GAO Sting: For-Profit Colleges Use Deceptive Marketing

WASHINGTON (Aug. 3) -- An undercover government probe of for-profit colleges that reap billions in taxpayer money found fraudulent, deceptive or otherwise shady marketing practices in an industry that is coming under increasing congressional scrutiny.

In a report to be released at a Senate hearing Wednesday, the Government Accountability Office's investigation of 15 for-profit colleges found:

• Four colleges encouraged fraudulent practices, and all 15 made deceptive or otherwise questionable statements to the GAO's undercover applicants.
• Incognito applicants were encouraged by college personnel to falsify their financial aid forms to qualify for federal aid. In one case, an admissions representative at a privately owned college in Texas told an applicant to fraudulently remove $250,000 in savings despite federal regulations requiring students applying for aid to list all their assets. In another case, an applicant was encouraged to falsely increase the number of dependents in the household on a federal aid form to qualify for grants.
• College representatives exaggerated the amount of money applicants could earn after graduation. One said barbers can earn $150,000 to $250,000 a year. According to the U.S. Bureau of Labor Statistics, 90 percent of barbers make less than $43,000 annually.
• College recruiters failed to provide clear information about the length of programs, costs or graduation rates despite federal regulations requiring them to do so. Many applicants were misled by being told they would attend classes for 12 months a year, but were told only the cost of attendance for nine months.

The GAO, which focused its sting on colleges that got 89 percent or more of their revenue from federal student aid, found some instances in which undercover applicants "were provided accurate and helpful information by college personnel, such as not to borrow more money than necessary."

But the agency also uncovered overeager recruiters who resembled used-car salesmen more than college admissions officers. When the GAO created four fictitious prospective students who entered information on college websites, they were bombarded with calls from recruiters that began within five minutes of registering. One imaginary student received more than 180 phone calls in a month, some of them as late as 11 p.m.

"The results of this broad-reaching survey of for-profit school recruiting practices leave little question that these practices occur across the industry and are in no way limited to a few rogue recruiters or even schools," said Bergen Kenny, a spokeswoman for Sen. Tom Harkin, D-Iowa, chairman of the Senate Committee on Health, Education, Labor and Pensions.

Harkin's committee will hear from the GAO on Wednesday in the latest in a series of hearings on abuses in the for-profit college industry.

In an op-ed earlier this month, he compared the high-pressure tactics, default rates and executive windfalls of for-profit colleges to the subprime mortgage industry that imploded two years ago.

"Serious questions have been raised about some of the major players in this rapidly growing industry," Harkin wrote. "The entire business model, especially in the case of publicly traded companies, is premised on a college's ability to churn through many thousands of students, whose federal Pell grants of up to $5,550 and Stafford loans are paid to the school, with no accountability for student learning or graduation. Even good actors in this industry are lured into the vortex of bad practices in order to compete and meet investors' expectations."

In June, Harkin's committee heard from Yasmine Issa, a 29-year-old divorced mother of twins who accumulated $21,000 in debt to pay for training at a for-profit college to become an ultrasound technician. Only after graduation, when she was turned down for a job, did she learn the school was not accredited.

Congressional and media scrutiny of for-profit colleges has risen amid soaring enrollment at the schools, which burst on to the higher education scene in the 1990s. Enrollment in the past several years went from about 365,000 students to almost 1.8 million. About 2,000 schools now offer degrees and certificates in everything from business administration to medical billing to cosmetology.

In 2009, students at for-profit colleges received more than $24 billion in federal grants and loans, some 77 percent of their revenues.

Last month, the Education Department proposed new rules that would cut off federal aid to for-profit colleges with high student-loan default rates or those whose graduates fail to earn enough to repay their loans because they can't find "gainful employment" with their degrees.

The new GAO report is the latest black eye for a private industry that has thrived on the government's largess. Inside Higher Ed predicted colleges would disown the "cherry-picked" institutions as "bad actors" that don't represent them or the
majority of shareholder-owned schools.