HR 2271119th CongressIn Committee

Change of Ownership and Conversion Improvement Act

Introduced: Mar 21, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Change of Ownership and Conversion Improvement Act would overhaul how the Department of Education reviews and handles changes of ownership and conversions of higher education institutions. It creates a new framework for pretransaction determinations, requires fees to fund faster and more thorough processing (including monitoring after conversions), tightens protections against self-dealing when proprietary institutions convert to nonprofit status, and increases transparency and oversight (with GAO reporting). Key goals are to speed up otherwise slow approvals, ensure financial and regulatory compliance, and provide ongoing monitoring after conversions to protect federal student aid and public interests. The changes would apply to applications submitted on or after January 1, 2026.

Key Points

1Pretransaction determinations and comprehensive reviews
2- Institutions may request a materially complete pretransaction review 90 days before a change in ownership. If the pretransaction review is approved, the subsequent change-in-ownership application can also be approved if terms are substantially the same and the institution meets all requirements.
3- Department of Education must conduct a comprehensive review (no abbreviated or partial reviews) and must decide within 90 days for a materially complete application, with extensions allowed only for good cause and limited to 12 months in total. If no decision is made and no good cause exists, the application is deemed approved.
4- The Secretary must publish in the Federal Register the reasoning for approval/denial, including analysis of any director’s status as an interested or disinterested party.
5Administrative fees and funding use
6- New administrative fees: 0.15% of total institutional revenue for most change-in-control or non-conversion applications and 0.30% for conversions or conversion-related pretransactions.
7- Fee use is restricted to processing expenses; 50% of conversion-related fees go to the IRS for tax-exemption verification, and the other 50% stays with the Education Department for processing.
8- A single transaction cannot exceed $120,000 in fees, and a pretransaction fee paid for conversion covers the later change-in-ownership fee for that transaction.
9Protections and procedures for converting proprietary institutions
10- If a proprietary institution is to be owned/operated by a buyer that seeks nonprofit status, the buyer must meet nonprofit criteria (with provisions to prevent self-dealing).
11- Assets, service contracts, and lease contracts must be purchased at fair market value or be supported by independent third-party valuation; there is a rebuttable presumption of fair market value if these conditions are met.
12- Self-dealing safeguards include requiring a disinterested committee of directors to approve the transaction when there are common ownership interests on both sides.
13Post-transaction monitoring and ongoing fees
14- Approved conversions must enter a 5-year monitoring period focused on compliance with nonprofit requirements and 103(13) status.
15- Annual monitoring fees: 0.15% of the institution’s most recent total revenue under this title, with 50% kept by the Secretary for monitoring and 50% remitted to the IRS for tax-exemption compliance activities.
16- The annual monitoring fee cannot exceed $60,000. Extensions for monitoring beyond the 5-year period require written justification.
17- Waivers may be granted if there is no ongoing contractual/financial relationship with former owners; waivers can extend for multiple years if conditions warrant.
18Transparency, documentation, and reporting
19- The Secretary must publish descriptions of required documents and forms for pretransaction and change-in-ownership applications, including what constitutes a materially complete application, with updates after a public comment period.
20- If the Secretary requests una described documents, they must justify in writing and publish those reasons in the Federal Register, including whether other institutions would be asked for similar documentation.
21- Annually (starting within 18 months of enactment) the GAO must report to Congress on implementation, including processing times, approvals/denials, extensions with good cause, and any suggested legislative improvements. If the Secretary fails to report on time, fees collected may not be spent for a period unless Congress appropriates for that use.
22Definitions and timing
23- Defines “conversion” as a proprietary institution reorganizing to be nonprofit or transferring control to a nonprofit/public entity seeking nonprofit recognition.
24- Applies these amendments to applications submitted on or after January 1, 2026.
25Oversight and accountability
26- A GAO report is due within five years of enactment and every year thereafter, with recommendations to improve the application and monitoring processes.

Impact Areas

Primary group/area affected- Proprietary (for-profit) and nonprofit higher education institutions undergoing change of ownership or conversion; prospective students and families in those institutions.Secondary group/area affected- Department of Education (administrative processing, staffing, and budgeting), accreditors (recognition processes), and the Internal Revenue Service (tax-exemption verification and monitoring).- Former owners and boards of proprietary institutions, who may face heightened conflicts-of-interest protections and ongoing monitoring.Additional impacts- Taxpayers and the broader public may see changes in processing efficiency due to fees funding staff and monitoring activities.- Increased transparency and public reporting could affect institutional communications and marketing during the change process.- Timeframes for approvals and post-conversion oversight could influence merger activity, market competition, and student access to programs.

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