion from a proprietary to a nonprofit entity, they are subject to a five-year monitoring period. During this time, they must pay an annual fee—capped at $60,000—to fund the monitoring process. This sustained financial obligation could impose a long-term strain, particularly on smaller or recently converted institutions that are still stabilizing financially and structurally post-conversion.

The issues noted a concern that these monitoring fees, along with the administrative fees, could cumulatively strain institutions financially, affecting their capacity to deliver educational services or maintain operational stability during and after the conversion process.

Undefined Financial Oversight

The requirement for the Comptroller General to produce a report on the implementation of these amendments implies resource allocation towards oversight and accountability. However, the bill does not allocate specific budgetary provisions for this report. This omission could lead to insufficient resources being designated for comprehensive audits, potentially weakening oversight and revealing inadequacies in the effectiveness or necessity of the financial procedures enacted.

Overall, while H.R. 7144 attempts to streamline the ownership change process in higher education through implementation of fees and structured reviews, it introduces financial burdens and complexities that may not be equitably distributed across institutions, potentially impacting smaller institutions more severely and highlighting significant challenges related to transparency and financial strain.