Change of Ownership and Conversion Improvement Act
This bill revises the application and review process for institutions of higher education (IHEs) to change ownership or for a proprietary (i.e., for-profit) IHE to convert to public or other nonprofit status.
Specifically, the bill (1) establishes a pretransaction review application, and (2) requires an IHE to pay an administrative fee to the Department of Education (ED) for change in ownership or conversion transactions or pretransaction reviews. In the case of a for-profit IHE seeking conversion or a pretransaction review for conversion, ED must remit 50% of the administrative fee to the Internal Revenue Service (IRS) to determine whether the IHE is exempt from tax and is otherwise in compliance with the applicable requirements of the Internal Revenue Code of 1986 (IRC).
The bill establishes time frames for ED to approve or deny applications. The bill also includes various reporting requirements.
An IHE that has been approved for conversion by ED must be subject to a five-year monitoring period and must also pay an annual fee for this monitoring. ED must remit 50% of the annual fee to the IRS for monitoring the IHE's compliance with the IRC.
The Government Accountability Office must report on the implementation of this bill's provisions.
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2271 Introduced in House (IH)]
<DOC>
119th CONGRESS
1st Session
H. R. 2271
To amend the Higher Education Act of 1965 to modify the application and
review process for changes of control, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
March 21, 2025
Mr. Owens introduced the following bill; which was referred to the
Committee on Education and Workforce
_______________________________________________________________________
A BILL
To amend the Higher Education Act of 1965 to modify the application and
review process for changes of control, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Change of Ownership and Conversion
Improvement Act''.
SEC. 2. FINDINGS.
Congress finds the following:
(1) Institutions of higher education in the United States
frequently merge with, consolidate, and acquire other
institutions that result in a change in ownership.
(2) These transactions are generally good for students, as
they promote innovation, drive competition, and prevent
stagnation.
(3) Changing demographics and evolving higher education
enrollment patterns may lead to more mergers and acquisitions
in the future.
(4) Proprietary institutions that voluntarily convert to
nonprofit status or are acquired by nonprofit and public
entities can have a positive impact on students and society.
(5) The Department of Education has an interest in
safeguarding Federal student aid funds and therefore should
conduct thorough and comprehensive reviews of all changes in
ownership involving institutions of higher education.
(6) These reviews are necessary to ensure that the
acquiring entity has the financial and administrative capacity
to manage the target institutions.
(7) The Department of Education should conduct these
reviews in a thorough and comprehensive manner but should do so
as quickly as possible to promote the execution of these
transactions.
(8) As of May 2021, the Department of Education had ``very
few staff'' assigned to evaluate pretransaction, change of
control, and conversion applications on a full-time basis.
(9) Consequently, these transactions are processed by the
Department of Education at an extraordinary slow rate of speed,
with some institutions waiting up to 5 years before receiving a
final determination.
(10) One of the primary challenges in processing these
applications quickly is the lack of funding to hire enough
qualified staff.
(11) Currently, general taxpayers are bearing the cost of
reviewing these transactions.
(12) It is in the interest of institutions and the United
States to charge a fee for applications involving changes in
ownership at institutions of higher education that are
submitted to the Department of Education.
(13) In consideration for the fee, the Department of
Education will be required to guarantee an expedited review
process for all applicants, absent compelling circumstances
where good cause exists for delay.
(14) The Government Accountability Office has identified
weaknesses in the Department of Education's post-transaction
monitoring process, which will likewise require additional
staff to be hired to conduct monitoring.
(15) Institutions that have converted from proprietary
status to nonprofit status and have an ongoing financial
relationship with the former owners of the institution are at
highest risk of entering into financial arrangements that
result in improper private inurement.
(16) These institutions should be closely monitored for a
period after these transactions occur and should be required to
pay a fee to support the hiring of staff to conduct this
monitoring.
(17) The Government Accountability Office has likewise
found weaknesses in the Internal Revenue Service review process
for conversion requests and the post-transaction monitoring
process.
(18) In order to support a more thorough review of these
applications and to conduct monitoring, the Department of
Education will remit part of the fee paid by institutions to
the Internal Revenue Service for these purposes.
SEC. 3. MODIFYING THE APPROVAL PROCESS FOR CHANGES OF CONTROL.
(a) Amendments.--Section 498(i) of the Higher Education Act of 1965
(20 U.S.C. 1099c(i)) is amended--
(1) in the subsection heading, by inserting ``and Proposed
Changes of Ownership'' after ``Ownership'';
(2) in paragraph (1)--
(A) by striking ``(1) An eligible institution'',
and inserting the following: ``(1)(A) An eligible
institution'';
(B) by striking ``the requirements of section 102
(other than the requirements in subsections (b)(5) and
(c)(3))'' and inserting ``the applicable requirements
of section 102 or 103(13)''; and
(C) by adding at the end the following:
``(B)(i) Prior to a change in ownership resulting in a change of
control, an institution may seek a pretransaction determination about
whether the institution will meet the applicable requirements of
section 102 or 103(13) and this section after such proposed change in
ownership by submitting to the Secretary a materially complete
pretransaction review application.
``(ii) In reviewing applications submitted under clause (i), the
Secretary shall only provide a comprehensive review of each such
application, and may not provide an abbreviated or partial review.
``(iii) If an institution submits a materially complete
pretransaction review application at least 90 days prior to the
transaction and the Secretary approves the application, the subsequent
change in ownership application shall also be approved and the
institution shall be certified as meeting the requirements for such
transaction, provided that the institution--
``(I) complies with the applicable terms of this section;
and
``(II) the transaction resulting in a change of control
does not differ materially in its terms from the transaction
proposed in the pretransaction review application.'';
(3) in paragraph (2)--
(A) in subparagraph (E), by striking ``or'' at the
end;
(B) in subparagraph (F), by striking the period at
the end and inserting ``; or''; and
(C) by adding the following at the end:
``(G) in the case of a proprietary institution of higher
education, a conversion to a public or other nonprofit
institution of higher education.''; and
(4) by adding at the end the following:
``(5)(A) Subject to subparagraph (B), when any institution submits
an application for a change in ownership resulting in a change in
control under this section or submits a pretransaction review
application under paragraph (1)(B) (other than in the case of a
conversion transaction), the institution shall be required to pay to
the Secretary an administrative fee that shall--
``(i) be in an amount equal to 0.15 percent of the total
institutional revenue derived from this title by such
institution for the most fiscal year for which data is
available; and
``(ii) be used exclusively for expenses related to the
processing of such application, and be available to the
Secretary without further appropriation, exclusively for
expenses related to the processing of such approval or
application.
``(B) In the case of a proprietary institution submitting an
application for conversion, or a pretransaction review application for
conversion, the institution shall be required to pay to the Secretary
an administrative fee that shall--
``(i) be in an amount equal to 0.30 percent of the total
institutional revenue derived from this title by such
institution for the most fiscal year for which data is
available; and
``(ii) be used exclusively for expenses related to the
processing of such application, and of which--
``(I) 50 percent shall be available to the
Secretary without further appropriation, exclusively
for expenses related to the processing of such
application; and
``(II) 50 percent shall be remitted by the
Secretary to the Commissioner of the Internal Revenue,
and shall be available, without further appropriation,
to the Commissioner of Internal Revenue exclusively for
purposes of determining whether the institution seeking
such conversion or pretransaction review is an
institution exempt from tax and is otherwise in
compliance with applicable requirements of the Internal
Revenue Code of 1986.
``(C) An institution that pays a fee under subparagraph (A) or (B)
for a pretransaction application with respect to a proposed transaction
shall not be required to pay another fee under such subparagraph for a
change in ownership application with respect to such transaction.
``(D) In no case may any fee remitted under subparagraph (A) or (B)
exceed $120,000 for any transaction (or pretransaction) application,
nor may the Secretary require an institution that has paid a fee under
subparagraph (B) to pay an additional fee under subparagraph (A).
``(6)(A) The Secretary shall approve or deny a materially complete
application (including pretransaction reviews and conversion
applications) submitted under this section as soon as practicable and
not later than the 90-day period beginning on the date of receipt of
such an application, except that in a case in which the Secretary
determines, on a nondelegable basis, that good cause exists to not make
the determination during such 90-day period, the Secretary shall notify
the institution in writing detailing the reasons for a good cause
extension.
``(B) If the Secretary fails to approve or deny a materially
complete application during the period described in subparagraph (A)
and does not find good cause for extension, the materially complete
application shall be deemed approved.
``(C) In no case may the Secretary grant a good cause extension
under this section to an institution for more than one month at a time,
or for a total of more than more than 12 months.
``(D) To ensure timely submission of all relevant documentation,
the Secretary may deny an application if an institution does not make a
good faith effort to submit to the Secretary, in a timely manner--
``(i) all relevant documentation; or
``(ii) a materially complete application.
``(E)(i) Upon approving or denying an application under this
paragraph, the Secretary shall publish in the Federal Register the
reasoning for such approval or denial, including--
``(I) a copy of the approval or denial letter sent to the
institution; and
``(II) any analysis regarding how the Secretary determined
under paragraph 7(A)(iii) that a director of the institution
was an interested or disinterested party to the transaction.
``(ii) The Secretary shall not publish under clause (i) any
information that is otherwise exempt from disclosure under section 552
of title 5, United States Code (relating to the Freedom of Information
Act), including trade secrets and commercial or financial information
that is privileged or confidential.
``(7)(A) In the case of a proprietary institution that subsequent
to the transaction would be owned and operated by an entity (in this
paragraph referred to as the `buyer') seeking to be recognized as a
public or other nonprofit institution, the buyer shall meet the
definition of a nonprofit institution under section 103(13) if--
``(i) the buyer pays no more than fair market value for any
assets of the proprietary institution;
``(ii) the buyer pays no more than fair market value for
any service or lease contracts, including such service and
lease contracts provided by the entity selling the proprietary
institution; and
``(iii) to prevent self-dealing in the case where one or
more individuals with a substantial ownership or controlling
interests in the proprietary institution will also have
substantial or controlling interests in the institution seeking
to be recognized as a public or other nonprofit institution
(meaning that one or more individuals are on both sides of the
transaction), the change of control transaction, and any
substantial asset acquisition, service, or lease agreements
with the proprietary institution shall be approved by a
disinterested committee of directors of the entity that seeks
to be recognized as a public or other nonprofit institution.
``(B) For the purposes of this paragraph, parties to the
transaction are entitled to a rebuttable presumption that the assets,
lease contracts, and service contracts that are part of the transaction
are purchased at fair market value if--
``(i) the acquiring entity pays no more than fair market
value for such assets, lease contracts, or service contracts;
and
``(ii) the value of the assets, lease contracts, or service
contracts are evaluated by at least one independent third-party
entity hired by parties on both sides of the transaction.
``(8)(A) An institution that has been approved for conversion by
the Secretary shall be subject to a monitoring period for a 5-year
period beginning on the day after the date of such approval. In
conducting the monitoring of the institution under this paragraph, the
Secretary--
``(i) shall only conduct monitoring to ensure that the
institution is in compliance with the requirements of section
103(13) and paragraph (7) of this subsection; and
``(ii) may require the institution to submit regular
reports or conduct audits of such institution relating to such
compliance.
``(B) Each institution that is subject to the monitoring period
under this paragraph shall remit an annual fee to the Secretary--
``(i) in an amount equal to 0.15 percent of the total
revenue derived from this title by such institution for the
most recent fiscal year for which data is available; and
``(ii) that shall be exclusively for expenses related to
monitoring of the institution for the period described in
subparagraph (A)--
``(I) of which 50 percent shall be used by the
Secretary, without further appropriation, exclusively
for expenses related to monitoring of the institution
during such period; and
``(II) of which 50 percent shall be remitted by the
Secretary to the Commissioner of Internal Revenue, to
be available to such Commissioner, without further
appropriation, exclusively for monitoring compliance
with the Internal Revenue Code of such institution
during such period.
``(C) An institution may not be subject to an annual fee under
subparagraph (B) for monitoring related to a conversion that exceeds
$60,000.
``(D) If the Secretary determines that an institution should be
subject to the monitoring under this paragraph beyond the 5-year period
described in subparagraph (A), the Secretary shall provide the reasons
justifying an extension in writing to the institution (and in the
Federal Register) at least 30 days before the expiration of such
period.
``(E) Any institution that is subject to monitoring under this
paragraph may seek a waiver to be exempt from such monitoring
(including the annual fee under subparagraph (B)) on an annual basis
for any year during the monitoring period and the Secretary shall grant
such waiver if there is no ongoing contractual or financial
relationship between the institution and the former entity or
individuals that previously owned the institution. The Secretary may
grant a waiver for more than 1 year in the case where the entity that
formerly owned the proprietary institution has closed or no longer
exists and the Secretary determines the institution is not at risk of
violating the requirements of section 103(13) or paragraph (7) of this
subsection.
``(9) Any institution that submits an application for conversion
shall not promote or market itself, in any manner, as a public or other
nonprofit institution of higher education unless--
``(A) the Secretary has provided final approval of the
conversion of the institution to a public or other nonprofit
institution of higher education under this section;
``(B) an accrediting agency or association recognized by
the Secretary pursuant to section 496 has approved such public
or nonprofit status of the institution;
``(C) the State has given final approval to the institution
as a public or nonprofit institution of higher education, as
applicable; and
``(D) in the case of an institution seeking nonprofit
status, the Commissioner of Internal Revenue has approved the
institution as tax exempt pursuant to the Internal Revenue Code
of 1986.
``(10) Not later than 270 days after the date of enactment of the
Change of Ownership and Conversion Improvement Act, and periodically
thereafter, the Secretary shall publish (and update as necessary) in
the Federal Register--
``(A) descriptions of the documents and materials the
Secretary expects or requires institutions of higher education
to submit (including any standardized forms) as part of any
pretransaction application or change in ownership application
under this section, including a description of what the
Secretary considers to be a materially complete application;
and
``(B) after at least a 30-day notice and comment period,
responses to any public comments received with respect to such
descriptions or updates to such descriptions.
``(11) In a case in which the Secretary requests a document under
this section as part of a pretransaction or change in ownership
application that is not described in the Federal Register under
paragraph (10), the Secretary shall--
``(A) substantiate, in writing to the institution, the
reasons why the Secretary is requesting such documents; and
``(B) publish such reasons in the Federal Register,
including whether the Secretary may request other institutions
that submit applications under this section to produce similar
documentation.
``(12)(A) Not later than 18 months after the date of enactment of
the Change of Ownership and Conversion Improvement Act, and annually
thereafter, the Secretary shall submit a report to authorizing
committees, and post such report on a publicly available website
regarding implementation of the amendments made to this section by such
Act, including the following information:
``(i) The mean and median length of time taken by the
Secretary to review applications under this section during the
preceding 12-month period.
``(ii) The number of applications approved or denied during
the preceding 12-month period.
``(iii) For any application not processed during the 90-day
period beginning on the date of receipt of the application for
which the Secretary found good cause under paragraph (6)(A) to
extend the deadline in which the application shall be
processed, a copy of the letter sent to the institution
explaining why the Secretary believed good cause existed for
such extension.
``(iv) For any application not processed during such 90-day
period, which was deemed to be automatically approved by the
requirements of this section under paragraph (6)(B), the name
of each institution involved and an explanation for why the
application was not processed in a timely manner.
``(v) Any legislative suggestions the Secretary may have to
improve the application or monitoring process under this
section.
``(B) If the Secretary fails to submit a report under this
paragraph by not later than 90 days after the deadline for such
submission under subparagraph (A), the Secretary may not, for the 12-
month period following such failure, spend the fees remitted by
institutions under this section or remit such fees to the Commissioner
unless Congress provides for such use by further appropriation.
``(13) For the purposes of this subsection, the term `conversion'
means any transaction under which--
``(A) a proprietary institution is reorganized and seeks
recognition as a public or other nonprofit institution; or
``(B) the control of a proprietary institution is
transferred as a result of a sale, donation, or other method to
an entity that seeks certification under this section as a
public or other nonprofit institution.''.
(b) Application.--The amendments made by this section shall be
apply with respect to applications submitted for change of control or
conversion submitted on or after January 1, 2026.
SEC. 4. GOVERNMENT ACCOUNTABILITY OFFICE.
Not later than 5 years after the date of enactment of this Act,
the Comptroller General shall submit to the Committee on Education and
Workforce of the House of Representatives and the Committee on Health,
Education, Labor, and Pensions of the Senate, a report on the
implementation of the amendments made by this Act, including
recommendations to improve--
(1) the application process under section 498(i) of the
Higher Education Act of 1965 (20 U.S.C. 1099c(i)), as amended
by section 3, for institutions of higher education seeking a
change in ownership resulting in a change in control; or
(2) the monitoring process under such section for
institutions of higher education that have recently converted
from being recognized as a proprietary institution to a public
or other nonprofit institution.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Education and Workforce.
Llama 3.2 · runs locally in your browser
Ask anything about this bill. The AI reads the full text to answer.
Enter to send · Shift+Enter for new line