April 20, 2012

For-Profit Colleges Attack New Effort To Prevent Fraud With $32 Billion of Your Tax Dollars

For-Profit Colleges Attack New Effort To Prevent Fraud With  Billion of Your Tax Dollars

The for-profit college industry gets about $32 billion of its approximately $35 billion annual revenue from federal financial aid. Fifteen of the largest for-profits get 86 percent of their money from federal student aid programs – such as Pell grants, student loans, and the G.I. Bill. Yet every time someone proposes making their schools more accountable for waste, fraud, and abuse with our money, these corporations bristle, hire ever-more expensive lobbyists, put higher volumes of misleading ads on TV, and increase their campaign contributions to influence Congress. Their latest assault came Wednesday, within minutes of the announcement of new legislation from Senators Tom Harkin (D-IA) and Kay Hagan (D-NC) that would ensure your tax dollars are spent on educating and training students, rather than being wasted on advertising, marketing and recruiting.

An existing law bans colleges from using your tax dollars for lobbying, but it’s difficult to enforce. The new legislation would be easier to monitor, because for-profit colleges actually spend more on ads and recruiting than they earn from sources other than federal aid. In fiscal year 2009, the biggest for-profits spent $3.7 billion dollars, or 23 percent of their budgets, on advertising, marketing and recruitment. One major for-profit, Bridgepoint, in 2009 spent more than $2000 per student on recruiting and only $700 for each student on instruction.

The huge amounts of money that for-profit colleges spend on seeking new students is troubling not only because it diverts money from education. It is excessive, far more than marketing expenditures in other business sectors (typically 4-12 percent of sales) or for nonprofit colleges (an average of one-half of one percent of revenues).  It’s also worrisome because, as federal, state, and media investigations have found, many for-profit schools have used these funds to engage in recruiting practices that are extremely coercive and deceptive — that exploit vulnerabilities of prospective students and that mislead students about essential issues, like the value of their degrees and credits, and the real costs they will face. The U.S. Justice Department and half a dozen states have sued Education Management Corp., owner of the Art Institutes and other for-profits, for fraud, alleging the company  paid its recruiters based on the number of students signed up, in violation of federal rules. (EDMC denies these claims.)  Twenty-three state attorneys general are jointly investigating the industry for fraud.

Recently, the organization Student Veterans of America closed its chapters at 40 for-profit colleges after finding out that they were merely fronts, with no student members, used as a scam by the industry to market their schools as “veteran friendly” — one of many examples of the for-profits misleading our veterans and active-duty military.  Senator Hagan noted her concern, in particular, about this critical group of Americans:

I am especially troubled by the tactics some for-profits have employed in targeting active duty servicemen and women and their families.  North Carolina has one of the largest populations of active duty service members and veterans in the country, and each of these courageous men and women deserves access to a quality education. This legislation takes the most significant action yet to protect students, active duty military, veterans and their families from deceptive recruiting practices by some for-profit colleges.

Sadly, but predictably, the new chief lobbyist for the for-profit education industry, Steve Gunderson, did not take the opportunity to thank Congress and the American people for making his industry possible, indeed immensely profitable. This spokesman for the privileged and entitled — the previous CEO of Kaplan left with an $76 million bonus payment, and the CEO of University of Phoenix’s parent company, Apollo Group, got $25 million last year — barked at Harkin and Hagan to stay away from his taxpayer-funded gold mine:

It is clearly another attempt by some policy makers to try and put private-sector colleges and universities out of business. It also reflects a fundamental misunderstanding of the students we serve and the public service we provide.

As we have reported, while some had hoped that Gunderson, a former Congressman (R-WI), might take a more statesmanlike approach to running the for-profit college trade group APSCU, he has instead pursued the same old take-no-prisoners effort, but with a twist — he has tried to cultivate better relations with the lobbyists for traditional nonprofit and public colleges, and even applied for APSCU to rejoin their group, the American Council on Education (ACE).  The new best friend Gunderson seeks, Terry Hartle, ACE’s chief lobbyist, promptly informed America that while the Harkin-Hagan bill’s “goals are laudable,” and that ACE opposes “deceptive or high-pressure recruiting tactics,” the bill “would be extraordinarily complex to implement” because “implementation is never as easy or simple as the legislative branch would assume.” Hartle said the bill “would end up imposing a significant burden on all colleges and universities because of a handful of bad actors.”

Meanwhile, Apollo Group, the University of Phoenix owner, attacked Harkin and Hagan for offering “misleading rhetoric.” The Senators had singled out Apollo for employing more than 8,000 recruiters in 2010.  Advertising Age recognized Apollo as one of the top 100 spenders on U.S. advertising in 2009  — $377 million, more than Apple.  But instead of thanking Senators Harkin and Hagan for authorizing — and taxpayers for providing — most of the money to pay for these ads (and for sponsorships of everything from New Yorker magazine education panels to Good magazine’s education website to Arizona’s University of Phoenix Stadium), Apollo, too, lashed out.  (Apollo may be in a bad mood because, as it disclosed on Thursday, the SEC is investigating the company regarding insider trading; Apollo said it would cooperate with the SEC.)

For-profit colleges, many marked by low-quality programs and sky-high prices, as well as deceptive recruiting, have 13 percent of U.S. students but nearly 50 percent of student loan defaults. Recent data show that four-year students at for-profit colleges graduate less than half as often as other students. Many of the biggest actors in this sector systematically ruin students’ lives at taxpayer expense. It’s long past time for them to stop acting so entitled to our money.