For-profit colleges hit with claims of fraud, aggressive recruiting

At a Senate hearing Wednesday, government investigators released evidence that some for-profit colleges encouraged students to falsify financial aid documents.

By , Staff Writer

In a blurry video, a financial aid officer at a for-profit college tells an applicant to leave off any mention of a $250,000 inheritance when filling out aid applications, saying it’s really not the government’s business.

The applicant was an undercover investigator, one of several who encountered aggressive recruiting tactics, deception about employment prospects, and in some cases outright fraud on their 15 visits to for-profit colleges around the country.

The investigation was conducted this summer by the US Government Accountability Office (GAO) and presented at a hearing Wednesday by the Senate Committee on Health, Education, Labor and Pensions (HELP). By not reporting the inheritance, undercover applicants would have fraudulently qualified for federal grants and loans.

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The GAO’s findings “make it disturbingly clear that abuses ... are not limited to a few rogue recruiters," said HELP Committee Chairman Tom Harkin (D) of Iowa. "The evidence points to a problem that is systemic to the for-profit industry.”

Wednesday's hearing was the second in an ongoing series examining practices at for-profit colleges. About 2,000 such schools – private or publicly traded companies whose net earnings can benefit shareholders or individuals – are eligible to receive federal student aid.

The sector has grown rapidly and receives about $24 billion a year in federal grants and loans, nearly a quarter of all federal student aid. It has come under increased scrutiny because of concerns about high dropout rates and loan-default rates among its students.

In response to the GAO report, the Career College Association (CCA), the industry’s chief lobbyist, announced a series of measures to better ensure compliance with government regulations. Such steps include a beefed up code of conduct and training program, development of a “zero tolerance” standard for employees who misbehave, and an industry-run “mystery shopping” program to assess practices in recruitment and financial advising.

“As educators, our commitment must always be to put students first,” said CCA President Harris Miller in a written statement responding to the GAO report (he did not testify at the hearing). “We will continue to add to this ‘zero tolerance’ program until all such doubts about our sector are removed.”

Among the practices the GAO investigators recorded on hidden cameras:

Deceptive information about employment prospects. Two schools said students were virtually guaranteed employment, a violation of federal regulations. Five others overstated prospective salaries, including one that said barbers can make more than $150,000 a year (on average they make less than $43,000).

Misleading cost estimates. One representative said it would take 3 to 4 years of full time classes to get a degree, but quoted a price based on attending school just 9 months a year.

Aggressive tactics. Representatives at four schools repeatedly told the applicants that they could not speak to a financial aid representative until signing enrollment forms and paying a small fee. In one video clip, a supervisor intervenes, questioning whether the applicant is really serious about going to school and improving his job prospects. The supervisor said that if the applicant was committed, he’d make the sacrifice and take on the cost and figure out the details of what grants and loans they could get for him after he enrolled.

The GAO has shared the report with the US Department of Education, which can follow up to enforce laws and regulations.

Another witness at the hearing was Joshua Pruyn, who spoke about working as an admissions representative for Alta College Inc. in Denver. He was trained in sales tactics, including interviewing students to find the “pain points” in their lives that could be used to pressure them to enroll, such as worries about being in a dead-end job. Misleading potential students to make enrollment targets was standard practice and was rewarded with incentives such as trips, he said.

Mr. Pruyn quit after nearly 6 months. The final straw, he said, was discovering that students who wanted to withdraw and clearly would eventually dropout (including a military person who was called up for active duty) were pressured to stay enrolled for at least 14 days because after that point, the school could keep federal money that the student had been awarded.

The Department of Education recently proposed rules that would, among other things, close loopholes dating back to 2002 that are widely thought to have gutted a ban on incentive rewards for enrolling students.

“The rule changes proposed take a step in the right direction, but they are far from adequate if the goal is to clean up the [for-profit] sector,” says Barmak Nassirian, associate executive director of the American Association of Collegiate Registrars and Admissions Officers (who did not testify).

For example, he says, the bar should be set higher for what portion of a school’s students are repaying student loans. The proposed regulations set 35 to 45 percent in repayment as the benchmark for a school’s eligibility for federal aid, depending on the debt-to-earnings ratio of its graduates.

Sen. Mike Enzi of Wyoming, the HELP Committee’s top Republican, criticized the hearings for focusing on negative practices at for-profit colleges and said he would soon lay the groundwork for a broader look at the value students and taxpayers receive from the whole higher education sector.

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