NAICU Washington Update

Turning the Rocks Over: Congress Takes a Hard Look at For-profits

August 06, 2010

The second of a series of Senate Health, Education, Labor, and Pensions (HELP) Committee hearings on for-profit colleges focused on student recruitment practices.  The August 4 hearing opened with an eye-popping report from the Government Accountability Office's (GAO) Gregory Kutz.

Kutz is GAO's managing director of forensic audits and special investigations. He led of team of undercover investigators - or "secret shoppers" - who posed as potential students at 15 for-profit schools in a half-dozen states.  Armed with hidden cameras, the investigators filmed their interviews with "admissions counselors."

While a handful of the video clips shown at the hearing revealed positive practices, deceptive practices were found at all 15 schools. (Video clips start about 38 minutes into the hearing at the above link.)  One recruiter told the investigator that "no one comes after you" if you don't pay back your student loans.  Several others provided wildly unrealistic estimates of the cost of the training or future earnings potential.  Applicants were repeatedly denied access to financial aid counselors for estimates of the level of aid they could count on before making a decision.

Kutz noted that the Department of Education has heretofore failed to enforce regulations to curb these abusive practices.  Four of the 15 cases have been turned over to the Department because they encouraged applicants to commit fraud.  For example, in one case, a counselor recommended that the potential student declare dependents he didn't have.  Another advised the person to hide significant personal assets.

Other hearing witnesses included David Hawkins, director of public policy and research at the National Association for College Admission Counseling; Joshua Pruyn, a former recruiter at Westwood College, Colorado; and Michael McComis, executive director of the Accrediting Commission of Career School and Colleges (a national accreditor).

Hawkins focused on existing incentive compensation rules banning remuneration based on enrollments. He claimed that the "safe harbors" (i.e., exceptions) to these rules have gutted their effectiveness in preventing the use of boiler room tactics to enroll students.  Hawkins applauded provisions of the Department's proposed fraud and abuse regulations that would eliminate all these exceptions.

Pruyn's testimony offered a disturbing account of the student recruitment tactics he was trained to use to get prospective students ("leads"), and to "close the deal."  He said he was really just a salesman, and quit his job with Westwood College because of his personal qualms about dishonest practices saddling students with debt.

McComis outlined the standards and work of his national accrediting agency.  Because his agency accredited three of the 15 institutions cited by the GAO, McComis was questioned at length by HELP Committee Chairman Tom Harkin (D-Iowa) and Sen. Al Franken (D-Minn.).  Both senators expressed the view that rooting out abusive and fraudulent practices should be the responsibility of accreditors.

Harkin has become increasingly concerned about the for-profit sector, especially its reliance on federal student aid and the high level of debt of its students.  According to a report issued earlier this year, students at for-profit institutions comprise only 9 percent of all higher education students, but consume 24 percent of the Pell Grants and loans.  They also account for 44 percent of loan defaults.

Near the end of the hearing, Harkin displayed a PowerPoint slide used by the University of Phoenix entitled, "Creating Urgency: Getting Them to Apply NOW."  The slide described how recruiters needed to use "pain" in the process of getting prospective students to enroll.  He indicated that the use of this type of training material by the largest for-profit education company in the country suggested to him that hard-sell recruiting practices may not necessarily be limited to a few "bad apples."

As a somber crowd of Wall Street analysts and for-profit institution representatives filed out of the hearing room, it was clear that the committee's work had struck a nerve.

The committee's investigation will continue with additional hearings planned for the fall, one focusing on accreditation.  In addition, the committee is requesting additional information from 30 for-profit colleges regarding their recruitment practices -- as well as graduation and loan default data.  HELP Ranking Member Mike Enzi (R-Wyo.) has suggested that the practices of public and non-profit institutions be reviewed as well.  Harkin also indicated there may be a need to draft "clear-cut legislation" to address problems.

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