The Department of Education has denied non-profit status to a chain of for-profit career colleges, accusing the schools’ operators of trying to avoid accountability.

The DOE announced Thursday that it denied Utah-based Center for Excellence in Higher Education’s request after determining that the transfer would not benefit the public.

In a highly redacted letter to CEHE CEO Eric Juhlin, the DOE outlined its process for determining whether a school can be converted to non-profit status and ultimately ordering the company to “continue to be accountable to taxpayers, students through federal regulations.”

CEHE is itself a non-profit organization. In 2012, after it acquired a group of colleges — including  CollegeAmerica, Stevens-Henager College, and California College San Diego — from the Carl Barney Living Trust for $400 million, CEHE applied to extend this non-profit status to these schools.

However, the DOE ultimately determined that Barney — who became chairman of the board for CEHE — retained significant control over the schools and received income in a way that is not in line with the requirement that the net earnings of a non-profit can not benefit any private shareholder or individual.

“Schools that want to convert to non-profit status need to benefit the public,” Under Secretary of Education Ted Mitchell said in a statement. “If the primary beneficiary of the conversion is the owner of the for-profit school, that doesn’t meet the bar. It’s not even close.”

If the colleges were granted non-profit status, they would not face the increased scrutiny of Gainful Employment regulations — which require career schools to demonstrate that a sufficient number of their graduates go on to earn a reasonable living — or the “90/10 rule,” which says that for-profit colleges can’t get more than 90% of their operating revenue from federal student aid funding.

The DOE’s rejection of the CEHE request means the four colleges must still meet those standards.

“This should send a clear message to anyone who thinks converting to non-profit status is a way to avoid oversight while hanging onto the financial benefits: Don’t waste your time,” U.S. Education Secretary John B. King Jr. said in a statement.

In researching this story, we noted that the websites for each of the CEHE schools — which have officially been operating as for-profits while the non-profit requests were pending — marketed themselves as non-profit schools:

We’ve asked the DOE to comment on how the schools could advertise as non-profits without having non-profit status, but have not yet received a response.

Meanwhile, in a statement to Consumerist, CEHE CEO Juhlin accuses the government of exercising a bias against certain educators.

“The Department’s analysis is wrong and derived solely from this administrations political agenda against private colleges, Juhlin said. “The existing laws and regulations do not support this position by the Department. Unfortunately, with the support of the current administration, the Department feels it can set policy and  establish precedent with no legal basis to support their positions.  That’s not the way it is supposed to work in the country.”

Juhlin says that CEHE is already in the process of drafting a declaratory relief action against the Department and will accelerate that action upon receipt of the Department’s recent decision.

UPDATE: Juhlin has followed up on his earlier statement, which he now dubs as “premature,” with the following “official” comment from CEHE:

“The Department of Education’s decision, conveyed in an ambush press release this morning, without any prior notice to CEHE, is arbitrary, capricious, and unlawful. This decision, containing lie upon lie, is an example of a federal agency operating outside the law to advance a political bias. It was issued 44 months after CEHE submitted its change of ownership applications. The Department rejected CEHE’s repeated urgent requests to meet with the Department to review the applicable laws and regulations.

“CEHE will fight this politicized attempt to smear our good colleges and our amazing students.”

Carl Barney, the original owner of the schools involved in today’s decision, has also released a statement:
“The press release is scandalous, false and misleading, and defames me. What I did was completely honorable, lawful and to the benefit of the colleges and our students. This scurrilous attack is shameful.”

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