Shellacking the For-Profits

August 5, 2010

WASHINGTON -- Senate Democrats made it clear Wednesday that their examination of for-profit higher education has only just begun, and that they plan to pursue legislation aimed at reining what they see as the sector’s dishonest -- if not fraudulent -- practices.

At a hearing on the “student recruitment experience” at for-profit colleges that began Wednesday morning and carried on through the mid-afternoon, Sen. Tom Harkin (D-Iowa), chairman of the Health, Education, Labor and Pensions Committee, outlined plans to hold more hearings on the sector, to collect broad sets of information from for-profit colleges, and to begin drafting legislation aimed at cleaning up the sector.

“Education is too important for the future of this country,” he said. “Facing the budget problems we have in the next 10 years, we just can't permit more and more of the taxpayers' dollars that are supposed to go for education and quality education … to be going to pay shareholders or private investors.”

Much of Harkin’s motivation came from the findings of a Government Accountability Office “secret shopper” investigation of recruiting practices at 15 for-profit campuses, the results of which -- including a powerful videotape visible below -- were officially released at the start of the hearing. The probe identified “fraudulent, deceptive or otherwise questionable marketing practices” at all 15 institutions, and inducements to commit fraud on the Free Application for Federal Student Aid at four institutions. Coupled with a former recruiter’s account of his experience on the job, the evidence presented at the hearing depicted an industry aggressively and universally going after “leads” and “starts” with the institutional objective of securing federal financial aid dollars.

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"GAO's findings make it disturbingly clear that abuses in for-profit recruiting are not limited to a few rogue recruiters or even a few schools with lax oversight,” Harkin said. The evidence was collected from some of the nation's largest for-profit colleges, including the University of Phoenix and Kaplan College.

Though the U.S. Department of Education is expected to publish regulations intended to guard against abuse of the Title IV financial aid program by Nov. 1, Harkin said he was “not certain regulations will suffice.” Rather, he said, “I believe and I think where we’re headed is very clearcut legislation that can’t be overturned by another administration, that can’t put in ‘safe harbors’ and say it complies, but really tightly designed legislation to correct these practices.”

Harkin promised more hearings on for-profit colleges in September, November and possibly December -- including one on accreditors’ oversight of for-profits -- and also announced plans to collect data on sector outcomes and practices. His office will today send requests to 30 for-profit colleges -- all of the publicly traded companies, plus a mix of privately held institutions -- asking them to provide information about their graduation and loan default rates, plus internal recruiting documents and details about their use of third-party companies, like lead generators that help with recruiting. “We’ve got to get to the bottom of this,” he said.

Sen. Mike Enzi, of Wyoming, the senior Republican on the panel, acknowledged “aggressive and inappropriate recruiting practices” at the colleges visited by GAO investigators, but said he wanted to see the Senate’s scrutiny of higher education reach to nonprofit institutions as well. “In focusing only on for-profits, we are not being objective and we are ignoring the bigger picture of what is happening across all of higher education.” (That approach seems unlikely so long as Democrats have the majority and nonprofit colleges wield the clout they enjoy among many lawmakers on both sides of the aisle.)

Also on Wednesday, Sens. Jim Webb (D-Va.) and Richard Durbin (D-Ill.) sent letters to Defense Secretary Robert Gates and Veterans Affairs Secretary Eric Shinseki asking for detailed data on how tuition assistance money for members of the military and for veterans is being spent.

“[W]e have heard reports that some for-profit institutions may be aggressively targeting service members and veterans, signing them up for educational programs that may bring little benefit to future employment opportunities, low graduation rates and high default rates,” they said. With the passage of the Post-9/11 GI Bill, they added, “we have heard concerns about excessive tuition being charged at some of these institutions.”

Democrats Tom Carper (Del.), Kay Hagan (N.C.), Claire McCaskill (Mo.), Russ Feingold (Wisc.) and Harkin also signed on to the letter.

'Deceptive or Completely Questionable' Practices

Presenting the findings of the GAO investigation was Gregory D. Kutz, the office’s managing director of forensic audits and special investigations at the Government Accountability Office. In testimony made more powerful by the brief undercover video clips that punctuated it, Kutz detailed “deceptive or completely questionable” practices at all 15 institutions.

The colleges the GAO visited were not a totally random sample, Kutz said, but they were not institutions where his office or the Education Department were already aware of fraud. “It gives you an indication that this is much more widespread than a few bad actors.”

Colleges Visited by GAO Location
University of Phoenix Arizona
Everest College Arizona
Westech College California
Kaplan College California
Potomac College District of Columbia
Bennett College District of Columbia
Medvance Institute Florida
Kaplan College Florida
College of Office Tech Illinois
Argosy University Illinois
University of Phoenix Pennsylvania
Anthem Institute Pennsylvania
Westwood College Texas
Everest College Texas
ATI Career Training Texas

Though Kutz’s written testimony didn’t identify the campuses the GAO examined, he did, at Harkin’s request, release a list of the institutions. They included campuses of the University of Phoenix in Arizona and Pennsylvania, Kaplan College in California and Florida, Everest College in Arizona and Texas, as well as privately held institutions including ATI Career Training and Medvance Institute.

Manny Rivera, a spokesman for Apollo Group, which owns the University of Phoenix, said the company has “strict policies in place to protect students during the enrollment process and throughout their tenure with the university, and when we discover any violation of this policy, we take immediate and decisive disciplinary action up to, and including, termination of the employees involved.”

Jacquelyn P. Muller, vice president of public relations at Education Management Corporation, which owns Argosy University in Chicago -- one of the institutions visited -- said that “every employee within our organization is held accountable for upholding the highest moral, ethical, and legal standards at all times.”

Kutz said that though corporate leaders may try to dismiss his investigation’s findings as problems with individual employees, “I expect anybody who would have walked in... and that was trained a certain way in marketing was going to the same script.” Institutions may say “‘that was a rogue employee,’ but I suspect in some of these cases that is absolutely not true.”

Sen. Johnny Isakson (R-Ga.), reinforcing what has become Republicans’ standard way of addressing problems uncovered at for-profit colleges, said: “I know we’ve got people doing bad things, but I know we’ve got a lot of people doing it right and they’re going to be under a cloud unless we begin to separate the wheat from the chaff.”

Joshua Pruyn, a former recruiter for a Westwood College, who testified at the hearing, said he didn’t think the kind of dishonest behavior that he saw and was encouraged to emulate while working at a Colorado campus resulted from a few “rogue” employees violating his institution’s code of ethics, but rather a pattern of behavior encouraged by corporate leaders.

Harkin, too, said he believed the encouragement to aggressively and dishonestly pursue students came from higher up. Showing a recruitment training PowerPoint slide from the University of Phoenix with the header “Creating Urgency: Getting Them to Apply NOW."

Harkin said he thought inducements to recruit aggressively were coming from company executives. “That doesn’t come from some employee,” he said. “That comes from the top.”

Photo: Senate Health, Education, Labor and Pensions Committee

A PowerPoint slide from the University of Phoenix's recruiter training materials.

During the HELP committee's June hearing on for-profits, Harkin voiced concern that formerly good actors in the sector had been “lured into the vortex of bad practices” that might, only a few years ago, have been the domain of only some. The findings of the GAO investigation, he said, were “evidence [that] points to a problem that is systemic … to the for-profit industry,” with a “recruitment process specifically designed to do whatever it takes to drive up enrollment numbers, more often than not to the disadvantage of students.”

The fallout from the hearing isn’t likely to be positive for the for-profits.

Terry W. Hartle, senior vice president of government and public affairs at the American Council on Education, said he couldn’t “say for sure that it’s the most devastating Congressional hearing I’ve ever seen, but it’s in that league.” Harkin’s statements at the hearing, Hartle said, indicated that he “is fully engaged and is emotionally committed to this issue.” The findings of the GAO investigation, in particular, “seemed to really get Sen. Harkin’s attention.”

The stocks of most publicly traded for-profits, including those visited by GAO investigators, closed down for the day on Wednesday afternoon.

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