Dive Brief:

• For-profit Ashford University on Friday announced that the public benefit corporation formed to become the new online college entity, AU NFP, has received tax-exempt status from the IRS.
• The move brings Ashford's parent company, Bridgepoint Education, one step closer to spinning off the university into a nonprofit entity — a move it has previously tried to execute. The company must also receive approvals from its accreditor, the U.S. Department of Education and state agencies to complete Ashford's conversion into a nonprofit.
• Once the deal is finalized, Bridgepoint plans to transform into an OPM provider, with Ashford as its first client.  

Dive Insight:

Bridgepoint Education is hoping to shed its role as a for-profit operator at a time when the sector is grappling with a battered reputation, regulatory uncertainty and a strong job market luring away prospective students.

The company's revenue fell by more than one-third (36%) from 2013 to $478.4 million in 2017. And as with many for-profits, as well as colleges across the nation, declining enrollment drove the decrease.

During that time, Bridgepoint's enrollment fell from more than 63,600 students in 2013 to about 40,700 students in 2017 — a drop of nearly 36%. The company attributed the change to low unemployment and regulatory scrutiny of for-profit colleges.

In the face of these challenges, Bridgepoint completed a deal last year to merge its two institutions, the University of the Rockies and Ashford. The move, which the company billed as a way to create a single online institution with a wider variety of degree paths, was critical to Bridgepoint's goal to separate from its entities.

IRS approval was another essential step in that plan, but that hurdle may prove easier to clear than others. Budget cuts have drained the agency's oversight ability, a problem that has been compounded by a push to expedite approvals, The Washington Post reported.   

Getting approval from its regional accreditor, WASC Senior College and University Commission (WSCUC), may prove more tricky. In November, the agency deferred action on Bridgepoint's request to convert Ashford into a nonprofit until it received and could review more documentation.

To be sure, Bridgepoint's plans have raised eyebrows in some areas of higher ed. The Century Foundation's Bob Shireman, for instance, wrote that several elements of the planned deal are "cause for suspicion." 

For one, Bridgepoint announced its plan after California filed a lawsuit alleging Ashford misled students. Additionally, Bridgepoint CEO Andrew Clark said during an investor call in July that the nonprofit borne from the deal would pay Bridgepoint between 60% to 65% of its revenue in exchange for online program management services. (Shireman pointed out on Twitter that AU NFP's corporate officers include Ashford's current president and two of its vice presidents.)

The setup mirrors that of other recent for-profit conversions. Grand Canyon University, which received approval to convert to a nonprofit last year, retains its former parent company as a services provider. Likewise, Purdue University's deal to acquire Kaplan University, which was finalized last year, calls for the newly formed nonprofit to share some of its revenue with Kaplan in exchange for operations support.