Lacking the 'Ability to Benefit'

September 22, 2009

WASHINGTON -- For weeks, spilling into months, those who watch the for-profit sector of higher education most closely (especially Wall Street analysts and some of the colleges' critics) have been speculating about what the U.S. Government Accountability Office was cooking up in a report on the institutions.

Now we know, in the form of some critical findings and a suggestion that the Education Department crank up its scrutiny of the career-related colleges. But Wall Street shrugged off the findings, with stocks for the major publicly traded higher education companies all rising Monday in the wake of what one analyst called the "most positive report we've seen from any government entity" about for-profit colleges.

The most damning aspect of the report -- one of the two that Congress's investigative arm released Monday, with the other on minority-serving colleges -- was the GAO's revelation that officials at a Washington-area branch of one publicly traded for-profit college appears to have violated federal rules when they gave answers to, and "tampered" with answers given by, GAO analysts who posed as prospective students on academic tests designed to measure their "ability to benefit" from a higher education.

This and other evidence of potential abuse of rules governing the ability of underachieving students to qualify for federal financial aid, combined with the disproportionately high rates at which students at career-related institutions default on their student loans, led the accountability office to call on the U.S. Education Department to toughen its oversight of the colleges -- a direction in which the Obama administration has begun to move in recent months.

"While our findings do not represent nor should they be interpreted as implying widespread problems at all proprietary schools, our work has identified significant vulnerabilities in Education’s oversight that should be addressed," the GAO report asserts. "Without better oversight of the [ability to benefit] testing process to ensure more frequent identification of improper testing, and stronger processes for handling and reporting improper testing, both the integrity of the testing process and the qualifications of students who receive federal funding cannot be assured."

The Career College Association, which represents most of the nation's 1,200 for-profit colleges, expressed dismay about the allegations of wrongdoing but noted that the GAO report suggests that they are unrepresentative. "We abhor any practice that breaks the rules or the law to admit unqualified students, whether through fraudulent testing practices or bogus high school degrees. We share the government’s interest in eliminating any form of fraud and abuse associated with the Title IV program," the association said in a prepared statement. "The GAO report describes the actions of a few school personnel and testing personnel behaving in an unethical manner. Nothing in the GAO report suggests that the practice of admitting unqualified students is widespread or indicative of the sector as a whole."

For-profit colleges have fought hard to overcome the longstanding perception -- largely developed in the late 1980s and early 1990s, when Congress cracked down on the institutions -- that they aggressively woo academically underprepared students to tap into federal grant and loan funds. The reforms put in place in the 1992 Higher Education Act drove scores of mostly small colleges out of business and helped lower the rates at which students at for-profit institutions default on their loans.

In the meantime, a set of major national chains favored by working adults have emerged as the sector's share of all college enrollments has steadily grown, and some policy experts focused on ensuring a ready supply of American workers have increasingly argued that for-profit institutions must be a part of the solution to the country's problems.

Plenty of skeptics with questions about the institutions' quality remain, though, and the industry still can be buffeted by critical investigative reports by "60 Minutes" or, more substantively, by the threat of increased scrutiny from the federal government, which in worst-case scenarios for the colleges could lead to reductions in the flow of federal money to the companies and their investors.

The GAO Study

The study released by the Government Accountability Office, which U.S. Rep. Rubén Hinojosa (D-Texas) had requested, goes out of its way to note career colleges' role in the higher education pipeline, pointing out that they are more likely than both public and private nonprofit colleges to enroll older students, financially independent students, women and members of minority groups. "Many of these schools play an important role in providing a range of students, including non-traditional and disadvantaged students, with an opportunity to obtain the education they need to increase their work skills and find jobs," agency officials write.

That's only true, though, if the students that the institutions enroll are qualified to do college-level work, and and if they emerge from college with jobs so they're able to pay off their loans. That latter point has been and remains a concern for many policy makers, the GAO study notes, because students who attend for-profit colleges "are more likely to default on their federal student loans, which can tarnish their credit reports, make it difficult for them to obtain employment, and jeopardize their long-term financial well being." The problem is particularly acute precisely because the institutions enroll more low-income and underrepresented students, the agency writes.

The default rate concerns raised by the GAO are unlikely to surprise anyone, as they largely rehash issues discussed previously. But the steps the agency took to investigate the practices some colleges use to admit academically underprepared students, and the findings that emerged, could reverberate.

The agency builds on a series of previous findings by the U.S. Education Department's Office of Inspector General and state agencies like the New York Department of Education to assert that administrators at for-profit institutions sometimes violate federal rules to "ensure prospective students without high school diplomas passed required tests and obtained access to Title IV aid."

Specifically, GAO sent two of its auditors under cover, on two separate occasions, to one Washington-area campus last year posing as potential students, The two purposely failed the exams the college gave them, known as "ability to benefit" exams, that prospective students must pass to prove themselves capable of benefiting from higher education and to become eligible for federal financial aid.

"[O]n both occasions, the independent test administrator gave them and all the test takers in the room -- about 20 in total -- answers to some of the test questions," the GAO report says. "We later obtained copies of the analysts’ test forms and found that they had been tampered with -- their actual answers had been crossed out and changed -- to ensure the analysts passed and would become eligible to receive Title IV funds."

The GAO report says that the agency turned the information over to the Education Department's inspector general; a spokeswoman at GAO declined to identify the college in question Monday, but said that the inspector general's office has yet to release the reports of its own review into the institution's practices.

The agency also said it had found instances in which "recruiters at two separate publicly traded proprietary schools referred students to diploma mills for invalid high school diplomas in order to gain access to federal loans without having to take an [ability to benefit] test."

The GAO critiques the Education Department for failing to adequately monitor test publishers, which are supposed to provide the department with frequent analyses of scores on the ability to benefit tests, and for doing too little to stop applicants for federal aid from using fake high school degrees from diploma mills.

"Without better oversight of the ATB testing process to ensure more frequent identification of improper testing, and stronger processes for handling and reporting improper testing, both the integrity of the testing process and the qualifications of students who receive federal funding cannot be assured, the GAO writes. "In addition, without stronger controls, such as clear guidance from Education banning the use of high school diploma mills to obtain federal aid and information on how to identify diploma mills, the government cannot be assured that its student aid funds are only provided to students who have an ability to benefit from higher education."

While the GAO report contained some damning findings, it was greeted with relief by Wall Street analysts who had been expecting worse, and by investors themselves -- the publicly traded higher education stocks were up across the board, with their prices rising between 7 and 12 percent.

The GAO on Minority-Serving Colleges

The other higher education-related report released by GAO Monday, which like the for-profit study was requested by Hinojosa, the Texas Democrat who heads the House of Representatives subcommittee on postsecondary education, concerns the efficacy and oversight of federal grant programs for institutions that enroll large numbers of minority students.

The GAO study generally endorses the need for the programs, finding that colleges that participate in the programs under Titles III and IV of the Higher Education Act (which together make up about 28 percent of all postsecondary institutions) have greater financial need and serve more low-income and minority students than do colleges that don't qualify for the programs.

But as with the study on for-profit colleges, the accountability agency suggests that the Education Department has provided inadequate oversight of the "strengthening institutions" programs, as they are known.

For example, the GAO found that one recipient spent more than $100,000 of its Title III money on "questionable expenses ... such as student trips to locations such as resorts and amusement parks, and an airplane global positioning system."

Without more oversight from the Education Department, GAO said, "Title III and V funds continue to be at risk for fraud, waste, or abuse."

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