Change of Ownership and Conversion Improvement Act
- Sponsor
- Rep. Owens, Burgess [R-UT-4]
- Committees
- Education and Workforce Committee (primary)
- Last action
- Mar 21, 2025
Bottom line
This bill aims to accelerate and fund the Department of Education's oversight of higher education institutional changes of ownership and conversions, while also enhancing scrutiny of non-profit conversions to prevent improper private inurement.
What it actually does
This bill amends the Higher Education Act of 1965 to streamline the Department of Education's review process for changes in ownership and conversions of higher education institutions, particularly proprietary institutions converting to non-profit status. It introduces application fees to fund expedited reviews and post-transaction monitoring, establishes clear timelines for departmental decisions, and sets criteria to prevent self-dealing in non-profit conversions.
Proponents argue
Proponents argue the bill addresses the current slow rate of processing ownership changes and conversions by providing dedicated funding through applicant fees, which will enable the Department of Education and IRS to hire sufficient staff for thorough and timely reviews. They believe this promotes innovation, competition, and prevents stagnation in higher education, while also safeguarding federal student aid funds and preventing abuses in non-profit conversions.
Opponents contend
Opponents might argue that imposing fees, especially higher ones for conversions, could create financial barriers for institutions, potentially discouraging beneficial transactions like proprietary institutions converting to non-profit status. They might also raise concerns about the Department of Education's ability to meet the strict 90-day review deadline, even with increased funding, or the potential for these fees to disproportionately affect smaller institutions.
The bill is relatively concise for its impact, allowing an informed reader to grasp its core provisions within the estimated reading time, though the legal and financial implications require careful consideration.
Section 3(a)(1)-(3) amending HEA Section 498(i)(1)-(2)
Expedited Pretransaction Review and Expanded Definition of Change of Control
This provision allows institutions to seek a pretransaction determination from the Secretary of Education about meeting eligibility requirements before a change in ownership. If the pretransaction application is approved at least 90 days prior and the subsequent transaction does not materially differ, the final change in ownership application is automatically approved. It also explicitly includes proprietary institutions converting to public or non-profit status as a 'change in ownership' requiring review.
Supporters argue
Supporters argue this provides much-needed certainty and efficiency for institutions, reducing the risk and delay associated with these complex transactions, thereby promoting beneficial mergers and conversions in the higher education sector.
Critics contend
Critics might argue that an 'automatic approval' mechanism, even with a prior review, could potentially overlook new issues that arise closer to the transaction date, or that the 90-day pretransaction window might still be too short for complex deals.
Tradeoffs
This provision balances the need for institutional certainty and expedited processes against the Department's responsibility for thorough oversight and safeguarding federal funds.
Section 3(a)(4) adding HEA Section 498(i)(5)
Introduction of Administrative Fees for Applications
This provision requires institutions to pay an administrative fee for change of ownership applications, calculated as 0.15% of their total institutional revenue derived from Title IV funds, capped at $120,000. For proprietary institutions converting to non-profit status, the fee is higher at 0.30% of Title IV revenue (also capped at $120,000), with 50% of this fee allocated to the Department of Education and 50% to the IRS for tax-exempt status review.
Section 3(a)(4) adding HEA Section 498(i)(6)
Mandated 90-Day Review Period with Automatic Approval
This provision requires the Secretary of Education to approve or deny a materially complete application (including pretransaction and conversion applications) within a strict 90-day period. If the Secretary fails to make a determination within this timeframe and does not find 'good cause' for an extension (which is limited to one month at a time, up to a total of 12 months), the application is automatically deemed approved.
Section 3(a)(4) adding HEA Section 498(i)(7)
Fair Market Value and Self-Dealing Prevention for Non-Profit Conversions
This provision establishes strict criteria for proprietary institutions converting to public or other non-profit status. It requires the acquiring entity to pay no more than fair market value for any assets, service contracts, or lease contracts of the proprietary institution. Furthermore, if individuals with substantial ownership in the proprietary institution will also have substantial interests in the new non-profit, the transaction must be approved by a disinterested committee of directors of the acquiring entity to prevent self-dealing. A rebuttable presumption of fair market value exists if independent third-party entities evaluate the value.
Section 3(a)(4) adding HEA Section 498(i)(8)
5-Year Post-Conversion Monitoring and Annual Fees
Institutions approved for conversion from proprietary to non-profit status will be subject to a 5-year monitoring period to ensure ongoing compliance with non-profit requirements and self-dealing prevention rules. During this period, an annual fee of 0.15% of the institution's Title IV revenue (capped at $60,000) is required, with 50% going to the Department of Education for monitoring and 50% to the IRS for tax compliance monitoring. Waivers from monitoring and fees are possible if there is no ongoing contractual or financial relationship with former owners.
Section 3(a)(4) adding HEA Section 498(i)(12)
Department of Education Annual Report to Congress and Penalty for Non-Compliance
This provision requires the Secretary of Education to submit an annual report to Congress and post it publicly, detailing the mean and median review times for applications, the number of approvals/denials, reasons for 'good cause' extensions, explanations for automatically approved applications, and legislative suggestions. If the Secretary fails to submit this report within 90 days of the deadline, the Department's authority to spend the collected fees or remit them to the IRS is suspended for 12 months, requiring further appropriation from Congress for their use.
Caps the administrative fee for any transaction (or pretransaction) application at $120,000 and the annual monitoring fee for conversions at $60,000. It also specifies that conversion fees are split 50/50 between the Secretary of Education and the Commissioner of Internal Revenue.
Section 3(a)(4) adding HEA Section 498(i)(5)(D) and 498(i)(8)(C)
Why it matters:This is standard legislative practice to define the main rule (percentage calculation) and then provide specific exceptions, limits, or allocations in subsequent clauses or sub-clauses.
Case for: Proponents argue these caps prevent the fees from becoming prohibitively expensive for very large institutions, ensuring that the funding mechanism remains reasonable while still providing substantial resources for oversight. The split ensures both ED and IRS are funded for their respective roles.
Case against: Critics might argue that for the largest institutions, a $120,000 cap might not fully cover the extensive review costs, potentially shifting some burden back to general taxpayers for the most complex cases, despite the bill's intent to be self-funding.
Estimated impact: Limits the maximum financial burden on institutions, particularly large ones, while ensuring a baseline funding source for the Department of Education and the IRS for their review and monitoring activities.
This provision states that if the Secretary of Education fails to submit the required annual report on implementation within 90 days of its deadline, the Secretary may not, for the subsequent 12-month period, spend the fees remitted by institutions under this section or remit such fees to the Commissioner of Internal Revenue, unless Congress provides for such use by further appropriation.
Section 3(a)(4) adding HEA Section 498(i)(12)(B)
Why it matters:This is a common legislative technique to embed enforcement mechanisms within the provisions they are designed to uphold. It serves as a strong incentive for agency compliance with reporting obligations.
Case for: Proponents argue this provides a strong incentive for the Department to comply with reporting requirements, ensuring accountability and transparency in its operations, especially since the fees are intended to fund these very processes. It ensures Congress has the information needed for oversight.
Case against: Critics might argue that suspending the use of fees could paradoxically hinder the Department's ability to process applications and conduct monitoring, potentially exacerbating the very delays the bill seeks to fix, if the reporting failure is due to genuine capacity issues rather than willful neglect.
Estimated impact: Creates a direct financial consequence for the Department's non-compliance with reporting, potentially impacting its operational budget and ability to perform its duties if triggered, thereby strengthening congressional oversight.