Making Scholarship Payments to a For-profit College

IPA Foundation Legal Help Desk advisors respond to a question on whether or not a foundation can make scholarship payments to a for-profit college.

Can the foundation make scholarship payments to a for-profit college?

Yes, as long as the standard fund agreement does not prohibit it, you may give a scholarship to a student attending a for-profit school. However, you are also free to adopt a policy that states that your foundation does not award scholarships to students attending for-profit institutions.

Faegre Baker Daniels recommends using significant caution in this area, as there is controversy surrounding for-profit educational institutions. Recently, the U.S. Department of Education has terminated the status of a large accrediting body of for-profit institutions.

Be aware, expenditure responsibility is required.

Here are the five steps of expenditure responsibility and thoughts about how to exercise them with for-profit schools:

1. Pre-grant inquiry: You need to be satisfied that the school actually provides a quality educational experience. Checking accreditation status is the first step.
2. Grant agreement: A written grant agreement should be executed before the check is cut.
   The agreement should include at minimum:
   •    Name of student(s) for whom the award is given
   •    Agreement to provide proof of accreditation status
   •    Agreement to provide required reporting: A report showing class(es) the student is enrolled in; the cost for each course
   •    Statement that funds will be used only for the student named in the agreement
   •    The agreement should be signed by someone with signature authority (bursar, registrar, CFO)
3. Separate accounting: covered in grant agreement
4. Regular reports: covered in grant agreement
5. Report this on the 990, Schedule O

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