[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
       ENSURING STUDENT ELIGIBILITY REQUIREMENTS FOR FEDERAL AID 

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON HIGHER EDUCATION,
                 LIFELONG LEARNING, AND COMPETITIVENESS

                              COMMITTEE ON
                          EDUCATION AND LABOR

                     U.S. House of Representatives

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, OCTOBER 14, 2009

                               __________

                           Serial No. 111-36

                               __________

      Printed for the use of the Committee on Education and Labor


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                    COMMITTEE ON EDUCATION AND LABOR

                  GEORGE MILLER, California, Chairman

Dale E. Kildee, Michigan, Vice       John Kline, Minnesota,
    Chairman                           Senior Republican Member
Donald M. Payne, New Jersey          Thomas E. Petri, Wisconsin
Robert E. Andrews, New Jersey        Howard P. ``Buck'' McKeon, 
Robert C. ``Bobby'' Scott, Virginia      California
Lynn C. Woolsey, California          Peter Hoekstra, Michigan
Ruben Hinojosa, Texas                Michael N. Castle, Delaware
Carolyn McCarthy, New York           Mark E. Souder, Indiana
John F. Tierney, Massachusetts       Vernon J. Ehlers, Michigan
Dennis J. Kucinich, Ohio             Judy Biggert, Illinois
David Wu, Oregon                     Todd Russell Platts, Pennsylvania
Rush D. Holt, New Jersey             Joe Wilson, South Carolina
Susan A. Davis, California           Cathy McMorris Rodgers, Washington
Raul M. Grijalva, Arizona            Tom Price, Georgia
Timothy H. Bishop, New York          Rob Bishop, Utah
Joe Sestak, Pennsylvania             Brett Guthrie, Kentucky
David Loebsack, Iowa                 Bill Cassidy, Louisiana
Mazie Hirono, Hawaii                 Tom McClintock, California
Jason Altmire, Pennsylvania          Duncan Hunter, California
Phil Hare, Illinois                  David P. Roe, Tennessee
Yvette D. Clarke, New York           Glenn Thompson, Pennsylvania
Joe Courtney, Connecticut
Carol Shea-Porter, New Hampshire
Marcia L. Fudge, Ohio
Jared Polis, Colorado
Paul Tonko, New York
Pedro R. Pierluisi, Puerto Rico
Gregorio Kilili Camacho Sablan,
    Northern Mariana Islands
Dina Titus, Nevada
Judy Chu, California

                     Mark Zuckerman, Staff Director
                Barrett Karr, Republican Staff Director
                                 ------                                

                   SUBCOMMITTEE ON HIGHER EDUCATION,
                 LIFELONG LEARNING, AND COMPETITIVENESS


                    RUBEN HINOJOSA, Texas, Chairman

Timothy H. Bishop, New York          Brett Guthrie, Kentucky,
Jason Altmire, Pennsylvania            Ranking Minority Member
Joe Courtney, Connecticut            John Kline, Minnesota
Paul Tonko, New York                 Michael N. Castle, Delaware
Dina Titus, Nevada                   Mark E. Souder, Indiana
Robert E. Andrews, New Jersey        Vernon J. Ehlers, Michigan
John F. Tierney, Massachusetts       Judy Biggert, Illinois
David Wu, Oregon                     Bill Cassidy, Louisiana
Susan A. Davis, California           David P. Roe, Tennessee
Mazie Hirono, Hawaii                 Glenn Thompson, Pennsylvania
Marcia L. Fudge, Ohio
Jared Polis, Colorado
Pedro R. Pierluisi, Puerto Rico




















                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on October 14, 2009.................................     1

Statement of Members:
    Guthrie, Hon. Brett, Senior Republican Member, Subcommittee 
      on Higher Education, Lifelong Learning, and Competitiveness     3
        Prepared statement of....................................     4
    Hinojosa, Hon. Ruben, Chairman, Subcommittee on Higher 
      Education, Lifelong Learning, and Competitiveness..........     1
        Prepared statement of....................................     2

Statement of Witnesses:
    Miller, Harris N., president and CEO, Career College 
      Association................................................    24
        Prepared statement of....................................    26
    Mitchelson, Mary, Acting Inspector General, U.S. Department 
      of Education...............................................    18
        Prepared statement of....................................    19
    Scott, George A., Director, Education, Workforce, and Income 
      Security, U.S. Government Accountability Office............     6
        Prepared statement of....................................     8
        GAO report, ``Proprietary Schools: Stronger Department of 
          Education Oversight Needed to Help Ensure Only Eligible 
          Students Receive Federal Student Aid,'' Internet 
          address to.............................................     8
    Shireman, Hon. Robert M., Deputy Undersecretary, U.S. 
      Department of Education....................................    12
        Prepared statement of....................................    13


       ENSURING STUDENT ELIGIBILITY REQUIREMENTS FOR FEDERAL AID

                              ----------                              


                      Wednesday, October 14, 2009

                     U.S. House of Representatives

                   Subcommittee on Higher Education,

                 Lifelong Learning, and Competitiveness

                    Committee on Education and Labor

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:03 a.m., in 
room 2175, Rayburn House Office Building, Hon. Ruben Hinojosa 
[chairman of the subcommittee] presiding.
    Present: Representatives Hinojosa, Miller, Bishop of New 
York, Altmire, Courtney, Andrews, Tierney, Wu, Fudge, Polis, 
Guthrie, Kline and Ehlers.
    Staff present: Tylease Alli, Hearing Clerk; Jeff Appel, 
Senior Education Policy Advisor/Investigator; Patrick Findlay, 
Investigative Counsel; David Hartzler, Systems Administrator; 
Broderick Johnson, Staff Assistant; Fred Jones, Staff 
Assistant, Education; Ricardo Martinez, Policy Advisor, 
Subcommittee on Higher Education, Lifelong Learning and 
Competitiveness; Alex Nock, Deputy Staff Director; Helen 
Pajcic, Staff Assistant; Rachel Racusen, Communications 
Director; Julie Radocchia, Senior Education Policy Advisor; 
Melissa Salmanowitz, Press Secretary; Ajita Talwalker, 
Education Policy Advisor; Daniel Weiss, Special Assistant to 
the Chairman; Mark Zuckerman, Staff Director; Stephanie Arras, 
Minority Legislative Assistant; Kirk Boyle, Minority General 
Counsel; Casey Buboltz, Minority Coalitions and Member Services 
Coordinator; Amy Raaf Jones, Minority Professional Staff 
Member; Barrett Karr, Minority Staff Director; Alexa Marrero, 
Minority Communications Director; Susan Ross, Minority Director 
of Education and Human Services Policy; and Linda Stevens, 
Minority Chief Clerk/Assistant to the General Counsel.
    Chairman Hinojosa. A quorum being present, the committee 
will now come to order.
    Pursuant to the committee rules, any member may submit an 
opening statement in writing, which will be made part of the 
permanent record. I now recognize myself, followed by the 
ranking member, Brett Guthrie, for an opening statement.
    I want to welcome my colleagues, on both sides of the 
aisle, to this important hearing on ``Ensuring Student 
Eligibility Requirements for Federal Aid.''
    I want to give a special welcome to Chairman George Miller 
for his tremendous leadership on these issues and thank him for 
joining us today.
    As members of this committee, we have the responsibility of 
providing oversight of our institutions of higher learning, 
regardless of whether they are public, nonprofit, or part of 
the for-profit post-secondary education sector.
    I want to thank the Government Accountability Office for 
the release of their report, entitled ``Proprietary Schools: 
Stronger Department of Education Oversight Needed to Help 
Ensure Only Eligible Students Receive Federal Student Aid.''
    In August of 2007, I requested that GAO study the for-
profit post-secondary education sector to learn more about how 
these institutions function and deliver educational services. I 
am troubled by what GAO found.
    First of all, I am concerned that Congress and the 
Department of Education have not been providing the appropriate 
oversight necessary to protect students as they pursue 
educational opportunities at for-profit colleges and 
universities. We have also not done enough to monitor the 
quality of educational programs offered at some of these 
institutions, despite the growth of the for-profit sector in 
recent years.
    As you know, for-profit colleges and universities enroll 
large numbers of low-income and minority students. Based on the 
findings of the GAO report, it is clear to me that some of 
these institutions have not served students well. I am 
particularly concerned that some for-profit institutions have 
engaged in a number of unscrupulous practices to increase their 
access to Title IV funds.
    In some cases, officials from for-profit-sector 
institutions, assisted students in obtaining invalid high 
school diplomas from diploma mills in order to gain access to 
federal loans. In another case that I read, the GAO found that 
there were irregularities in the administration of the ability 
to benefit, known as the ATB tests, such as providing students 
with the answers to the test questions so that students would 
meet the minimum eligibility requirements for Title IV 
programs.
    Encouraging students who do not possess a high school 
diploma to incur an inordinate amount of student loan debt and 
to pursue a course of academic study that they are unprepared 
for does a disservice to those students.
    The GAO report is a great starting point for today's 
congressional hearing, and I hope that we can have a robust 
discussion and learn more about these issues from our 
distinguished witnesses.
    Thank you. I now yield to my friend, Ranking Member Brett 
Guthrie.
    [The statement of Mr. Hinojosa follows:]

 Prepared Statement of Hon. Ruben Hinojosa, Chairman, Subcommittee on 
        Higher Education, Lifelong Learning, and Competitiveness

    I want to welcome my colleagues, on both sides of the aisle, to 
this important hearing on ``Ensuring student eligibility requirements 
for federal aid.''
    I want to give a special welcome to Chairman Miller for his 
tremendous leadership on these issues and thank him for joining us 
today.
    As members of this Committee, we have the responsibility of 
providing oversight of our institutions of higher learning, regardless 
of whether they are public, non-profit, or part of the for-profit 
postsecondary education sector.
    I want to thank the GAO for the release of their report: 
``Proprietary Schools: Stronger Department of Education Oversight 
Needed to Help Ensure Only Eligible Students Receive Federal Student 
Aid''.
    Earlier this year, I requested that GAO study the for-profit 
postsecondary education sector to learn more about how these 
institutions function and deliver educational services. I am troubled 
by what GAO found.
    First of all, I am concerned that congress and the department of 
education have not been providing the appropriate oversight necessary 
to protect students as they pursue educational opportunities at for-
profit colleges and universities.
    We have also not done enough to monitor the quality of educational 
programs offered at some of these institutions despite the growth of 
the for-profit sector in recent years. As you know, for-profit colleges 
and universities enroll large numbers of low-income and minority 
students. Based on the findings of the GAO report, it is clear that 
some of these institutions have not served students well.
    I am particularly concerned that some for-profit institutions have 
engaged in a number of unscrupulous practices to increase their access 
to title iv funds. In some cases, officials from for-profit sector 
institutions, assisted students in obtaining invalid high school 
diplomas from diploma mills, in order to gain access to federal loans.
    In another case, the GAO found that there were irregularities in 
the administration of the ``ability to benefit,'' (ATB) tests, such as 
providing students with the answers to the test questions, so that 
students would meet the minimum eligibility requirements for title iv 
programs.
    Encouraging students who do not possess a high school diploma to 
incur an inordinate amount of student loan debt and to pursue a course 
of academic study that they are unprepared for does a disservice to 
students.
    The GAO report is a great starting point for today's hearing, and I 
hope that we can have a robust discussion and learn more about these 
issues from our distinguished witnesses.
    Thank you, I now yield to Ranking Member Guthrie.
                                 ______
                                 
    Mr. Guthrie. Thank you, Mr. Chairman. Thank you for holding 
this hearing.
    And, you know, this hearing is about how the federal 
government works with all institutions of higher education to 
ensure that student eligibility requirements for federal 
student aid, outlined in the Higher Education Act, are being 
met.
    I understand that there is significant history on this 
topic before us, and I look forward to hearing more about the 
GAO study and the oversight measures that are being taken to 
protect students and taxpayers.
    The diversity that currently exists within the American 
higher education system is what makes ours the best in the 
world. For example, this past weekend, I was pleased to 
participate in the commencement ceremony at Sullivan University 
in Louisville, Kentucky. Sullivan graduate over 650 students 
with associate's, bachelor's and master's degrees. The 
commencement ceremony reminded me of what our goals should be, 
that ensuring that students are well equipped for the future.
    Proprietary schools like Sullivan University have a history 
of offering quality education to students in a variety of 
fields. These institutions also have a history of educating 
underserved populations, including those in rural and urban 
areas, where students have very limited options for job 
training.
    These institutions also educate a high percentage of non-
traditional college students. In fact, according to the GAO 
report before us, more than half the students attending 
proprietary schools are over the age of 25. In addition, over 
half the student population is from a minority background.
    Finally, in many cases, these institutions are geared 
toward graduating students with specific skills that will help 
them find jobs in a weakened economy. The competition the 
exists between proprietary institutions, community colleges, 
and 4-year public and private institutions ensures that 
students from all types of background have plenty of options if 
they choose to pursue some form of post-secondary education.
    We must do all we can to ensure that all institutions--for-
profit and nonprofit--and their institutional partners are 
following the rules outlined by the Higher Education Act.
    Because I know how important post-secondary education is, 
in particular in this economic downturn, I was concerned by the 
GAO's recent findings. I strongly believe that mismanagement in 
testing or abuse of federal financial aid should not be taken 
lightly.
    These cases must be addressed. And hopefully, the findings 
of GAO can help us determine whether there is an underlying 
vulnerability of the system that needs to be addressed.
    One thing I hope that we will not lose sight of during the 
hearing is that the GAO did not find a pattern of infractions 
in its review. While even one incident of mismanagement or 
abuse is one too many, it is important to understand the scope 
of this issue as we work to address it.
    I would also note that the GAO did not visit or review any 
nonprofit institutions of higher education. The student 
eligibility rules that we are talking about here are required 
of both proprietary and nonprofit institutions and, as such, 
should be reinforced regardless of profit status of the school.
    In the interests of protecting all students, I hope we 
continue to work to apply federal safeguards across all sectors 
of higher education. Our country is facing a difficult economic 
time, and many are finding themselves unemployed or with an 
uncertain future. As we work to enhance ourselves and root out 
those who have broken the law, we must be vigilant about 
preserving and expanding a diverse array of options for 
students in need of additional education.
    Thank you. And I yield back.
    [The statement of Mr. Guthrie follows:]

  Prepared Statement of Hon. Brett Guthrie, Senior Republican Member, 
       Subcommittee on Higher Education, Lifelong Learning, and 
                            Competitiveness

    Thank you Mr. Chairman.
    This hearing is about how the federal government works with all 
institutions of higher education to ensure that the student eligibility 
requirements for federal student aid outlined in the Higher Education 
Act are being met. I understand that there is significant history on 
this topic before us and I look forward to hearing more about GAO's 
study and the oversight measures that are being taken to protect 
students and taxpayers.
    The diversity that currently exists within the American higher 
education system is what makes ours the best in the world. For example, 
this past weekend I was pleased to participate in the commencement 
ceremony at Sullivan University in Louisville, Kentucky. Sullivan 
graduated over 650 students with Associates, Bachelors, and Masters 
degrees. The commencement ceremony reminded me what our goal here 
should be--ensuring that students are well equipped for the future.
    Proprietary schools like Sullivan University have a history of 
offering quality educations to students in a variety of fields. These 
institutions also have a history of educating underserved populations, 
including those in rural and urban areas where students have very 
limited options for job training.
    These institutions also educate a high percentage of ``non-
traditional'' college students. In fact, according to the GAO report we 
are here to discuss, more than half of the students attending 
proprietary schools are over the age of 25. In addition, over half of 
the student population is from a minority background.
    Finally, in many cases, these institutions are also geared toward 
graduating students with specific skills that will help them find jobs 
in a weakened economy.
    The competition that exists between proprietary institutions, 
community colleges, and 4 year public and private institutions ensures 
that students from all types of backgrounds have plenty of options if 
they choose to pursue some form of postsecondary education. We must do 
all that we can to ensure that all institutions, for-profit or non-
profit, and their institutional partners are following the rules as 
outlined by the Higher Education Act.
    Because I know how important postsecondary education is, 
particularly in the current economic downturn, I was concerned by the 
GAO's recent findings. I strongly believe that mismanagement in testing 
or abuse of federal financial aid should not be taken lightly. These 
cases must be addressed, and hopefully the findings of the GAO can help 
us determine whether there is an underlying vulnerability of the system 
that needs to be addressed.
    One thing I hope that we will not lose sight of during this hearing 
is that the GAO did not find a pattern of infractions in its review. 
While even one incident of mismanagement or abuse is one too many, it 
is important to understand the scope of this issue as we work to 
address it.
    I would also note that the GAO did not visit or review any non-
profit institutions of higher education. The student eligibility rules 
that we are talking about here are required of both proprietary and 
non-profit institutions of higher education and, as such, should be 
enforced regardless of the profit status of the institution. In the 
interest of protecting all students, I hope we continue working to 
apply federal safeguards across all sectors of higher education.
    Our country is facing a difficult economic time, and many are 
finding themselves unemployed or with an uncertain future. As we work 
to enhance oversight and root out those who have broken the law, we 
must be vigilant about preserving and expanding a diverse array of 
options for students in need of additional education.
    Thank you, and I yield back.
                                 ______
                                 
    Chairman Hinojosa. Thank you.
    At this time, I ask unanimous consent to recognize the--I 
wanted to recognize the chairman of the committee of the whole, 
George Miller.
    Would you like to have an opening statement?
    Mr. Miller of California. I will just wait until we go to 
questions, Mr. Chairman. Thank you for holding the hearing.
    Chairman Hinojosa. Yes, thank you.
    At this time, I want to welcome all of our witnesses. But 
before I do that, I wish to speak to the lighting system that 
we have before us. For those of you who have not testified 
before this subcommittee, please let me explain our lighting 
system and the 5-minute rule.
    Everyone, including members, is limited to 5 minutes of 
presentation or questioning. The green light is illuminated 
when you begin to speak. When you see the yellow light, it 
means you have 1 minute remaining. When you see the red light, 
it means your time has expired and you need to conclude your 
testimony.
    Please be certain as you testify to turn on and speak into 
the microphone in front of you. We will now hear--I will now 
start with the introductions.
    The first witness will be Mr. George Scott. He is director, 
education and workforce and income security issues for the 
United States Government Accountability Office. He is a 
frequent witness before our committee. He oversees the high-
quality work the GAO provides for our committee in various 
areas of our jurisdiction. He is a graduate of North Carolina 
at Chapel Hill and has received several GAO management awards. 
George been recognized for exemplary achievement in public 
administration.
    Once again, we are anxious to hear from you, and welcome.
    The second presenter will be Robert Shireman, who is the 
deputy undersecretary in the Department of Education. He is a 
leading expert on college access and financial aid. Prior to 
his appointment, he served on the Federal Advisory Committee on 
Student Financial Assistance. Robert has served as staff for 
Senator Simon. And during the Clinton administration, he served 
on the National Economic Council. He holds a bachelor's degree 
in economics from the University of California at Berkeley and 
a master's degree from Harvard in education, as well as the 
University of San Francisco in public policy.
    Thank you for being with us today.
    Next will be Ms. Mary Mitchelson, who is the acting 
inspector general, Office of Inspector General, at the 
Department of Education. In the year 2000, she served as 
assistant inspector general for analysis and inspection. And in 
the year 2002, she became counsel to the inspector general and 
has been in her current position for 13 months. She has served 
as a law school dean, has clerked in the U.S. district court, 
and has served in two federal departments, and has been 
recognized for her professional contributions on numerous 
occasions.
    It is a pleasure having you here this morning.
    Also, we will hear from Mr. Harris N. Miller, who was named 
CEO and president of the Career College Association in February 
2007. Prior to his appointment, Harris was president of the 
Information Technology Association of America for 11 years, the 
leading trade association representing the I.T. industry. Mr. 
Harris has also served as House staff on the Judiciary 
Committee, as well as Senate staff as a legislative director 
for Senator Durkin. He also has experience working for the U.S. 
Office of Personnel Management. Mr. Miller has a B.A. in 
political science and philosophy from the University of 
Pittsburgh and has earned a master's in philosophy and 
political science from Yale.
    Welcome to our hearing. And we look forward to your 
testimony.
    With that, we are ready to begin. We call on Mr. Scott.

STATEMENT OF GEORGE A. SCOTT, DIRECTOR OF EDUCATION, WORKFORCE, 
     AND INCOME SECURITY, GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Scott. Chairman Miller, Chairman Hinojosa, Ranking 
Member Guthrie, and members of the subcommittee, I am pleased 
to be here today to discuss the Department of Education's 
oversight of eligibility for federal student aid at for-profit 
schools, also known as proprietary schools.
    Generally, students who do not have a high school diploma 
or GED are required to pass an ability to benefit, or ATB test, 
of basic math and English skills in order to be eligible for 
federal student aid. Under the ATB test program, education is 
responsible for overseeing test publishers, who in turn are 
responsible for certifying and monitoring test administrators 
to ensure the proper administration of ATB tests.
    Education's oversight over the ATB test program is critical 
to protecting students and guarding against potential fraud and 
abuse of federal student aid funds. My testimony today is based 
on work from our recent report.
    In summary, we found that test administrators violated 
rules intended to ensure prospective students without high 
school diplomas pass required ATB tests before obtaining access 
to federal student aid. For example, when GAO analysts posing 
as students took and intentionally failed an ATB test at a 
proprietary school, the independent test administrator gave 
them and all the test-takers in the room answers to some of the 
questions.
    I will pause here for a moment so that we can play the 
audio from our undercover visit.
    [Begin audio clip.]
    Voice. So, yeah, this is correct. Give it a C. Number one 
on your answer sheet, that is a C. Okay, mark it in. Nice and 
hard so it will go through that part of the paper, people. 
Everybody got it?
    Voice. Number three. I personally don't like number three. 
I don't like they ask it of you. I don't like the way they ask 
it of you, so I am telling you the answer is E.
    Voice. Good news. I am going to help you with the first 
three. More good news. You have got to nail 10 of them to pass. 
Ah, I am going to give you three; that means you have got to 
get to nail seven.
    [End audio clip.]
    Mr. Scott. Our analysis test forms were also tampered with.
    [Begin audio clip.]
    Voice. It is not D. It is not C. It is not A, so it is B. 
Number one is B. Thank you.
    [End audio clip.]
    Mr. Scott. Our analysis test forms were also tampered with. 
As you can see on the screen, their incorrect answers were 
crossed out and changed to correct answers to ensure that they 
passed the test.
    Our work confirms similar findings by Education's Office of 
Inspector General and New York state investigators. The 
problems we identified result in part from weaknesses in 
Education's oversight of ATB testing. We found that Education 
had not followed up with test publishers to ensure compliance 
with certain requirements.
    For example, as of early 2009, one of the approved test 
publishers had not submitted test score analyses due in 2005 
and 2008 for two of its approved tests. Education officials 
told us that the employer responsible for test publisher 
oversight had retired in 2008. After that time, no one at 
Education had followed up with test publishers to obtain pass-
through test score analyses until earlier this year in response 
to our review.
    In 2002, Education's Office of Inspector General reported 
on problems with ATB testing. However, Education has done 
little since then to strengthen its oversight of test 
publishers.
    We also identified cases in which recruiters at two 
separate proprietary schools helped prospective students obtain 
invalid high school diplomas so that the students could obtain 
federal student loans. For example, one student told us that he 
was flunking out of high school, when a recruiter at the 
proprietary school directed him to a place where he could pay a 
fee to take a test and obtain a high school diploma. Based on 
our further review, we confirmed that the entity was a high 
school diploma mill.
    Problems with the use of invalid high school diplomas to 
gain access to federal student aid are due in part to 
weaknesses in Education's policies and the lack of information 
and guidance on high school diplomas. We found that several 
states already provide lists of the high schools they recognize 
and make them available to the public on their Web sites. 
However, Education provides little information on these 
available resources that could help identify invalid high 
school diplomas.
    In conclusion, our findings do not represent nor imply 
widespread problems at all proprietary schools. Many of these 
schools play an important role in providing a range of students 
the opportunity to obtain the education they need, to increase 
their work skills and find jobs. However, our work has 
identified potential fraud at a few schools and significant 
vulnerabilities in Education's oversight.
    Education has announced steps to help address these issues, 
and we plan to monitor their progress in strengthening 
oversight in this area.
    Mr. Chairman, this concludes my prepared remarks, and I 
would be happy to any questions you or other members of the 
subcommittee may have. Thank you.
    [The statement of Mr. Scott follows:]

Prepared Statement of George A. Scott, Director, Education, Workforce, 
       and Income Security, U.S. Government Accountability Office

    Mr. Chairman and Members of the Subcommittee: I am pleased to be 
here today to discuss the Department of Education's oversight of 
student eligibility for federal aid at private for-profit schools, also 
known as proprietary schools. Education's monitoring of eligibility 
requirements is part of a larger oversight structure governing federal 
aid to students at all schools. For example, in order to receive 
federal aid, students must attend schools that are legally authorized 
to operate in a state, accredited by reliable authorities to help 
ensure education programs meet acceptable levels of quality, and 
certified by Education to participate in federal student aid 
programs.\1\ In addition, students attending proprietary, public, or 
private non-profit schools are also required to demonstrate that they 
are ready for higher education. Generally, students who do not have a 
high school diploma or general equivalency diploma (GED) are required 
to pass an ``ability to benefit'' (ATB) test of basic math and English 
skills in order to be eligible for loans, grants, and campus-based aid 
under Title IV of the Higher Education Act of 1965, as amended.\2\ 
Education's monitoring of ATB tests and high school diploma 
requirements is critical to protecting students and guarding against 
potential fraud and abuse of federal student aid funds. When students 
who do not have the skills needed to succeed in school are fraudulently 
given passing scores on the ATB test or directed to diploma mills for 
fake high school degrees, they are at greater risk of dropping out of 
school, incurring substantial debt, and defaulting on their federal 
loans. When this happens, students' credit records are tarnished and 
their long-term financial well-being is jeopardized. In addition, 
taxpayers and the government, which guarantees the loans, bear the 
risks associated with federal loans when a student defaults.
---------------------------------------------------------------------------
    \1\ In addition to these requirements for all schools, proprietary 
schools must also comply with the 90/10 rule, which provides that these 
schools may not receive more than 90 percent of their revenue from 
federal student aid grants and loans.
    \2\ While there are other ways a student without a high school 
diploma or GED can establish eligibility, for the purposes of our 
testimony we focus on whether a student has passed an independently 
administered ATB test.
---------------------------------------------------------------------------
    Today I will discuss the extent to which Education's policies and 
procedures for monitoring eligibility requirements for federal aid at 
proprietary schools protect students and the investment of Title IV 
funds. This testimony is based on a GAO report that we released on 
September 21, 2009, titled Proprietary Schools: Stronger Department of 
Education Oversight Needed to Help Ensure Only Eligible Students 
Receive Federal Student Aid.\3\ To address Education's monitoring of 
federal aid eligibility requirements, we reviewed Education's policies 
and procedures for overseeing the administration of ATB tests and for 
enforcing high school diploma requirements; reviewed relevant 
Department of Education program reviews and independent audits; and 
reviewed enforcement actions taken against schools. We reviewed 
relevant federal laws and regulations, conducted interviews with 
officials from Education, state education licensing agencies and higher 
education associations; and gathered information during school site 
visits. In addition, GAO anonymously tested institution compliance with 
ATB test requirements by sending, on two separate occasions, analysts 
posing as prospective students to take and purposely fail ATB tests at 
a proprietary institution. We supplemented this work with a review of 
investigations conducted by Education's Office of Inspector General 
(OIG) and the New York Department of Education. A more detailed 
explanation of our methodology is available in our full report. We 
conducted our work from October 2007 to August 2009, in accordance with 
generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives.
---------------------------------------------------------------------------
    \3\ GAO-09-600 (Washington, D.C.: August 17, 2009).
---------------------------------------------------------------------------
    In separate investigations at proprietary schools, we, along with 
other federal and state investigative agencies, found test 
administrators or school officials violated rules intended to ensure 
prospective students without high school diplomas pass required ATB 
tests before obtaining access to Title IV financial aid. For example, 
when GAO analysts posing as prospective students took the ATB test at a 
proprietary school, the independent test administrator gave them and 
all the test takers in the room--about 20 people in total--answers to 
some of the test questions. In addition, the analysts' test forms were 
tampered with: their intentionally incorrect answers were crossed out 
and changed to correct answers to ensure the individuals passed the 
test. Our work confirmed similar findings by Education's OIG and New 
York state investigators.
    These problems result, in part, from key weaknesses in Education's 
oversight of ATB testing. Under the ATB test program, Education is 
responsible for overseeing test publishers who, in turn, are 
responsible for certifying and monitoring test administrators who give 
the ATB tests to prospective students at schools. Regulations governing 
the test process require test administrators to be independent of the 
school where they administer the test and to submit test answer sheets 
directly to the test publisher for official scoring. The test 
publishers, in turn, are responsible for analyzing test scores and 
submitting an analysis of these test scores to Education every 3 years 
to help identify improper testing (see figure 1).
                      figure 1.--atb test process

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Nevertheless, we found that Education had not followed up with test 
publishers to ensure that all comply with these requirements. For 
example, as of early 2009, one of the four approved test publishers had 
yet to submit test score analyses due in April 2005 and in April 2008 
for two of its approved tests. Education officials told us the employee 
responsible for test publisher oversight and review of test submissions 
had retired in 2008 and no one at Education had followed up with test 
publishers to obtain unsubmitted test score analyses until March 2009, 
in response to our review. We also learned from OIG and Education 
officials that while one test publisher provides thorough analyses that 
have led to the identification of possible violations, other test 
publishers provide only cursory analyses of test scores. In addition to 
problems with Education's monitoring of test publishers, Education 
regulations do not allow for the timely identification of improper test 
administration. For example, as noted earlier, regulations require test 
score analyses to be conducted every 3 years, which may leave improper 
testing undetected for years. Furthermore, regulations do not require 
test publishers to follow up when irregularities are identified, or to 
report corrective actions to Education. Given the risks of potential 
fraud and abuse associated with ATB testing, such weaknesses in 
Education's monitoring and oversight leave the ATB test program 
vulnerable to future violations.
    We also identified cases in which recruiters at two separate 
publicly traded proprietary schools helped prospective students obtain 
invalid high school diplomas from diploma mills--entities that provide 
invalid diplomas, usually for a fee and little academic work--so that 
students could gain access to federal loans. In one case, 
representatives of a student interest group told us a student who 
dropped out of high school in the 9th grade was guided by the 
proprietary school to take an online test to receive a high school 
diploma. In another case, a student told us during a site visit that he 
was flunking out of high school when a recruiter at the proprietary 
school directed him to a place where he could pay a fee to take a test 
and obtain a high school diploma. Based on further review, we confirmed 
that state and county government agencies had determined these entities 
to be diploma mills. Our findings also confirmed similar problems 
identified by Education, and Education regional officials told us the 
problem may be more widespread than is known.
    Problems with the use of invalid high school diplomas to gain 
access to federal student aid are partly attributed to key weaknesses 
in Education's policies governing high school diploma requirements, and 
the lack of information and guidance on valid high school diplomas. For 
example, while senior Education officials told us it is the 
department's official policy that high school diplomas from diploma 
mills are not acceptable for federal aid eligibility, Education has not 
communicated this position in clearly written policies. Without written 
and clear communication of its policy, Education staff and external 
parties, including schools and independent auditors, lack important 
information regarding eligibility and compliance requirements under 
Title IV rules.\4\ Education officials have acknowledged that the use 
of high school diploma mills is a problem and that more guidance would 
be helpful. In May 2009, Education announced plans to convene public 
forums to help inform negotiated rulemaking sessions on, among other 
matters, the definition of a high school diploma as a condition of 
receiving federal student aid. We also found that Education provides 
limited guidance and tools that Education staff, schools, and 
independent auditors can use to help identify high school diploma 
mills. In its Federal Student Aid Handbook, Education advises officials 
to contact state education agencies if they question the validity of a 
high school diploma.\5\ Yet, Education officials told us that Education 
staff have no other guidance to help them judge whether there is a 
potential problem with a diploma. In addition, Education officials told 
us a list of recognized high schools could help its staff and schools 
better identify diplomas from diploma mills. Several states already 
provide lists of recognized high schools and make them available to the 
public on their Web sites. Yet, Education provides little information 
on these already available resources. In contrast, Education does offer 
information and resources on its Web site to help individuals identify 
and avoid higher education diploma mills by listing colleges and 
universities that are eligible to participate in federal student aid 
programs.\6\
---------------------------------------------------------------------------
    \4\ Education is responsible for overseeing schools' compliance 
with Title IV laws and regulations including their role in ensuring 
that only eligible students receive federal student aid. As part of its 
compliance monitoring, Education relies on department employees and 
independent auditors of schools to conduct program reviews and audits 
of schools to monitor compliance with eligibility requirements for 
Title IV.
    \5\ The Federal Student Aid Handbook provides guidance to Education 
staff, schools, and lenders that offer federal student assistance to 
students and borrowers.
    \6\ The Higher Education Opportunity Act, which reauthorized and 
amended the Higher Education Act of 1965, provides that the Secretary 
shall maintain information and resources on the Department's Web site 
to assist students, families, and employers in understanding what a 
college diploma mill is and how to identify and avoid such diploma 
mills. Pub. L. No. 110-315, Sec.  109.
---------------------------------------------------------------------------
    Our findings do not represent nor imply widespread problems at all 
proprietary schools. Many proprietary schools play an important role in 
providing a range of students, including non-traditional and 
disadvantaged students, with an opportunity to obtain the education 
they need to increase their work skills and find jobs. However, our 
work has identified potential fraud at a few proprietary schools and 
significant vulnerabilities in Education's oversight of a key aspect of 
the federal student financial aid program. In our recently issued 
report, we recommended that Education strengthen its monitoring and 
oversight of federal aid eligibility requirements to (1) improve its 
monitoring of ATB tests and target schools that fail to follow testing 
regulations for further review; (2) revise regulations to strengthen 
controls over ATB tests; and (3) provide information and guidance on 
valid high school diplomas for use in gaining access to federal student 
aid. After reviewing the draft report, Education provided comments and 
noted the steps it would take to address GAO's recommendations. A 
complete discussion of our recommendations, Education's comments, and 
our evaluation are provided in the recently issued report.
    Mr. Chairman, this concludes my prepared remarks. I would be happy 
to answer any questions that you or other members of the subcommittee 
may have.
    For further information regarding this testimony, please contact 
George A. Scott (202) 512-7215 or [email protected]. Contact points for 
our Office of Congressional Relations and Public Affairs may be found 
on the last page of this statement. Individuals who made key 
contributions to this testimony include Melissa Emrey-Arras (Assistant 
Director), Claudine Pauselli, Jessica Botsford, Susan Aschoff, Mimi 
Nguyen, and Paul Desaulniers.
                                 ______
                                 
    [The August 2009 GAO report, ``Proprietary Schools: 
Stronger Department of Education Oversight Needed to Help 
Ensure Only Eligible Students Receive Federal Student Aid,'' 
may be accessed at the following Internet address:]

                http://www.gao.gov/new.items/d09600.pdf

                                ------                                

    Chairman Hinojosa. I now call on Mr. Shireman.

   STATEMENT OF ROBERT SHIREMAN, DEPUTY UNDERSECRETARY, U.S. 
                    DEPARTMENT OF EDUCATION

    Mr. Shireman. Chairman Hinojosa, Chairman Miller, Ranking 
Member Guthrie, thank you very much for the opportunity to 
testify today.
    Federal student aid serves a particularly important role in 
helping our nation recover from the economic downturn. Last 
year, we saw an unprecedented 20 percent increase in the number 
of applications filed for financial aid for college. More 
students than ever qualified for Pell Grants, and more students 
from all economic backgrounds took out federal loans.
    In light of the vital importance of federal student aid in 
these uncertain economic times, it is extremely important that 
we maintain program integrity and ensure that the consumers and 
taxpayers are protected.
    I want to speak broadly about this issue of program 
integrity, but let me start by addressing the issues raised in 
the GAO report. As Mr. Scott mentioned, the Higher Education 
Act requires that an institution participating in federal 
student aid programs has to admit as regular students those who 
either have a high school diploma or have taken the ability to 
benefit test. These serve as important indicators of whether a 
student is qualified to study at the post-secondary level.
    In general, we agree with the findings and recommendations 
that GAO has made about ATB tests. Even before the release of 
the report, we had taken steps to improve our monitoring and 
oversight of the ATB test publishers. The Department of 
Education now has systems in place to monitor and track the 
three-year test analyses required of all test publishers. We 
are in the process of contracting for the services of 
independent psychometricians, who will review not only those 
three-year test analyses, but also any new or renewal requests 
received from test publishers for approval of those tests.
    Moreover, the department has begun planning for changes to 
its school reporting systems that will support student-specific 
ATB reporting. The results of this reporting will help us to 
focus on monitoring efforts on institutions that have a high 
number of ATB-eligible students.
    Ability to benefit testing is among the issues for upcoming 
rulemaking sessions that we started the process for in May. 
Among the topics around ability to benefit testing that will be 
discussed in these negotiations are the establishments of 
controls on individuals who have been decertified by test 
publishers and possibly more frequent reporting by test 
publishers.
    Also at the rulemaking, we will discuss how we might 
address the problem of high school diploma mills. This could 
involve regulations, or it might simply involve the department 
identifying resources for helping colleges to identify 
legitimate sources of high school diplomas.
    Mr. Chairman, we expect more than 14 million students to 
take advantage of federal financial aid in this coming year, 
and we want to do all we can to ensure the best possible 
outcome for students having a real opportunity to gain the 
skills and knowledge to be successful in the workforce and in 
their communities.
    In recent months, the department began to take additional 
steps to improve accountability. First, we have improved 
communication and cooperation both within the Department of 
Education and with other agencies that fund and monitor post-
secondary education institutions. For example, our program 
review office at federal student aid is now linked to the 
Federal Trade Commission's database of consumer complaints so 
that we can tap into the complaints that the Federal Trade 
Commission receives.
    We have now created a database of state consumer agencies, 
state attorneys general offices so that we can refer complaints 
that we receive to the appropriate state offices.
    We have expanded an internal--a joint project to identify 
areas that are at high risk for fraud. This is in working with 
the inspector general's office at the Department of Education.
    Second, we have increased our efforts to get more and 
better information to consumers. For example, now when students 
are--when prospective students are applying for financial aid 
on the Web using FAFSA on the Web and are identifying the 
schools that they want to receive their financial aid 
information, they can see what the graduation, transfer and 
retention rates are at those particular schools, giving some 
initial information to students. We are also looking into ways 
that we might be able to make better use of the Department of 
Labor's useful career information.
    The third area that we are launching is a--this rulemaking 
process that I mentioned, where in addition to addressing the 
issue of high school diploma mills and ability to benefit tests 
through input that we receive starting in May, we have 
identified a number of areas that we will be working on, such 
as satisfactory academic progress, links between training 
programs and specific occupations, earnings and costs of those 
programs, recruitment tactics, and the role of states.
    Mr. Chairman, our goal is to further strengthen the 
integrity of the financial aid programs. And I thank you for 
the opportunity to testify.
    [The statement of Mr. Shireman follows:]

 Prepared Statement of Hon. Robert M. Shireman, Deputy Undersecretary,
                      U.S. Department of Education

    Chairman Hinojosa, Ranking Member Guthrie and Members of the 
Committee: Thank you for the opportunity to testify about the integrity 
of the Federal student financial aid programs. During the upcoming 
academic year, the Department of Education will help an estimated 14.2 
million students enrolled at 6,200 of our Nation's colleges and 
universities, community colleges, and trade and technical schools begin 
and complete programs of study that will prepare them to be an active 
and important part of America's future. Students with degrees and other 
formal credentials from our Nation's postsecondary education 
institutions are more likely to be employed, even during these 
difficult economic times. So, we were pleased to see additional funds 
invested in student financial aid, including additional funds provided 
for Pell Grants and Federal Work-Study in the American Recovery and 
Reinvestment Act (ARRA), which will result in an estimated $129 billion 
in federal aid--$31 billion in grants and $98 billion in loans. 
According to the College Board's 2008 Trends in Student Aid report, 
Federal student aid accounted for nearly 60 percent of all student aid 
provided and it is likely that the Federal share will increase, given 
the current economic conditions that limit the ability of States and 
institutions to increase aid.
    Federal student aid serves a particularly important role in helping 
our Nation recover from the economic downturn. Last year, there was an 
unprecedented 20 percent increase in the number of applications filed 
for aid. More students than ever qualified for Pell Grants, and more 
students from all economic backgrounds took out Federal loans. Federal 
student aid provides a critical safety net. Far too many families have 
found themselves in increased financial difficulty, and wondering 
whether they can afford to send their children to college. Far too many 
of our citizens have, through no fault of their own, found themselves 
needing to return to school for additional training, either because 
they had lost a job, or feared losing one. In light of the vital 
importance of Federal student aid in these uncertain economic times, it 
is extremely important that we maintain program integrity and ensure 
that the consumers of these programs are protected.
    The issues of program integrity and consumer protection are complex 
and are not limited, as some have asserted, to for-profit postsecondary 
education. There are many factors that are more important than whether 
a college is a non-profit, for-profit or public institution. To protect 
student consumers, we intend to monitor postsecondary education 
institutions, paying particular attention to indicators such as: high 
dropout rates, heavy reliance on federal funds, students with high 
levels of debt or defaults, the financial distress or difficulty 
managing the institution's financial affairs, consumer complaints, and 
rapid growth. If we find violations of our rules, we will take 
appropriate limitation, suspension or termination action. For example, 
in FY08, ED compliance staff conducted 190 in-depth program reviews at 
institutions that were triggered by our risk-based indicators. 
Ultimately, these reviews led to five administrative actions, including 
the loss of Title IV eligibility at an institution of higher education. 
In addition, through its other monitoring activities, ED compliance 
staff initiated 30 additional administrative actions resulting in 19 
other institutions' loss of eligibility. However, if an institution is 
compliant with our rules, we will provide additional technical 
assistance to address problems they face.
    I appreciate the opportunity to appear here today, because we have 
a great deal to report on in terms of the steps we are taking to ensure 
that Federal student financial aid funds are used appropriately, and 
that the students they are intended to help are not harmed by the 
actions of institutions and other participants in the Federal student 
aid programs. The Secretary, the Under Secretary, the newly appointed 
Chief Operating Officer for Federal Student Aid (FSA), and I all share 
the view that it is more important than ever that the Department ensure 
that the right aid gets to the right students, with the right end 
result: ensuring that students have the opportunity to gain the skills 
and knowledge to be successful in the workforce and in their 
communities.
    In recent months, the Department began to take additional steps to 
ensure accountability from institutions participating in the Federal 
student aid programs, and to ensure meaningful results for students. We 
have been focusing our efforts on enhancing our leadership role in 
protecting students and families, and improved communication and 
cooperation, both within the Department and with other agencies that 
fund and monitor postsecondary education institutions. Over the last 
several months, we have met with officials from other agencies, 
including the U.S. Departments of Veterans Affairs and Labor, the 
Government Accountability Office, the Federal Trade Commission (FTC), 
the National Association of Attorneys General, the National Association 
of State Administrators of Private Schools, and the New York State 
Education Department. Just last week we met with officials at the White 
House. These efforts were designed to share information about effective 
program monitoring, including how risk factors are identified and used, 
and to improve inter- and intra-agency communication on postsecondary 
education issues. In addition, we have been working with the 
Department's Office of Inspector General (OIG) to identify the 
recurring findings and recommendations OIG makes during audits of 
Federal student aid program participants in order to identify ways in 
which we can quickly reduce program vulnerabilities.
    We have begun to retool our process for reviewing participants in 
the Federal student aid programs and to assess recently-revised program 
review guidelines. The Department's FSA office is working to improve 
the program review process, strengthen State and interagency 
partnerships, and identify other steps to improve program compliance.
    These efforts have resulted in better inter- and intra-agency 
coordination, use of available technology and information, and staff 
preparation, including the following examples.
     Access to, and use of, the FTC database of consumer 
complaint information: The Department is now able to input and extract 
trend information about student-reported problems regarding 
postsecondary schools. This information will be used to help make 
decisions about the institutions we should monitor given available 
resources.
     Creation of a database to promote student consumer 
complaint resolution: The Department has created a database of contact 
information to allow student consumer complaints to be referred, as 
appropriate, to State Attorney General offices or State agencies 
responsible for consumer protection or licensing.
     Expansion of the joint project to improve targeting of 
limited monitoring resources: The Department plans to build on the 
previous successes of the OIG and FSA in identifying risk factors for 
use in targeting program review activities. These offices combined the 
efforts of staff with expertise in auditing, investigation, 
inspections, program reviews, and system data knowledge to identify 
areas that were at high risk for fraud. They then used this information 
to deter this activity and to propose legislative or regulatory changes 
to reduce further instances of fraud. The initial OIG/FSA Fraud 
initiative conducted resulted in approximately 65% of the 17 schools 
identified being found to have committed the frauds or abuses 
identified by the data queries/fraud/abuse indicators.
    Notwithstanding our enhanced monitoring efforts, we have an 
additional safeguard in protecting against waste, fraud, and abuse in 
the Federal student aid programs--the students who are the direct 
beneficiaries of those programs. We need to equip them with the tools 
they need to make good choices. We have increased our efforts to get 
more and better, information to consumers. In August, the Department 
began showing graduation rates, collected as part of the National 
Center for Education Statistics' Integrated Postsecondary Education 
Data System (IPEDS), to aid applicants when they select an institution 
to receive their ISAR information. We anticipate that this additional 
consumer disclosure will help students and families assess whether they 
should enroll in a particular institution. This information helps to 
remind students to review their choices carefully, and leads them to 
sources for more comprehensive information. As a possible next step, we 
are looking into ways that we might link students and their families to 
the Department of Labor's useful career information, which would enable 
students to assess what careers are in demand and what wages they might 
expect to earn in order to inform their decisions on further education 
in a selected field.
    Over the last several years, the Department has been engaged in 
rulemaking on a variety of issues arising from changes to the Higher 
Education Act of 1965 (HEA). These rulemaking efforts have been very 
important to ensuring that new programs, like Academic Competitiveness 
Grants, National SMART Grants, and TEACH Grants, have been 
appropriately and efficiently implemented. These rulemaking efforts 
have also led to important changes to the Federal student loan 
programs. While some of these rulemaking efforts have helped improve 
program integrity indirectly, little has been done to focus rulemaking 
on that specific topic.
    On May 26, 2009, the Department published a Federal Register Notice 
announcing our intent to establish two negotiated rulemaking 
committees. One committee will develop proposed regulations governing 
foreign schools. The second committee will develop proposed regulations 
to maintain or improve program integrity in the Federal student aid 
programs. In late June 2009, the Department held three public hearings 
for interested parties to discuss the agenda for the negotiated 
rulemaking sessions and sought input about whether we should consider 
rules to modify certain practices related to program integrity and how 
and when to implement these modifications. We heard testimony and 
received written comments from approximately 290 individuals. 
Transcripts from the hearings and copies of the written comments are 
available on the Department's website. Comments on program integrity 
issues during the hearings ranged widely, from ``make no change'' to 
recommendations for significant change.
    The negotiated rulemaking process is continuing. We have received 
nominations for individuals to serve on the negotiating committees and 
we have started the process to select individuals to serve on those 
committees. We will begin negotiations in early November 2009, and 
expect to complete negotiations by February 2010.
    Based on the feedback received at the public hearings held in 
Denver, Philadelphia and Little Rock, we have identified a dozen topics 
for negotiations. Let me talk briefly about several of those topics as 
they relate directly to program integrity in the Federal student aid 
programs.
    One concern that arose during the public hearings and the public 
comments was about the level of debt that students were incurring in 
relation to the education and training being provided. As we looked at 
the regulatory requirements, several changes seemed to be appropriate 
for consideration to address the debt that students incur. In this 
context, we plan to consider regulatory changes in three areas: 
satisfactory academic progress; the definition of a ``credit hour;'' 
and ``gainful employment in a recognized occupation.''
    With regard to satisfactory academic progress (SAP), to be eligible 
to receive Federal student financial aid, a student must meet standards 
of satisfactory academic progress toward a degree or certificate 
offered by that institution. During the public hearings, the Department 
sought input on whether, or how, to clarify the definition of SAP. As a 
result of those hearings, during the negotiations we will discuss 
whether the current regulations on retaking courses to meet qualitative 
standards should be reconsidered; whether students should be permitted 
to use Federal student aid funds to retake courses to get a better 
grade; whether the regulations governing SAP should be changed to 
require reviews more frequently than once each year; and whether the 
regulations governing cumulative completion and grade point average 
requirements should be revisited.
    Another issue that will be considered during the upcoming 
negotiations is the definition of ``credit hours''. Credit hours are 
used to measure progress toward the completion of a degree or 
certificate, and in the award of Federal student aid, but there is no 
commonly accepted definition of what is an appropriate measure of a 
credit hour. A credit hour is a unit that weights the value, level, or 
time requirements of an academic course taken at an educational 
institution. At its most basic, a credit hour is a proxy measure of 
student learning. During the public hearings, the Department sought 
input on whether there should be a regulatory definition of a credit 
hour for Federal student aid purposes; whether different standards for 
earning a credit hour should be developed for undergraduate education, 
graduate study, distance education, and other non-traditional programs; 
and what relationship such a definition for purposes of Federal student 
aid should have to accrediting agencies' standards for program length.
    Another issue to be discussed in the negotiations is ``gainful 
employment in a recognized occupation''. Certain for-profit 
institutions of higher education and postsecondary vocational 
institutions are generally allowed to use Federal student aid only for 
programs that prepare students for ``gainful employment in a recognized 
occupation.'' This HEA requirement was restated in 2008 by the Higher 
Education Opportunity Act (P.L. 110-315), and we sought input during 
the hearings on whether and how ``gainful employment'' could be more 
clearly defined. One suggestion was that the term could be defined in a 
way that takes into consideration a student's likely earnings as well 
as the likely amount of student loan debt. The negotiators, in 
consultation with the Department of Labor, can consider that suggestion 
and other ideas on the issue.
    During the public hearings, we also heard concerns expressed about 
overly-aggressive admissions officers and misleading advertising by 
postsecondary institutions. To address these concerns, we will consider 
whether the rules related to the prohibition against making incentive 
payments to recruitment personnel should be re-examined. The HEA 
prohibits an institution, as a condition of eligibility for 
participating in the Federal student aid programs, from providing any 
commission, bonus, or other incentive payment based directly or 
indirectly on success in securing enrollments or financial aid to any 
individual or entity engaged in recruiting or admissions. Current 
``safe harbor'' regulations were intended to help institutions adopt 
compensation arrangements that are not considered to run afoul of these 
prohibitions. Unfortunately, these regulations can result in what might 
otherwise be viewed as improper student recruiting activities by some 
unscrupulous institutions. The Department has received a large number 
of complaints from students and enrollment advisors about the high-
pressure sales tactics of some postsecondary institutions. Some argue 
that tying staff compensation to the number of students enrolled is an 
inherent conflict of interest, and that the safe harbors undermine the 
statutory ban on incentive compensation. The Department has also heard 
from a number of educational institutions that the purported lack of 
clear guidance prior to establishment of the safe harbors made it 
difficult for institutions to be confident of their compliance with the 
law. During the upcoming negotiations, we will consider whether the 
safe harbors should be maintained, amended, or eliminated in whole or 
in part from the regulations.
    During the public hearings, we also heard complaints about false 
and misleading advertising and other information that is provided to 
prospective students and their families. While this issue is also under 
the purview of the FTC as it relates to for-profit entities, it is 
clear that the potential for false and misleading information can be an 
issue at all types of postsecondary education institutions. We will 
discuss this issue during the upcoming negotiations, and hope to have 
input from the FTC on its experience.
    The HEA also includes a requirement that, to be eligible for 
Federal student aid, an institution be legally authorized by a State to 
offer a postsecondary educational program. The Department's 
interpretations of this provision have, over time, evolved into 
considering a State's failure to preclude the provision of 
postsecondary education as constituting that authorization. In the 
upcoming negotiations, we will discuss whether the HEA's State 
authorization requirement should involve at least some minimal level of 
affirmative approval by a State.
    With this description of the Department's program integrity and 
consumer protection efforts as background, I will now address the 
recommendations made by the Government Accountability Office (GAO) in 
its recent report, Proprietary Schools: Stronger Department of 
Education Oversight Needed to Help Ensure Only Eligible Students 
Receive Federal Student Aid. Even before the Department received the 
report, we had already identified the two topics discussed by GAO--the 
Definition of High School Diploma for the Purpose of Establishing 
Eligibility to Participate in Federal Student Aid and Ability to 
Benefit--as potential topics for negotiations in the upcoming round of 
negotiated rulemaking.
    The HEA requires an institution of higher education participating 
in the Federal student aid programs to admit as a regular student only 
a person who have obtained a high school diploma, or its recognized 
equivalent, unless the student passes an ``Ability to Benefit'' test, 
as discussed below. The high school diploma serves as an indicator that 
the student is qualified to study at the postsecondary level. During 
the public hearings, institutions expressed concern about the 
administrative burden related to researching the legitimacy of a high 
school diploma. In addition, some witnesses described situations in 
which institutions direct students without high school diplomas to high 
schools with which the institution may have a business arrangement to 
complete their secondary school degree. Many institutions have asked 
the Department or State educational agencies, in order to reduce the 
burden on institutions, to develop either a comprehensive list of 
legitimate high schools or a listing of schools that are known as 
``diploma mills.'' During the upcoming negotiated rulemaking, we will 
discuss these issues and develop regulatory changes, if appropriate.
    Generally, students without a high school diploma or its recognized 
equivalent, a GED, can qualify for Federal student aid if they pass an 
independently administered test of basic math and English skills 
approved by the Secretary, called an ``Ability to Benefit'' (ATB) test. 
These ATB tests are published by private, for-profit and non-profit 
test publishers, and are administered to students by an independent 
assessment center operated at public or non-profit institution of 
higher education, or by a certified independent test administrator.
    The Department is responsible for approving ATB tests, and ensuring 
that each test publisher is monitoring the administration of its tests 
to students. The regulations provide that the test publishers are 
responsible for certifying and monitoring test administrators to ensure 
the independent and proper administration of ATB tests. Under the 
current regulations, test publishers are required to conduct, and 
submit to the Department, an analysis of test scores every 3 years to 
identify any test irregularities that would suggest that ATB tests are 
not being administered in accordance with the Department's regulations.
    In its report, GAO recommended that the Department strengthen its 
monitoring of test publishers. GAO also recommended that the Department 
take steps to ensure that the analyses conducted by test publishers are 
sufficient to identify improper testing. Finally, GAO recommended that 
the Department modify its regulations to obtain more frequent analysis 
of test scores by test publishers to improve the integrity of the 
testing process.
    In general, we agree with the findings and recommendations in the 
GAO report and, even before release of the report, we had taken steps 
to improve our monitoring and oversight of the ATB test publishers. The 
Department now has systems in place to monitor and track the 3-year 
test-anomaly analyses required of all test publishers. We are currently 
contracting for the services of independent psychometricians who will 
review not only the 3-year test analyses, but also any new or renewal 
requests received from test publishers. Moreover, the Department has 
begun planning for changes to its school-reporting systems that will 
support student-specific ATB reporting. The results of this reporting 
will help us focus monitoring efforts on institutions that have a high 
number of ATB eligible students.
    ATB testing is among the issues for the upcoming negotiated 
rulemaking sessions. Among the topics around ATB testing that will be 
discussed in those negotiations will be the establishment of tighter 
reporting and other controls on individuals who have been de-certified 
by a test publisher, and more frequent reporting by test publishers.
    Let me conclude my remarks by emphasizing that our goal is to work 
to protect students and families as consumers of educational and 
training services of all types, to ensure the integrity of the student 
aid programs, and to use all the tools available to achieve those ends.
    I would be pleased to respond to any questions that you might have.
                                 ______
                                 
    Chairman Hinojosa. Thank you.
    I now call on Ms. Mitchelson.

 STATEMENT OF MARY MITCHELSON, ACTING INSPECTOR GENERAL, U.S. 
                    DEPARTMENT OF EDCUATION

    Ms. Mitchelson. Thank you. Chairman Hinojosa, Chairman 
Miller, Ranking Member Guthrie, and members of the 
subcommittee, thank you very much for inviting me to testify 
today.
    I will focus my testimony on the two issues highlighted in 
GAO's report, ATB examinations, and online diploma--high school 
diploma mills. I will also address an area that is in need of 
greater oversight and statutory or regulatory change, and that 
area is online distance education.
    First, regarding ATB, statutory changes in the program in 
1992, implemented by department regulations, eliminated the 
largest opportunity for abuse. We have conducted a series of 
audits in 2002 that made recommendations to the department on 
how it could improve its oversight of the test publishers. 
While the department did respond to our recommendations, as GAO 
noted, more improvements are needed in that area.
    We will continue to investigate ATB violations, which often 
are an aspect of multifaceted fraud schemes involving other 
criminal conduct. Currently, we have 15 ATB-related 
investigative matters underway and an analytical project that 
is generating even more leads.
    Now, turning to the second issue, online high school 
diplomas, the Higher Education Act and department regulations 
do not define what a valid high school diploma is for purposes 
of receiving federal student aid. We have identified efforts by 
some entities to exploit this ambiguity. These efforts include 
cases in which schools help students obtain diplomas from high 
school diploma mills.
    As an example, we conducted an undercover operation in 
which a proprietary school official directed our undercover 
agent to purchase an online high school diploma and provided 
him a copy of the test answers to render him eligible for 
federal student aid.
    As a result of this investigation and other information we 
have received, we identified a number of online high schools 
and obtained via OIG subpoena records from 13 of them. Our 
analysis of that data identified more than 9,500 students who 
had purchased diplomas from these high schools and who were now 
receiving federal student aid or had received it between the 
years 2005 and 2008.
    We are currently working with the department on ways to use 
this information to prevent the disbursement of federal student 
aid to individuals who purchased fraudulent diplomas.
    Finally, for my third issue, I would like to discuss the 
potential for fraud in distance education. The risk here stems 
from the difficulty in ensuring that students are actually 
enrolled and engaged in academic activities and that they are 
who they say they are.
    In order to receive federal student aid, a student must be 
in attendance in school. Recent work of my office has concluded 
that determining what constitute a class and class attendance 
in the online environment is a challenge in the absence of 
defined class times or delivery of instruction by instructors.
    The online environment also creates challenges for 
determining whether a student has enrolled for purposes of 
obtaining a credential or is simply completing sufficient 
online activity to receive a disbursement of student aid funds, 
which he or she will then use for other purposes.
    At present, neither the HEA nor department regulations 
define what constitutes instruction or what constitutes 
attendance in an online environment. Without such definition or 
adequate controls at the institutions themselves, student aid 
funds are at risk of being disbursed to ineligible students in 
the online programs or to students who have dropped out from 
these programs.
    Our investigative work also has confirmed the vulnerability 
of online distance education programs to fraud. We currently 
have 29 distance education-related investigative efforts 
underway, 19 of which were identified in just the last 2 years. 
In my written testimony, I provide more examples of problems in 
this area.
    In closing, let me reiterate that OIG will continue its 
efforts in fighting waste, fraud and abuse in the federal 
student aid programs, including addressing the issues that we 
have discussed here today. This concludes my statement, and I 
am happy to answer any questions.
    Thank you.
    [The statement of Ms. Mitchelson follows:]

    Prepared Statement of Mary Mitchelson, Acting Inspector General,
                      U.S. Department of Education

    Chairman Hinojosa, Ranking Member Guthrie, and members of the 
Subcommittee: Thank you for inviting me here today to discuss student 
eligibility requirements related to the Federal student aid programs. I 
am the Deputy Inspector General for the U.S. Department of Education 
(Department) Office of Inspector General (OIG) and I am currently the 
Acting Inspector General. As requested, I will provide information on 
our work in the area of student eligibility for Federal student aid, 
focusing on the two issues highlighted in the Government Accountability 
Office's (GAO) report titled, ``Proprietary Schools: Stronger 
Department of Education Oversight Needed to Help Ensure Only Eligible 
Students Receive Federal Student Aid.'' The two issues are Ability-to-
Benefit (ATB) examinations and oversight and on-line high school 
diploma mills. I will also address student eligibility problems 
associated with distance education, a developing vulnerability where 
OIG is currently focused on combating fraud and abuse.
Background on the OIG
    For over 29 years, the OIG has worked to promote the efficiency, 
effectiveness, and integrity of the Department's programs and 
operations. We conduct independent audits, investigations, inspections, 
and other reviews, and based on our findings, make recommendations to 
the Department to address systemic weaknesses and initiate 
administrative actions. We also recommend changes needed in Federal 
laws. Our staff of approximately 300 includes auditors, financial 
analysts, information technology (IT) professionals, criminal 
investigators, inspectors, management and budget analysts, and 
attorneys. We have 14 offices located across the U.S., including Puerto 
Rico.
    As the Department's responsibilities have grown substantially over 
the years, so too has our challenge to identify and combat waste, 
fraud, and abuse in Federal education programs and operations. In 
recent years we have increased our efforts in identifying emerging and 
evolving threats to the integrity of Federal education funds, including 
IT security and issues involving on-line distance education. We have 
enhanced our work with the Department and its program participants, 
providing fraud awareness and prevention information and training that 
have increased the identification and reporting of fraud to us, which 
we use to investigate and assist in prosecuting to the fullest extent 
of the law.
Focus on Student Financial Aid Programs
    As members of this Subcommittee know, the Federal student aid 
programs have long been a major focus of our audit and investigative 
work, as they have been considered the most susceptible to fraud and 
abuse. The programs are large, complex, and inherently risky due to 
their design, reliance on numerous entities, and the nature of the 
student population. OIG has produced volumes of significant work 
involving the Federal student aid programs, leading to statutory 
changes to the Higher Education Act of 1965, as amended (HEA), as well 
as regulatory and Departmental changes.
    In OIG's early years in the 1980s, the need to address fraud and 
abuse in these programs was so severe that the OIG dedicated over 75 
percent of its resources to fighting fraud and abuse in the Federal 
student aid programs. This commitment led to numerous OIG 
recommendations for improved management and oversight of the programs, 
administrative actions to terminate program participants, and much-
needed legislative and regulatory reforms. The Department implemented 
many of our recommendations, and many requiring legislative action were 
adopted in the 1992 reauthorization of the HEA. Some of these changes 
involved ATB--controls were established over the ATB program, including 
a requirement that ATB tests be administered by independent evaluators, 
and a limit on the number of ATB students at a particular institution.
    In 1990, GAO placed the Federal student aid programs on its 
inaugural high-risk list, opening them to a new level of scrutiny by 
the media, the general public, and the Congress. OIG continued its 
heightened efforts to identify waste, fraud, and abuse in the programs 
throughout the 1990s. We supplemented our traditional audit and 
investigatory efforts with new forensic audit technologies enabling us 
to identify additional areas of concern involving student eligibility. 
We identified hundreds of millions of ineligible awards or loan 
forgiveness to individuals based on inaccurate or fraudulent data 
included on the Free Application for Federal Student Aid (FAFSA) and 
other forms. We made numerous recommendations for improved controls 
that the Department implemented, including new computer matches in 
screening for: (1) previous loan defaulters; (2) citizenship; and (3) 
death and disability loan forgiveness for individuals claiming a total 
or permanent disability or reported as deceased to ensure they were not 
earning income from employment. As a result of our work in the 1990s 
and in anticipation of the 1998 reauthorization of the HEA, OIG 
submitted a detailed report to Congress with 17 proposals for its 
consideration in the reauthorization process, a number of which were 
adopted, including two directly impacting student eligibility: (1) 
verification of applicants' income match with the Internal Revenue 
Service (IRS) to ensure that the income reported on the FAFSA was the 
same as the individual's Federal tax return; and (2) and defining 
appropriate use of professional judgment by financial aid 
administrators. Although Congress provided the authority to match 
applicants' income with the IRS, the needed corresponding statutory 
change to the IRS Code has not yet been enacted.
    Over the last decade, there have been significant changes in the 
Federal student aid programs: in 1998, the Federal Student Aid office 
(FSA) was created as the government's first Performance Based 
Organization to manage and administer the Federal student aid programs; 
and in 2005, GAO removed the Federal student aid programs from its 
high-risk list. In addition and in response to our recommendation, 
Congress amended the HEA in 2006 to provide that those convicted of 
fraud in obtaining Federal student aid funds are ineligible to receive 
additional aid until such funds are repaid.
    As a result of the 1992 and 1998 HEA reauthorization statutes, 
which addressed those student eligibility problems that were so 
prevalent in the 1980s, OIG has shifted its resources to new high-risk 
areas, including FSA management and oversight of its programs and 
program participants, lender practices, and the significant growth of 
on-line distance education. The potential for fraud in distance 
education stems from the difficulty in ensuring that students are 
actually enrolled and engaged in academic activities, and are who they 
say they are. Schools may never have an in-person relationship with the 
student, making it more difficult to ensure the correct identity of the 
aid recipient. The rapid growth of distance education, combined with 
the virtual paperless electronic delivery of student aid funds, makes 
this an area vulnerable to fraud.
    In 2008, GAO officials contacted us regarding a project they 
intended to take up involving proprietary schools. We provided the GAO 
team with information on our long history of examining student 
eligibility and other issues involving the Federal student aid programs 
and proprietary schools. We highlighted those areas we believe present 
the greatest risk, specifically distance education, and provided GAO 
with information from our data analytics efforts, to which it refers in 
its report.
    I will focus the remainder of my testimony in three areas: (1) our 
work involving ATB; (2) our work involving on-line high school 
diplomas; and (3) our work involving distance education. We currently 
have a number of efforts underway in each of these areas. To protect 
and maintain the integrity of these efforts, we cannot discuss or 
provide details of our ongoing work, but we are able to discuss the 
public or general aspects of it.
Eligibility Issues Involving ATB
    As the GAO recognized in its report, we concluded a series of 
audits in 2002 that examined the Department's monitoring of ATB test 
publishers, the ATB testing program at the two largest independent test 
publishers, and the administration of tests at three institutions. We 
recommended at that time that the Department improve its oversight of 
test publishers. The Department did improve its oversight; however, as 
GAO reported, additional improvements are needed, due in part to a 
turnover in personnel at the Department.
    As we noted in 2002, the statutory changes to ATB in 1992 and 
implemented by Departmental regulations eliminated the largest 
opportunity for abuse of ATB testing by removing schools from the 
testing process and requiring independent testing, using tests and 
scores approved by the Secretary. Since that time, we have continued to 
investigate ATB violations, which often are an aspect of multifaceted 
fraud schemes involving other criminal conduct. These investigations 
have resulted in the successful prosecution of many instances of 
Federal student aid fraud, including prosecutions of school officials 
who falsified ATB examinations in order to qualify students for Federal 
student aid. Currently, we have 15 open ATB-related investigative 
matters. Our closed ATB investigations have resulted in jail sentences, 
restitutions, fines, and other significant penalties for wrongdoers. 
Below are three examples of the work we have conducted related to 
fraudulent ATB practices; all involved proprietary schools that are now 
closed:
     In 2006, the former owners of the Moler Beauty College, 
located in Louisiana, and their associates were sentenced to prison or 
probation and were ordered to pay $165,000 in restitution for altering 
individuals' failing ATB test scores to qualify them for financial aid. 
They also administered ATB examinations without being qualified to do 
so, and falsely certified that the school complied with the 
Department's ATB standards.
     In 2004, the owner of the Training Center, located in 
Michigan, along with six other individuals, including the school's ATB 
test administrator, were convicted of fraud. The owner was sentenced to 
prison, and, in conjunction with a civil settlement, was ordered to pay 
approximately $1 million in restitution for falsifying or directing the 
falsification of records, which included ATB exams.
     In 2004, the owner and four officials of the Instituto de 
Estitica y Belleza Marugie, located in Puerto Rico, agreed to pay 
$400,000 and were banned for life from holding positions with any 
company or entity participating in Federal education programs for, 
among other violations, providing false information in ATB test records 
to obtain Federal student aid.
Eligibility Issues Involving On-line High School Diplomas
    A growing issue impacting student eligibility for Federal student 
aid is on-line high school diplomas. The HEA and Department regulations 
do not currently specify that a high school diploma must be State 
recognized or approved, or issued by an accredited or State approved 
high school in order for a student to qualify for Federal student aid. 
Our office, GAO, and the Department have identified efforts to exploit 
this perceived ambiguity.
    In its report, GAO identified cases in which proprietary schools 
helped students obtain high school diplomas from diploma mills. We are 
well aware of this problem and have related investigative matters 
underway:
     In 2007, as a part of an ongoing investigation into 
allegations we received about a proprietary school that was assisting 
ineligible students to obtain Federal student aid, we conducted an 
undercover operation in which a school official directed our undercover 
agent to purchase an on-line high school diploma to render the 
undercover agent eligible for the aid. The proprietary school official 
provided our undercover agent with a copy of the answers to the on-line 
high school's test. We purchased the diploma and then executed a search 
warrant at the proprietary school. During the execution of the search 
warrant, we found a list of 22 on-line high schools in an office of one 
of the school officials.
     In 2008, we received another list of on-line high schools 
from an FSA employee. The FSA employee attended a roundtable discussion 
at a private career college symposium, and an administrator of a 
private career college approached the employee and provided a list of 
32 on-line high schools that were potentially operating as diploma 
mills. Using both of these lists, we were able to identify and obtained 
records from 13 on-line high schools that appeared on both lists. An 
analysis of the data from these on-line schools identified over 9,500 
students who purchased a diploma and had received Federal student aid 
between January 2005 and June 2008.
    We are working with the Department to explore how to use the 
information on on-line high school diplomas and the individuals who 
have purchased them in the upcoming awards cycle to prevent the 
disbursement of Federal student aid to individuals who purchased 
fraudulent diplomas. In addition, we have encouraged the Department, in 
its upcoming higher education negotiated rulemaking session, to 
establish a definition of a high school diploma as a condition for 
receiving Federal student aid. The Department has informed us that it 
will discuss on-line high school diplomas at the upcoming session and 
will develop regulatory changes, if appropriate, to address the issue.
Eligibility of Students for Disbursements in Distance Education
    Finally, we would like to bring to your attention an issue in the 
area of student eligibility that is placing increased demands on our 
investigative and audit resources and highlights the need for greater 
oversight and statutory or regulatory change: determining whether 
students in distance education are ``regular students'' and actually in 
attendance for Federal student aid purposes.
    In order to receive Federal student aid, an individual must be a 
``regular student,'' that is, someone ``enrolled for * * * the purpose 
of obtaining a degree, certificate, or other recognized credential.'' A 
student must also certify that the aid will be used solely for 
education-related expenses. For their part, institutions are obligated 
to return any Federal student aid received if a student does not begin 
attendance during the period for which aid was awarded. Institutions 
must be able to document attendance in at least one class during a 
payment period.
    If a student begins attendance and later drops out or withdraws, 
institutions must determine what funds must be repaid to the Federal 
student aid programs or to the student. The HEA and Department 
regulations require the return of funds in proportion to the 
uncompleted portion of the payment period. However, once a student 
attends or completes 60 percent of a payment period, then no refund is 
required. For institutions that are not required by a State licensing 
agency or an accrediting agency to take attendance, the regulations 
permit institutions to keep 50 percent of all student aid funds 
received if a student withdraws or drops out at any point prior to the 
60 percent point. Institutions are allowed to keep 50 percent of the 
funds even when they have an actual record or knowledge of when a 
student last attended. That point could be as early as the first day or 
week of class, yet the rules permit an institution to keep 50 percent 
of all Federal student aid funds received, including loan funds that 
students will still be obligated to repay.
    This framework provides unique management challenges and 
opportunities for abuse in programs that are offered through distance 
or on-line instruction. We have completed two audits at distance 
education institutions that demonstrate our concerns in this area, and 
we are presently in the final stages of completing two additional 
audits examining the same issues. Determining what constitutes a class 
and class attendance in the on-line environment is a challenge in the 
absence of defined class times or delivery of instruction by 
instructors. The on-line environment also creates challenges for 
determining whether a student has enrolled for purposes of obtaining a 
credential or is just completing sufficient on-line activity to receive 
a disbursement of Federal student aid to use for other purposes. On-
line instruction typically consists of posted reading materials and 
assignments, chat-room and email exchanges, and posting of completed 
student work. The point at which a student progresses from on-line 
registration to actual on-line academic engagement or class attendance 
is often not defined by institutions and is not defined by Federal 
regulations.
    As an illustration of this problem, our 2008 audit of Capella 
University found that the school did not have adequate controls to 
determine whether students actually began attendance in on-line 
classes. As a result, Capella failed to return funds for students who 
dropped out before their first day of class, and continued to disburse 
funds for students who did not return for subsequent payment periods.
    Capella's documentation did not indicate that students who dropped 
out had engaged in academic activity. As a result, Capella should have 
returned all Federal student aid, and should not have calculated a 
refund using the midpoint of the payment period as the withdrawal date. 
Capella disagreed and asserted that a student's agreement to a faculty 
expectation sheet, introduction to the teacher or other students, or 
general questions about the homework process, and similar activity for 
which it had documentation, were sufficient to justify retention of 50 
percent of the aid disbursed to the students who dropped out. We 
estimated that Capella failed to return over $500,000 in Federal 
student aid from 2002 to 2005.
    In August of 2009, we completed another audit of another large 
distance education institution, TUI University, which found that the 
school did not have adequate policies and procedures for ensuring 
student eligibility for Federal student aid funds at the time of 
disbursement and for identifying students who had withdrawn from the 
institution. We estimated that $923,379 of the $8.6 million in Federal 
student aid disbursements made to students for the Fall 2007, Winter 
2008, and Spring 2008 sessions was either disbursed to ineligible 
students or not earned by students who withdrew from the institution. 
TUI did not confirm academic activity prior to disbursing Federal 
student aid, and had no policies to address circumstances when students 
ceased attendance without notifying the institution and no procedures 
to identify such students in order to perform refund calculations.
    These audits highlight the difficulty of determining attendance, 
and thus student eligibility for funding in an on-line environment. 
Neither the HEA nor the Department's regulations define what 
constitutes instruction or attendance in an on-line environment.\1\ 
Without such definition, or adequate controls at the institutions 
themselves, we believe Federal student aid funds are at significant 
risk of being disbursed to ineligible students in on-line programs, and 
that inadequate refunds will be made for students who cease attendance 
in these programs.
---------------------------------------------------------------------------
    \1\ Neither the HEA nor the Department's regulations define what 
constitutes instruction or attendance--for the on-line environment, or 
for traditional classroom instruction.
---------------------------------------------------------------------------
    Our investigative work has also confirmed the vulnerability of on-
line or distance education to fraud in the area of student eligibility. 
Since 2005, we have initiated 29 distance education-related 
investigative efforts, 19 of which were identified in the last 2 years. 
Our ongoing work has revealed that criminals seek to exploit 
institutions with minimal requirements to establish eligibility for 
initial and continued student aid disbursements. Community colleges and 
other low-cost institutions are the primary target of this type of 
fraud. A number of these institutions have been aggressively engaged in 
trying to identify fraud and have been communicating with our office 
regarding their findings or concerns. Below are two very recent 
examples of our work in this area:
     This summer, a Federal grand jury in Arizona indicted 65 
individuals, 19 of whom have pled guilty, for their roles in a $538,000 
student aid fraud scheme at Rio Salado Community College. The 
ringleader allegedly recruited individuals to act as ``straw students'' 
at the school in order to apply for and receive Federal financial aid, 
completed and submitted admission forms, financial aid applications, 
and supporting documentation containing forged and false statements, 
and then assumed the identity of those individuals to access Rio 
Salado's on-line classes. This was done to generate records of the 
individuals' participation in on-line classes, which caused Rio Salado 
school officials to authorize financial aid payments to those 
individuals. When the straw students received the financial aid checks, 
they kicked back a significant portion of the proceeds to the 
ringleader. Rio Salado Community College referred this matter to us for 
investigation.
     As of September 30, six individuals have been sentenced 
and another has pled guilty for their roles in an on-line fraud scheme 
at Axia College, a two-year on-line college of the University of 
Phoenix. The scheme's two ringleaders were former employees of ACS, a 
third party servicer to the school, who recruited individuals to enroll 
at Axia in order to fraudulently obtain student financial aid. The 
former employees assisted the individual in completing the enrollment 
forms and student aid applications, then enrolled the individuals in 
the classes and posted homework assignments for them in order for it to 
appear as though the individuals were attending the on-line courses. 
When the individuals received their student aid checks, they would kick 
back a portion to the two ringleaders. Axia College referred this 
matter to us for investigation.
    These cases, Mr. Chairman, represent what we believe is a 
significant challenge facing the higher education community in the area 
of student eligibility: confirming that an individual enrolled in 
distance education is actually a regular student seeking to obtain a 
degree or credential and is actually in attendance. We will continue 
our proactive work in this area to identify issues impacting the 
integrity of the programs, and aggressively root out fraud and abuse.
    On the issues of concern to the Subcommittee today, we will 
continue to pursue cases of ATB and high school diploma fraud. 
Implementation of the recommendations made by GAO, along with the 
Department's proposed improvement plans, should help better detect ATB 
abuse in the future. Issues involving on-line high school diplomas, 
however, are an evolving phenomenon which will continue to be a special 
focus of our investigative efforts. Until regulatory changes can be put 
into effect, the attention this Subcommittee and the full Committee 
have focused on student eligibility issues should help financial aid 
administrators across the country in being wary of dubious credentials.
Closing Remarks
    In closing, let me reiterate that OIG is committed to promoting 
accountability, efficiency, and effectiveness in all Federal education 
operations and programs. We will continue to work with FSA, the 
Department, and our colleagues at GAO to successfully address areas of 
risk in the Federal student aid programs, and help reduce waste, fraud, 
and abuse in these important programs. On behalf of the OIG, I want to 
thank you for the support Congress has given to this office over the 
years. We look forward to working with the 111th Congress in furthering 
our goals and achieving our mission.
    This concludes my written statement. I am happy to answer any of 
your questions.
                                 ______
                                 
    Chairman Hinojosa. Thank you.
    I now call on Mr. Miller.

   STATEMENT OF HARRIS N. MILLER, PRESIDENT AND CEO, CAREER 
                      COLLEGE ASSOCIATION

    Mr. Miller. Chairman Hinojosa, Chairman Miller, Mr. 
Guthrie, and other members of the subcommittee, thank you for 
allowing me to represent the Career College Association, which 
consists of almost 1,600 member schools and 1.7 million 
students being trained in 200 professions for PhDs, 
professional degrees, bachelor's degrees, associate degrees, 
and certificates.
    We want to thank you for holding this hearing today, 
because we at CCA share the displeasure that the chairman 
expressed in his opening comment about schools that violate the 
rules and regulations. Let me say this right upfront: There is 
no room for cheating in the process of higher education, 
whether by students, teachers, administrators, or other school 
personnel.
    As for the woman that the GAO recorded, obviously, she is 
entitled to due process, but our position would be, when she 
goes through due process, hang her high.
    We also hate high school diploma mills. These are abhorrent 
to the basic processes of our education system, and we support 
both the recommendations in the GAO report that there be 
increased oversight of the ATB testing system by the 
department, and we look forward to working with the department 
during the negotiated rulemaking session to figure out how to 
cut down on ATB problems and to figure out a way to be able to 
track more easily diploma mills so we don't run into them.
    I am going to address simply three topics: the role of our 
sector, compliance in student loan default prevention, which is 
also underlying a lot of the GAO report.
    Clearly, we believe that, as we try to expand this 
country's pool of people with post-secondary degrees, we try to 
achieve the objective that President Obama outlined in his 
speech in February, to be number one in the world again by 
2020. Career colleges have a great opportunity to contribute to 
that.
    We are by far the fastest growing sector of higher 
education--foundation finds at career colleges students 
actually outperform students in terms of graduation at many 
other institutions. But the simple reality is that we do admit 
students sometimes who go through the ATB tests.
    The ATB tests are not good for students, for taxpayers, for 
the country if they are not administered properly. And as I 
said before, that is why we endorse the GAO recommendation for 
clearer oversight of the test administrators, but we do not see 
any evidence that ATB fraud is widespread.
    But yet one episode of cheating is too many, as Mr. Guthrie 
said, and particularly in the diploma mill area, again, we 
think we need to have more work done to make it more visible as 
to what can be done by schools to prevent inadvertently being 
tied up with diploma mills.
    Compliance is a constant theme at CCA, and that is my 
second point. We know there is a triad of oversight: the 
government, Department of Education, the state departments of 
education, and other regulators at the state level, and the 
accrediting bodies.
    We promote regulatory compliance at all times at CCA. In 
the 2.5 years I have headed the organization, we have presented 
60 separate compliance sessions for our members at our 
conventions, at our leadership institutes, at our conferences, 
and through monthly webinars that we do at CCA.
    We also urge our schools to attend all the compliance 
seminars done by the Department of Education itself, and our 
state associations also do training on compliance.
    Our schools engage in extensive investment in internal 
compliance, including training, oversight. Many of our schools 
hire their own mystery shoppers to come in and make sure that 
the admissions officers and the financial counselors are not 
providing advice or information that is in any way inaccurate.
    Now, let me talk finally about the default rate issue. It 
is an issue that disturbs all of us. In a perfect world, no 
students would default. But the simple reality, as that GAO 
points out quite clearly in its report, is that institutions 
who have a higher percentage of lower-income students and 
minorities tend to have higher default rates, not just in our 
sector, but also in traditional higher education.
    This has to do a lot with the simple fact that, as Mr. 
Shireman pointed out, many more students are applying for 
federal aid, up to 14 million anticipated this year, and many 
of those students do not come from upper-middle-class 
backgrounds, where it is easy for them to repay loans.
    But it is not the position of our sector or our schools to 
simply give up on these students and assume that they are going 
to default. On the contrary, CCA has had a partnership with the 
Department of Education since 2003, the default prevention 
initiative, where we work closely with the department to try to 
help lower default rates. We have studies underway to help 
schools understand best practices.
    We believe that students must repay their loans, must get 
their education to repay their loans. We are very pleased that 
this Congress last year enacted the income-based repayment 
plan, which I believe was Mr. Shireman's recommendation several 
years ago, which will enable many more students to do it.
    At the end of the day, Mr. Chairman, we are all about 
compliance and accountability. And we look forward to your 
questions. Thank you very much.
    [The statement of Mr. Miller follows:]

       Prepared Statement of Harris N. Miller, President and CEO,
                       Career College Association

    Good morning. My name is Harris N. Miller, and I am President and 
CEO of the Career College Association (CCA). CCA represents almost 
1,600 accredited career colleges, educating an estimated 1.7 million 
students in 200 professional, technical, and career fields. Our schools 
offer PhDs, Masters, baccalaureate, and associate degrees and 
certificate and diploma programs. All of our schools must have approval 
of the Federal government, appropriate state government agency, and one 
or more accrediting bodies recognized by the U.S. Department of 
Education in order to participate in Title IV student aid programs.
    I want to thank Chairmen Hinojosa, Ranking Member Guthrie, and all 
the Subcommittee Members for holding this hearing today. The career 
college sector shares a commitment to regulatory oversight that 
protects students and taxpayers, maintains high standards for schools 
and the delivery of education, and fosters the ability of Americans to 
improve themselves and to take their place in a competitive workforce. 
The very name of this Subcommittee, with the tie between higher 
education and competiveness, speaks directly to the purpose and vision 
of the sector I represent.
    Our sector focuses strongly not only on the educational inputs of 
higher education--great teachers, top notch classrooms with up to date 
technology, strong reference materials, a positive learning 
environment--but also on the outputs--graduating students and getting 
them started in careers--which are another key measure of the success 
of institutions of higher learning. Our national drop in the world 
rankings from 1st to 10th or lower in people with college degrees has 
as much to do with students not completing the education they start as 
any other factor. And while the previous Administration and this 
Administration use slightly different terminology when talking about 
outputs, we applaud them both for asking the tough questions and 
pushing for answers on how we get more students to the finish line and 
into careers for which they are being educated. The American taxpayers 
and this Congress--in a bipartisan fashion--are asking a key 
accountability question about this nation's financial commitment to 
higher education: What is the return on the investment? CCA and our 
members strive to answer that question every day for our economy and, 
most importantly, for the students who give their time and money to 
attend our institutions.
    Schools in our sector are also proud of their ability to adjust 
their programs to ensure that the education they are providing will 
help their students launch or improve their careers. This nimbleness 
reflects the changing nature of work, and the preparation necessary to 
be effective. Job titles such as nurse, computer programmer, and 
automobile mechanic require quite different skills than twenty years 
ago or even five years ago. By constant interaction with the employer 
community, our schools are aware of changing education requirements and 
the labor market generally. They can add capacity quickly when labor 
market trends demand it. That is why, for instance, our sector now 
produces the largest percentage of new entrants into allied health in 
Florida. Our schools have seen a demand, and increased their capacity 
to educate individuals to meet it.
    Our schools are leaders in innovation. While much of higher 
education now uses web-based learning--a learning technique that was 
recently endorsed by a report commissioned by the United States 
Department of Education--schools in the for profit sector were on the 
forefront of using technology to improve access and provide flexibility 
to higher education, while maintaining high standards. Schools in our 
sector have partnered with high schools in cities such as Chicago to 
offer disadvantaged students the opportunity to obtain a high school 
degree and an associate's degree at the same time, increasing 
graduation rates and providing students a jump start on their careers.
    Let me say up front: there is no room for cheating in the process 
of higher education, whether by students, teachers, administrators, 
other school personnel, or outside testers and evaluators. Last month, 
the Government Accountability Office (GAO) issued a report on career 
colleges. We were disappointed to learn about a limited number of 
abuses allowing unqualified students to gain admittance and to access 
federal Title IV funds. We abhor any practice that breaks the rules or 
the law to admit unqualified students, whether through fraudulent 
testing practices or bogus high school degrees. We also hate high 
school diploma mills. We share the government's interest in eliminating 
any form of fraud and abuse associated with the Title IV program.
    At a time of economic turmoil, when the nation needs to get the 
most from its human capital, episodes of cheating are a costly 
distraction from our core mission: helping America to build a more 
globally competitive workforce. Our schools work to advance this 
mission every day. For instance, eight of the ten fastest growing 
occupations and occupations projected to have the largest numerical 
increases requiring an associate level degree are in healthcare or 
computer professions. Half of those requiring a baccalaureate degree 
are in the healthcare or computer professions.\1\ Almost one-third of 
the degrees, diplomas and certificates conferred by schools in the 
career college sector (30.6 percent) relate to healthcare or medical 
careers; an almost identical percentage (29.9 percent) is awarded in 
information technology.
---------------------------------------------------------------------------
    \1\ Growth in HIT Workforce: Bureau of Labor Statistics 
Occupational Outlook Handbook, 2008-09
---------------------------------------------------------------------------
    In the career education sector, we leave basic and applied 
research, classes in Middle English or Renaissance Art, and major 
intercollegiate athletics to others. Instead, career college curricula 
respond to the skills employers seek most, today and tomorrow. By doing 
so, our institutions raise higher education to the power of the 
marketplace. We reject the agrarian era timetable for education, in 
which students take off summers and often long periods in the winter, 
in favor of year round education that allows students to complete their 
degrees quickly--2.5 or 3 years for a bachelor's degree, for instance--
and get on with their professional lives. We see the students as 
customers who deserve not only the most up to date classrooms, 
textbooks, faculty, and facilities, but personal attention to assist 
them find jobs, deal with personal challenges in their lives, and help 
remediate educational shortcomings that too often remain from their 
primary and secondary education.
    Americans are responding to this different approach to 
postsecondary education in dramatic numbers. The career education 
sector represents nine percent of higher education enrollments and 
average annual enrollment is growing at almost double digit rates. That 
rapid growth has accelerated even more during the last 18 months as 
higher unemployment has lead many more people to turn to education as 
they prepare for economic recovery.
    But even this pace understates the importance of the career 
education sector to the economy and the nation. For instance, in terms 
of associates' degrees, the basic credential for a growing number of 
entry and mid-level jobs today, our sector awards over 16 percent of 
all such degrees. Between the 1996-1997 and the 2006-2007 academic 
years, the number of total degrees awarded by career colleges has 
increased by 224 percent, from approximately 75,000 to over 240,000.\2\
---------------------------------------------------------------------------
    \2\ The Condition of Education 2009, U.S. Department of Education, 
National Center for Education Statistics, Table 42-1, page 103
---------------------------------------------------------------------------
    We are particularly mindful of issues that relate to how our 
students enter school because the route is not always the high school-
to-postsecondary institution, traditional route. Career college 
students tend to be working class and lower income individuals, often 
the first in their family to attend college. About 40 percent are 
minorities and over half are women. Career college students are often 
independent working adults with family obligations. Generally speaking, 
career colleges serve a non-traditional student population--and serve 
them very well. Although its students are very often not on the 
``college track'' in high school, they get on the fast track in career 
colleges. Indeed, a new study by the Imagine America Foundation finds 
that career colleges out-perform other types of institutions when it 
comes to dealing successfully with at-risk students. The study looks at 
two key outcome measures across higher education sectors, persistence 
and attainment, and finds that career colleges often produce better 
results in these critical areas.\3\
---------------------------------------------------------------------------
    \3\ Pre-Release Study, Imagine America Foundation
---------------------------------------------------------------------------
Non-Traditional Students/All American Values
    So who is a non-traditional student? First, as this Subcommittee 
knows, they may soon be the majority of students in postsecondary 
institutions. At career colleges, community colleges, and even many so-
called traditional schools, students who did not enter college directly 
out of high school and who did not follow a classic college preparation 
high school curriculum are growing dramatically.
    Non-traditional students themselves are varied. For instance, many 
career college students come back to postsecondary education after 
first serving in the military. Michael Vera, for example, joined the 
Marines at age 17. As we first reported in CCA's Link magazine last 
fall, Vera, a Jersey City, NJ native, says he was not ready for college 
immediately after high school:
    ``I was decent in high school. I just didn't have the focus. I know 
that doing the traditional college wasn't the right time for me * * * I 
thought I needed a good kick in the butt to get myself straight * * * 
to mature and to learn some type of responsibility.''
    Michael's military service included a posting at the Pentagon and 
duty there on September 11, 2001. Vera was injured when terrorists flew 
a Boeing 757 into the building. Despite his injuries, he helped 25 
others escape the wreckage. Michael ultimately left the military and, 
while working at the Department of State, enrolled at DeVry University 
in Arlington, Virginia, to advance his career. And perhaps his 
traumatic past experience shaped his attitude towards the future.
    ``I didn't want to go to school and just take courses just to take 
them,'' he told CCA's Link magazine. ``I wanted to be focused on what I 
really want to study.'' Michael, who won the 2008 LDRSHIP Award for his 
heroism from the Imagine America Foundation, plans to become a security 
engineer.
    Michael is not alone. Approximately 20 percent of those receiving 
veterans' benefits enroll in career colleges. Like other non-
traditional students, they are attracted by the flexible schedules and 
hands-on approaches that characterize our schools. But they are also 
apt to find that career colleges are better aligned with their 
interests in getting an education and getting on with life.
    Our students can also be individuals who have taken life out of the 
traditional order, many entering college after starting a family or 
working for a few years perhaps at places that do not require 
postsecondary skills--but also offer few chances for economic 
advancement. Sometimes these individuals become heroes of the home 
front. I am struck by how many times I hear older students tell me that 
their own young children see them studying at the kitchen table and get 
motivated to do likewise. When I speak at a college graduation, I am 
impressed and moved by the life challenges so many of the graduates 
have overcome to earn their sheepskins.
    Motivation is the key. Students come to career colleges ready to 
succeed, and career colleges help students put the pieces where they 
belong. This assistance means working together to remove obstacles to 
success, whether academic, personal or professional. About 50 percent 
of our schools operate on an open admissions basis. Our emphasis is on 
helping every student succeed, not on building a more selective student 
body than the next school. There are no ivory towers in our sector, but 
plenty of students with a towering desire to get an education and to 
get ahead.
    Take the example of Pamela Jackson, who attended Everest College in 
Merrillville, Indiana. Pamela grew up in Cabrini-Green on Chicago's 
North Side--a development known for being one of the worst public 
housing communities in the country. As the daughter of a mother 
addicted to drugs, Pamela's childhood was hard. Many nights, she and 
her siblings were left alone with no food and no one to take care of 
them. When she was 14, Pamela became involved in a gang. This was also 
when she began living two lives: One as a gang member, the other as an 
honor student. Pamela's father was one of the few positive role models 
in her life, instilling in her that education was the key to a better 
life. But when Pamela was 17, her father was killed as a result of gang 
violence. While still in high school, Pamela gave birth to two 
children. Soon after, her mother kicked her out of her home. But those 
personal challenges did not stop Pamela from being a good student. In 
fact, she worked harder, graduating high school with honors.
    After the birth of her third daughter, Pamela, then 18, realized 
she needed to focus on a stable career.
    She eventually discovered Everest's practical nursing program. 
Pamela encountered many personal hardships while enrolled in the 
program--including domestic violence and homelessness--but with the 
help and encouragement of her nursing instructors and the assistant 
nursing director, she managed to complete the practical nursing program 
last April. Despite her many challenges, Pamela was an ideal student 
with excellent attendance. Pamela passed her state board examination in 
June 2009 and obtained her nursing licenses in both Indiana and 
Illinois. Pam had several job offers upon graduation, and with the help 
of Everest's Career Services team, she currently works at a nursing 
home as a licensed practical nurse.
    Career colleges proved to be the right solution for a younger 
person like Pamela Johnson. But a difficult economy has forced many 
middle-aged adults to re-evaluate their skills and to gain a more 
competitive employment posture. Rick Brandburg, 47, had not been in a 
classroom in 28 years. He had reservations about whether he had the 
stamina and funds to go back to school. With an emerging passion in 
criminal justice, however, Rick decided to enroll at Kaplan College in 
Hagerstown, Maryland.
    Rick was also impressed with the level of instruction provided by 
members of the faculty and the flexibility of class schedules. Having a 
schedule that allowed Rick to work was essential, and he received 
hands-on instruction from the faculty during his night courses.
    According to Rick, ``The way Hagerstown College has the classes set 
up is much more flexible than the local community college. I am able to 
have a full-time class schedule that only has classes three nights a 
week. The flexibility made a difference for me.''
    ``I also enjoyed the idea that most of the instructors I've had 
have experience in the real world. Who better to teach evidence and 
testimony than someone who deals with it every day? This is the best 
experience I think you can get.''
    Since graduation, Rick has been hired by the state of Maryland as a 
child support enforcement agent.
    ``I love my job. It is still fairly new, but my education has 
allowed me to catch on to it very well--it's my ultimate job.''
Test Fraud: No Pattern of Abuse
    Both Pamela Jackson and Rick Brandburg graduated from high school, 
but many others do not. Drop-out rates in several major metropolitan 
areas across the country are 50 percent or more. Ability to Benefit 
tests are an important tool for helping those who may have dropped out 
of high school and who do not have a GED to regain a foothold on the 
ladder of success.
    But not if the tests are misused. Beyond the civil and criminal 
penalties that may attach to engaging in such fraud, schools that 
participate in or support this activity ultimately damage themselves, 
their reputations and their future viability. The vast majority of 
schools that play by the rules dislike intensely those that do not. 
Walk into a career college and you will find students who cannot wait 
to get to work * * * to get on with the next lab or classroom 
experience * * * to find the answer to the next question. In fields 
like automotive repair and allied healthcare it is not unusual to see 
people working in teams or on common, hands-on projects. The education 
is concise, concentrated, streamlined. Allowing students without the 
basic ability to perform the work simply slows progress, distracts 
instructors, and diminishes the learning process for all involved.
    The good news is that we do not see evidence that fraud in Ability 
to Benefit tests or diploma mill use are widespread--nor does the GAO. 
In fact, the GAO says in its report, ``GAO's findings do not represent 
nor imply widespread problems at all proprietary schools.'' To the 
extent that admissions problems exist, they are not found exclusively 
in the career college sector.
    Yet one episode of cheating is too many. We support the GAO 
recommendations to increase Department of Education oversight of ATB 
testing. Our members maintain lists of diploma mills, and we support 
the GAO recommendation that the Department of Education provide a list 
of diploma mills so that schools will not have questions about the 
legitimacy of a degree. We support appropriate actions against testers 
or schools operators who are found to have violated the law. We look 
forward to working with the Department and other stakeholders in the 
upcoming negotiated rulemaking which will have ATB and diploma mills on 
the agenda.
Putting the Situation in Context
    When considering situations where someone in a school crosses the 
line, context is critical. Take the example of Ohio, where 
approximately 300 career colleges educate some 75,000 students. Last 
year, the State Board of Colleges and Schools reported just six non-
student complaints related to advertising and recruitment and just 10 
non-student generated complaints overall. The Board reported 58 student 
complaints, with just five related to admissions problems. Note that 
complaints are just that and are not necessarily found to have merit. 
When investigated, oftentimes they are found to have no merit.
    In its report, the Ohio Board found much to praise about career 
colleges in the state:
    ``Placement statistics compiled in this report indicate that 81% of 
the individuals who complete their education find employment following 
their graduation. Ohio's career colleges and schools have been of great 
assistance in helping unemployed adults to find jobs. Some of the 
schools work closely with government agencies like WIA and Vocational 
Rehabilitation, and in some cases, employers, to assist in paying the 
cost of these training programs. Through this effort, career colleges 
and schools are removing some people from public assistance and once 
again making them taxpayers.'' \4\
---------------------------------------------------------------------------
    \4\ State Board of Career Colleges and Schools, 2008 Annual Report, 
page 12
---------------------------------------------------------------------------
    The report calls Ohio's career colleges ``a positive, economic 
asset to the State, both as businesses and as educational institutions 
for several reasons. First, career college and school graduates make a 
continuing contribution to the economy because of their improved 
productivity. Graduates of these institutions have higher personal 
incomes and pay more taxes. Second, career colleges and schools are 
businesses that pay salaries, buy goods and services from other 
businesses and pay taxes to the local, state and federal government.''
    According to the report's findings, career colleges generate $450 
million in economic activity in Ohio and pay $37 million in taxes. 
Moreover, were there no career colleges in Ohio, the Board estimates 
that the state would be paying an additional $75 million to educate 
these students.\5\
---------------------------------------------------------------------------
    \5\ Ibid, page 14
---------------------------------------------------------------------------
    Job placement assistance is one of the most attractive aspects of 
career colleges and placement in field is a key to success in student 
loan repayment. To retain their accreditation status, institutions 
accredited by the Accrediting Council for Independent Colleges and 
Schools must maintain a placement rate of 65 percent. In 2008, ACICS 
accredited schools had an overall placement rate of 71 percent.\6\ 
Other national accreditation agencies have similar placement 
requirements.
---------------------------------------------------------------------------
    \6\ ACICS, Educating America's Workforce: Key Operating Statistics, 
page 12
---------------------------------------------------------------------------
Cohort Default Rates
    In a perfect world, no students would default on Federal loans. And 
there is a way to achieve close to that perfect world--only lend money 
to students who are well to do or have well to do parents.
    But we know as a society, as an economy, that is not an acceptable 
policy path, because such a policy would discriminate against the poor, 
against lower middle income families, and against minorities. It would 
prevent millions of capable students from pursuing their American dream 
by obtaining a post-secondary education. It would lower the standard of 
living for our citizens, making us less globally competitive and 
locking generations into cycles of poverty.
    So we have a Federal student lending system that is open to all and 
accept the fact that such a policy carries some risks given the socio-
economic status of the students. And, sure enough, we find that at 
institutions that accept lower income students and working adults, the 
average default rate of students is higher than that at traditional 
elite institutions. The GAO report makes the same point. Some students 
who graduate will not be able to repay their loans, even with their 
sheepskin. Those who do not complete usually have a much higher default 
rate.
    This higher default rate is true of most, but not all, community 
colleges, minority serving institutions, and career colleges, as the 
GAO indicates. CCA does have member institutions with default rates as 
low as the most elite traditional institutions, but we also have those 
with higher default rates, often those in inner cities and other low 
income areas. The average across all career colleges is now 11%, 
slightly higher than the 9.9% for community colleges.
    The current difficult economy, with so many unemployed or 
underemployed, is likely to lead to even higher default rates next 
year, just as it is leading to higher defaults in home mortgages, 
automobile loans, and credit cards.
    However, it is not the policy of our sector simply to accept higher 
defaults as inevitable and unavoidable. We work aggressively as an 
Association and as a sector to minimize student defaults. Our Default 
Prevention Initiative (DPI) began in early 2003 as a way for CCA member 
institutions and members of the Department of Education's Default 
Prevention staff to share best practices in late state delinquency. The 
group evolved to its current form, with an active group of 40 
institutional personnel, Department representatives, and CCA staff.
    Over the past year, the school members worked to gather data on the 
characteristics of defaulters at various stages (early missed payments, 
late stage delinquency and defaulters) and developed strategies for 
identifying potential defaulters before the first late payment. Our 
goal is to use previously identified best practices to provide 
additional loan counseling and financial literacy education.
    Currently, the DPI is working on developing a student loan default 
prevention program more rigorous than would be required by the 
Secretary should an institution be above the CDR threshold. The goal is 
to introduce this plan to the CCA membership at large as a tried-and-
true default prevention plan and eventually to all of postsecondary 
education as a means of reducing CDRs universally.
    The CCA/ED DPI will include intervention strategies for all stages 
of student borrowing and potential default, from before the first loan 
is disbursed through all possible points of contact during enrollment, 
graduation or withdrawal, and repayment or delinquency and 
rehabilitation.
    We support policy changes that will help students not default. We 
are very pleased with the passage last year of the Income Based 
Repayment plan that took effect July 1 of this year that will allow 
students to pay lower amounts when they first graduate and have a lower 
earning capacity, with payments increasing as earnings increase. And we 
support a change in the law that would allow financial aid officers to 
prevent students from overborrowing when their costs of education and/
or post-graduation earnings capacity do not justify the loan amounts 
they are taking. I understand that the community colleges also support 
this idea.
    We see no evidence that the type of isolated fraud found by GAO has 
more than a de minimis impact on default rates.
Proactive Compliance Programs
    The record suggests that instances of fraud are few and controls 
exist to catch cheaters. That does not mean that we can rest on our 
laurels. Compliance is a subject on which I, my Board Chairman and 
other Members, and all of our leaders preach constantly to our members. 
CCA maintains an active compliance program educating our members across 
a range of issues, including admissions, required outcomes, financial 
aid, student records and other topics. We deliver this education 
through monthly webcasts, sessions at our Annual Convention, an 
extensive online library, feature articles in CCA's Link magazine, a 
Compliance Officer's Roundtable, and our annual Leadership Institute 
for next generation school leaders. In the 2+ years since I became 
CCA's head, we have conducted sixty compliance training sessions. State 
associations of career colleges also focus intensively on compliance 
training, including several that were offered at the Texas state 
association meeting last week. We urge our schools to attend training 
sessions put on by the Department, especially in the financial aid 
area, one of the most complex areas of law and regulation not just in 
higher education, but in the entire legal world.
    Our schools carry out internal compliance programs, understanding 
the legal and reputational risks to their institutions. These include 
intensive training, oversight and review, internal and external audits, 
and even such tactics as ``mystery shopping,'' in which schools hire 
outside firms to appear as potential students to ensure that admissions 
officers and financial aid officers are being accurate and informative 
in all their presentations.
    The schools are all subject to what is referred to in higher 
education as the ``triad of regulation,'' Federal Department of 
Education oversight, state regulation and oversight, and accreditor 
review and oversight. And they are reviewed daily by their customers--
the students who attend.
Conclusions
    The Career College Association and its members have zero tolerance 
for fraud in the admissions process or in any other aspect of school 
operations. Both the Association and its members maintain active 
compliance programs and seek to uphold the highest standards of ethical 
practice. From time to time, as with all types of institutions in 
higher education, individuals cross a line and engage in activity that 
abuses the system and harms both the school and its students. Such 
episodes are small in number and do not significantly contribute to 
elevated cohort default rates. Career colleges do better than other 
types of institutions in educating non-traditional students and working 
with them to complete postsecondary programs. That being said, non-
traditional students are often those with the greatest social pressures 
and fewest financial resources starting out in life. It is not 
surprising, therefore, that studies would show that non-traditional 
students have the highest rates of loan default. CCA and its member 
schools are committed to working with all students to assure high rates 
of academic success, job placement and loan repayment.
                                 ______
                                 
    Chairman Hinojosa. Thank you. I wish at this time to ask 
Chairman Miller if he has questions for any of the panelists.
    Mr. Miller of California. Thank you, Mr. Chairman. And 
thank you very much for holding this hearing.
    Mr. Scott, thank you for all of the work of you and your 
office. At the end of your testimony, you suggested that this 
was not--did not represent or imply a widespread problem in all 
proprietary schools.
    And I have no reason to disagree with that, but I ask you 
to sort of marry your testimony with that of Ms. Mitchelson and 
ask you whether we have got additional problems here that we 
ought to be concerned about. I mean, you see what the I.G. is 
encountering in their--it is somewhat broader and across 
different fields of, unfortunately, opportunities to engage in 
nefarious activities.
    Mr. Scott. Yes, Mr. Chairman, as I said in my statement, 
you know, we didn't intend our work, which is narrowly focused 
and only encompasses visit to a few schools, and so that is why 
we really wanted to make sure we properly characterize the 
scope of our work.
    That said, given that these problems have continued, you 
know, even after, you know, the Office of Inspector General has 
pointed out these problems, we do believe they do rise to a 
level of concern that we believe it is important for Department 
of Education to take action.
    Some of the steps Mr. Shireman outlined certainly sound 
very promising, but we are going to make sure we continue to 
monitor their implementation of those actions to address those 
weaknesses that we and others have identified.
    Mr. Miller of California. Thank you.
    Ms. Mitchelson, one of my concerns is that, in the--I don't 
know why I am asking the GAO about the I.G. and the I.G. about 
the GAO, but we will get that sorted out--is that in a number 
of these--it seems to me the student is a bit of a pawn here. 
They are told they pass. They got a diploma from a diploma 
mill.
    I am not saying they are not necessarily willing, but they 
may be willing because they are desperate to get an education 
and try to figure out how they can navigate. So let's assume a 
little bit of good faith there. Or they pass a rigid test, they 
take on this debt--in some cases, this is very high-interest 
debt--and then they don't thrive, they don't complete the 
system here.
    They now end up with a debt, with a default, with a ruined 
credit report, and it seems to me all their problems just got 
worse. And yet, when I look at your report, it also suggests 
there may be some students who are figuring out how to game the 
system. If they can show up for the first day of college, 
community college or proprietary school, they can get part of 
that money back for their living expenses and what have you, 
and go on their way, and really not show up online, in class, 
or on campus, wherever the hell it is.
    So we are kind of getting hit from both ends here, are we 
not?
    Ms. Mitchelson. Yes, sir. And there is effort needed by the 
department to clarify what the rules are in this area, both to 
protect the students and to protect the taxpayer.
    In the online context right now, we don't really know--the 
challenges are to try to identify whether the student is 
actually who she says she is. Many times, nobody is required to 
show up in person, so it is hard to make an identification on 
the distance.
    Secondly, is she actually enrolling because she wants to 
get the instruction? Or is she merely enrolling just long 
enough to get the financial aid, which she will then use for 
other purposes?
    A third problem is, is she receiving the correct amount of 
aid? As you know, aid is delivered based upon credit hour. If I 
am taking 12 credit hours, I am entitled to a full aid package. 
Well, the department has not defined credit hours. Neither the 
statute nor the regulation define what a credit hour is. So it 
is not clear whether the student, particularly in an online 
environment, is receiving enough instruction to justify the 
amount of credit hours she is receiving.
    And the fourth question then is, should she drop out and 
not continue her study in that program, what amount of refund 
of student financial aid is due? What degree of instruction did 
she actually receive? Was she actually in attendance? Many 
schools do not require to take attendance, and so particularly 
in the online context, there is a lot of ambiguity about who is 
participating, for what purpose, how long, and whether they are 
actually due the full amount of financial aid.
    Now, we have just done some work looking at the question of 
credit hour, because Mr. Scott mentioned the triad. And one of 
the triads is the accrediting agencies. Accrediting agencies 
are relied upon to determine what credit hours should be 
awarded based upon a particular program of instruction.
    We went to three different crediting agencies and asked 
that question about, tell us how you make that judgment about 
what amount of credit hours is appropriately awarded in this 
situation? We found varying standards and, to some extent, no 
standards.
    And that is a set of inspections that we will be issuing 
starting the near term, information that I think the department 
will find very useful as it takes up this issue in its 
negotiated rulemaking next month.
    Mr. Miller of California. Thank you.
    If I might, Mr. Chairman, I would just like to ask Mr. 
Shireman a question.
    Mr. Shireman, when I look at part of this, as I said, we 
are kind of getting gamed from both ends here, in some cases. 
But when I look at part of this, it sort of reminds me of where 
we were 2 years ago with liar loans and no-doc loans in the 
housing market, where people started accepting people who 
couldn't prove their income, couldn't prove employment, but we 
sold them a $450,000 house. And that all came crashing down 
here.
    I am a little worried when I see these tapes and I see 
these tests and I see the diploma mills outlined here that we 
are developing a process here that looks a lot like sort of 
subpoena student loans. And knowing that these people don't 
have the capacity to pay it back, knowing that they may not 
have the ability to benefit from this education, we go ahead 
and extend them the credit in the private market and in--
because in the private market, you just keep adjusting the 
interest rate up until they yell, ``No,'' and in the federal 
loans programs.
    And I just--as you listen to this testimony--and I see what 
you are doing, and I am delighted by the changes you have made, 
but at some point, I hate to say this, but, I mean, I think we 
are going to have to sort of develop a watch list on certain 
institutions, because if they become the feeder systems for 
subprime loans to these students, we have got a real problem 
here, and it is going to go beyond just the school, if you 
will.
    It is going to be out in society, in terms of people 
inheriting this--you know, what can be a substantial amount of 
debt for their situation.
    Mr. Shireman. Yes, there is certainly--the reason to have 
the requirement of a high school diploma or passage of an 
ability to benefit test is to at least have some measure of 
confidence that the students are entering post-secondary 
education and will be able to achieve, get through those 
courses, perhaps get a degree, get the benefit of the income, 
and be able to repay their loans.
    And when we fail to have the appropriate checks to make 
sure that they are qualified, we are not just potentially 
costing taxpayers, but also jeopardizing those students by 
putting them into debt for degrees that they are likely not 
going to get, not be able to get that employment. So we need to 
be vigilant.
    We do--the statute requires and we do look at various types 
of risk factors in identifying the institutions that are 
subject to our program reviews. We look at dropout rates. We 
look at sudden large increases in the amount of loans or Pell 
Grants that might be going to an institution, default rates, 
volume of defaults, as well.
    So we are always on the lookout for--and we are working 
with the inspector general and other kinds of risk factors that 
we can use to identify schools where our program review staff 
should be going to make sure that there is not anything 
inappropriate going on.
    Mr. Miller of California. You know, I just--I will finish 
with--Mr. Chairman, I appreciate my colleagues bearing with me 
here in a minute--but, you know, I have been reviewing and 
looking at--I guess it is, you know, one of these earnings 
calls that companies go on to discuss with the financial 
institutions, their prospective earnings.
    You know, one of the very large proprietary operations, 
they are anticipating a 50 percent default rate on their loans 
that they make to their students. I just got to ask the 
question, so does that mean you just go forward, and if you can 
absorb that with respect to the financial markets, it is okay? 
Or do you have to figure out--and it is very hard to tell a 
student that, you know, you can't afford to do this or this 
isn't going to work out for you, but, you know, they are 
suggesting we can manage all this from an institutional point 
of view.
    I am asking, what happens to the student out there? From 
their point of view, if you expect 50 percent of them to 
default on the private loans--but we will leave that open for a 
question, because--I mean, for an answer.
    But I just--I am a little concerned here that we are not 
focusing too much on what happens to--let's just assume--good 
faith on part of these students and what they are being told, 
you know, they can handle or they can't handle at this point.
    Thank you, Mr. Chairman, again, for holding this hearing. I 
think it raises a number of very serious issues going forward 
for all parts of the student loan community.
    Chairman Hinojosa. Thank you for your questions.
    At this time, I would like to recognize myself for a few 
questions. And the first one is to Mr. Scott.
    Can you share with us any positive experiences you may have 
had in your visits to proprietary schools?
    Mr. Scott. Yes, Mr. Chairman. In some of our visits, we 
clearly learned that some of these schools are really providing 
good student supports to help these students, you know, persist 
and complete their certificate or program.
    Now, as I said in my statement, you know, these schools 
often provide the access and opportunity for students who 
otherwise would not be able to pursue a post-secondary 
education. And so it was sort of, in one respect, reassuring to 
see that some of these schools are, in fact, taking the 
necessary steps to support their students.
    That said, however, you know, we continue to have some 
concerns with some of the practices, and therefore, we do 
believe it is important for Department of Education to increase 
its oversight in this key area.
    Chairman Hinojosa. Well, that leads me, then, to the next 
question to you. You have identified problems in your testimony 
with the ability to benefit test abuse and point to weaknesses 
in the Education's monitoring of the test publishers who 
provided these tests to the schools. So what steps should 
Department of Education take to better monitor the ATB program?
    Mr. Scott. Mr. Chairman, as I mentioned earlier, it sounds 
like Education has already started down that road, in terms of 
improving its oversight of test publishers. As you may know, in 
our report, we made a number of recommendations to the 
department to improve its oversight in this area, including 
providing, you know, sort of midpoint test analyses to try to 
more quickly identify cases of testing irregularities.
    We also, you know, noted that the department needs to make 
sure that it is following up in cases where irregularities are 
identified more routinely. And so those are the number of other 
steps that we outlined in our report, we believe will help 
improve the oversight in this area.
    Chairman Hinojosa. Thank you.
    I would like to ask the next question of Ms. Mitchelson. 
What challenges does your office face in combating fraud and 
abuse in the federal student aid programs?
    Ms. Mitchelson. Well, sir, I can sum that up in one word, 
and that is resources. You know, these are immense programs, 
and there are lots of participants. We have a very talented, 
multidiscipline staff that is highly skilled and well equipped. 
Having said that, we still have only approximately 300 people 
whose job it is to help oversee over $782 billion worth of 
programs.
    That is the department's annual appropriation, of around 
$65 billion, the amount of money they----
    Chairman Hinojosa. How many more should we add to be able 
to get the job done?
    Ms. Mitchelson. That is an excellent question, sir.
    Chairman Hinojosa. I will let the secretary figure that one 
out.
    Yes?
    Ms. Mitchelson. Let me say that our challenges go beyond 
just adding bodies. We really need to find ways to do 
analytical work where we can target the highest degree of 
fraud, the highest degree of risk.
    For example, we took a look at the population of students 
that we think maybe have taken ATB tests in the fiscal year 
2009. And by looking at those students who on their FAFSA did 
not identify that they either had a GED, a high school diploma, 
or were home-schooled, we assumed that the remaining population 
must have taken and passed an ATB test.
    When we looked at fiscal year 2009, that amounted to about 
11 percent of the population receiving financial aid in that 
year. And that amounted to $12 billion. That is a lot of funds. 
These programs are so large and so expensive that, in order to 
do effective fraud deterrence, we are developing analytical 
tools that help us identify where the riskiest places are.
    We have now approximately just a little over 90 special 
agents. Obviously, they are not going to be able to 
investigate, you know, a great deal of cases. Currently, we 
have pending about 430 cases.
    Chairman Hinojosa. Thank you for your response.
    Ms. Mitchelson. Thank you.
    Chairman Hinojosa. I want to be sure that I have time to 
ask Mr. Shireman the question--I have noticed and I have heard 
the president, so I know that the administration is strongly 
supportive of post-secondary education. And although your 
tenure is only a few months along, do you see or do you foresee 
some legislation changes the Congress might consider in the 
recent reauthorization of Higher Education Act or the now-
pending WIA?
    Mr. Shireman. I expect that--well, first off, we are in the 
process of implementing those changes, the reauthorization of 
the Higher Education Act that you all enacted last year, which 
addresses some of the issues that we are discussing today, in 
particular, the issue of validating a student's identity in 
distance learning. So we have been in the process of finalizing 
regulations about what we will expect of accrediting agencies 
in that regard.
    There are a number of other items like that where we need 
to implement what Congress has already done. There is 
legislation, of course, that was passed out of the House a 
month before last and what I would anticipate in the job 
training arena that there would also be Workforce Investment 
Act reauthorization.
    So all of these are opportunities for us to take a closer 
look at program integrity generally and ways that we--
particularly in the job-training realm--ways that we might work 
with Department of Labor and Department of Education to better 
connect the training opportunities with the needs of the 
workforce.
    Chairman Hinojosa. Well, in closing, I want to say that I 
have noticed the willingness by the secretary of education and 
the secretary of labor of coming together and communicating so 
we can, indeed, do what you just ended your statement with.
    My time has run out, and I would like to yield time to 
Ranking Member Guthrie.
    Mr. Guthrie. Thank you, Mr. Chairman.
    You know, there were some--a couple of really good points I 
just want to reiterate myself that Chairman Miller, Mr. 
Shireman made about these students going into--you know, if you 
are a nontraditional student, which is typically without a high 
school diploma, and you show up in post-secondary education, it 
is usually because some trauma has happened in your life, you 
have lost your job, so you are getting back into the--so 
putting them further in debt.
    Another thing, putting somebody who is probably lost a 
little confidence, losing their job, into a classroom where 
they are not going to be successful, if the ATB is a predictor 
of being successful, if it is valid, then--you know, that is a 
moral problem, as well. And thanks for this hearing to check 
that out.
    But about the ATB, I know that we have a problem now with 
the diploma mills we are talking about, but one of my questions 
is why--Mr. Miller, why use the ATB as opposed to requiring a 
GED?
    Mr. Miller. Mr. Guthrie, the simple reality is that some 
people who are down on their luck, that maybe they were 
discouraged from going to high school, maybe they are 
immigrants, they simply are never going to be successful in 
passing a GED. And we as a society have to make a decision as 
to whether to cut them off from post-secondary education or 
not.
    The reality is that we have decided as a society, this 
Congress has approved, the department has approved admitting 
these students, because we believe they deserve another chance, 
they deserve a chance to get the education, get the skills they 
need to more into a career which puts them into the middle 
class. And I think we all should support that.
    The department recognizes, even though, obviously, some 
improvements are needed based on today's hearing, that this 
does run some risks. And I think the thickest--one of the 
thickest parts of the regulations, Mr. Chairman, if I am not 
mistaken, are the regulations about ATB testing.
    Even though there are relatively few students involved--Ms. 
Mitchelson said about 11 percent of those who receive federal 
aid, probably about 5 percent of all students--the department 
is very cognizant of this and has created a lot of rules and 
regulations that, if properly enforced, should make sure that 
only students who are truly qualified pass the ATB test and 
then have a good chance of completing and getting the degree 
and the new job opportunity which they seek.
    Mr. Guthrie. Thank you.
    And then, for Mr. Scott, I have a question. When you 
selected schools to do your investigation, I mean, how did you 
select those? Did you randomly select schools and, all of a 
sudden, you walk in and you have something as obvious or as 
blatant as--we just saw something that couldn't be more 
blatant, blatantly wrong.
    I mean, did you have some kind of insight into that 
particular school to attend? Or is this--did you just randomly 
pick one and you found this type of fraud?
    Mr. Scott. The school where we conducted the undercover 
visit and actually sent our analysts in was chosen primarily 
based on demographics. There was a local school here. And 
since, you know, we were unsure what we would find. We didn't 
want to invest significant resources and travel, that sort of 
thing, so we just happened to pick a local, you know, publicly 
traded proprietary school. And this is what we found.
    Mr. Guthrie. And do you think that--I mean, obviously, we 
looked at proprietary schools in this GAO. Do you think that 
this type of issues could be at all types of different 
institutions, as well?
    Mr. Scott. Absolutely. The rules apply to all sectors of 
the post-secondary education community. And so, you know, the 
things we found and the recommendations we made to the 
Department of Education would benefit all students across the 
sectors. Although our work was focused on proprietary schools, 
clearly, you know, these vulnerabilities can exist in other 
sectors.
    Mr. Guthrie. Thanks. I appreciate that.
    And then, also, again for Mr. Miller, I was at Sullivan 
University, which is a proprietary school in Louisville, as I 
mentioned, at graduation and noticed and talked to people after 
you noticed the demographics of the student body were more 
reflective of the city of Louisville than some of the other 
schools in the area.
    And it just seemed like--and what I was told or was--and I 
believe it is true, because it was a very--highly regarded 
career college there, proprietary school, is the personal 
attention that they do give to the students. And there were a 
lot of first--because I asked that question, a lot of first-
generation college graduates, nontraditional students getting 
their associates and diplomas and some getting masters', 
actually.
    In your experience, is that how career colleges typically 
operate, with a lot more personal touch, do you think?
    Mr. Miller. Absolutely, Mr. Guthrie. That is one of the 
expectations that a student has coming to our school, and that 
is one of the expectations our schools have.
    They see students as customers, not students as 
supplicants. And the reality is, Mr. Guthrie, that many of 
these students have challenges coming into a career college. 
They may have academic challenges and not have a particularly 
good education. Whether they are ATB, GED or even a high school 
degree, unfortunately, we know a lot of people come out with 
high school legitimate diplomas that are not prepared for post-
secondary education.
    They may have an issue of confidence. They may have an 
issue of family issues, dealing with childcare or dealing with 
a changing work schedule. So our schools put a tremendous 
amount of resources into staff support.
    Let me give you just one interesting piece of data. 
According to Mark Kantrowitz, Dr. Mark Kantrowitz, the head of 
FinAid, he did a study earlier this summer, and he looked at 
what percentage of students at career colleges and the 
community colleges were Pell-eligible. And then he looked at 
the percentage of students who actually received Pell Grants.
    And he found that at community colleges, less than 50 
percent of the students that were Pell-eligible were receiving 
Pell Grants, whereas a career college is 97 percent receiving 
them.
    Now, that is unfortunate for the students to go to 
community colleges, and I don't think it is because community 
colleges don't want their students to receive the federal aid 
which they are entitled to and which this Congress approved. It 
is because often a community college simply doesn't have the 
financial staff to assist an applicant to fill out what we all 
admit is a very complicated application process that I know Mr. 
Shireman and this Congress are trying to simplify.
    But I think that is a perfect example, Mr. Guthrie, of the 
focus on personal attention. The other thing that is important 
is that, when you go to a career college, you are not going to 
grow up. You are not going to learn to drink beer. You are not 
going to root for your football team, the reason that a lot of 
people go to traditional colleges.
    People go to career colleges because they want a career. 
They are very focused. And so from the day you walk into our 
institutions, the institution is structured to support you in 
getting your career, how to write a resume, how to--basic work 
habits, giving you information that is current in the 
employment market, in the career market, so you are being 
trained for what would get you that career. Now, that is what 
our students want, and that is what we provide.
    Mr. Guthrie. Thank you. I yield back.
    Chairman Hinojosa. Thank you.
    At this time, I would like to recognize the gentlewoman 
from Ohio, Congresswoman Fudge.
    Ms. Fudge. Thank you very much, Mr. Chairman. And thank you 
for holding this hearing today.
    I want to thank career colleges and those who have been 
working so hard to make sure that nontraditional students have 
an opportunity for careers, but I do have a couple of concerns.
    One, of course, is that many students, obviously, who take 
the ATB do very well, but many of these students are purposely, 
I think, targeted for failure, based upon the fact that they 
are put in institutions they know they can't finish. I mean, 
they really do know that these students are not prepared to go 
forward.
    So I would just like to know, what, if any, sanctions are 
appropriate for institutions that are found to be fraudulent? 
And if there are none, what should there be?
    Mr. Shireman. I will start on that one. Well, an 
institution that enrolls students and provides them with 
federal financial aid, if those students were not eligible for 
financial aid, that becomes--they have to repay those funds to 
the federal government. If it was purposeful, then we would 
likely refer that to the inspector general, others, and there 
would be possible criminal action in relation to that.
    But if it was carelessness on the part of a college, it 
becomes a liability. Those are the kinds of things that we do 
find in compliance audits and our program reviews of 
institutions. So there are consequences for a school in 
enrolling those kinds of students.
    There is not any minimum level of dropout or graduation 
rate, for example, that is expected of an institution, so there 
is not a penalty, per se, for something like that. However, 
that is one of the risk factors that we look at in identifying 
institutions that should be subjected to a program review.
    Ms. Fudge. So in the instance that Mr. Scott displayed for 
us, what would happen to that institution who purposely was 
violating the rules?
    Mr. Shireman. Right. Well, what we don't know in this 
situation was, was this the individual? Was this the testing 
company? Was this the institution? What was the intent? Who 
made what kinds of instructions to whom? So depending on what 
we or others found about the situation and what the real 
pattern was, that would determine where some liability might 
lie.
    Mr. Miller. Congresswoman, there is the regulatory points, 
which Mr. Shireman made. There is also the accreditation 
process. If a school is nationally accredited, and the national 
accreditors themselves are subject to approval by the U.S. 
Department of Education, most of them do have graduation 
completion rates and placement rates as a criteria for 
maintaining that accreditation.
    And if a school fails to meet those requirements, fails to 
prove to the oversight accrediting body that students are 
graduating at a rate that is set out by the accrediting body, 
and/or is to failing to place students in their chosen career 
field, then they can be put on provisional status by the 
accreditor. And if it is repeated, they will lose their 
accreditation. If they lose their accreditation, Congressman 
Fudge, that means they lose the ability to have their students 
eligible for Title IV funds. So it is a very serious risk they 
run.
    The other point I would make, Congresswoman, is the basic 
place that our schools get their referrals--even though there 
is a lot of talk about marketing and advertising--but if you 
talk to any of our schools, large or small, the basic place 
they get sources of students is referrals, personal referrals.
    And the students who come to the schools almost always talk 
to someone else that they know personally, a relative, a 
friend, an employer that they trust, just the way you decide to 
go to a movie based on what your friends say or you may decide 
to buy a car based on what your friends say. Our students talk 
to somebody else.
    So if you are running a sham school, if you are not really 
providing quality education, then you are not going to be 
getting those referrals. In fact, you are going to be getting 
negative referrals, because people are going to say, ``Don't go 
to that school,'' and you are not going to enroll the student, 
because when the prospective student checks with his friends or 
neighbors or relatives.
    The last point I would make, Congresswoman--and I don't 
think this is fully appreciated--is you are going to be a very 
unsuccessful school financially if you are just churning 
students. The way a school is able to be profitable, grow, have 
money to invest, expand, is by getting students, keeping them, 
graduating them, and making sure that you have a quality 
outcome for the students, because ultimately, if you are just 
turning students over and just churning them over, you are not 
going to have a good reputation, you are not going to be able 
to place your students, you are not going to get the referrals, 
and you are going to be out of business.
    The students are smart. They understand--they shop on the 
Internet. They talk to their friends. They have a lot of 
sources. They have a lot of competition in major cities now. 
Many of our schools are competing with one another.
    So schools that are not playing by the rules, that are not 
turning people out, that are not graduating students, yes, a 
few may get away with it here and there--and that is the job of 
the I.G. to investigate that and the accreditors to investigate 
and the state departments to investigate--but if that were the 
rule, not the exception, these schools would not be growing, 
these schools would not be successful.
    Ms. Fudge. Thank you, Mr. Chairman. I yield back.
    Chairman Hinojosa. Thank you.
    I now call on the gentleman from Minnesota, Congressman 
Kline.
    Mr. Kline. Thank you, Mr. Chairman. Thank you for yielding 
time and for holding this hearing. This is a terrific panel 
that we have. Again, I am always excited when we have a panel 
of real experts, and that is what we have here today, so I want 
to thank the witnesses for your attendance today, for your 
testimony, and for addressing our questions.
    Today, we have--this report--the GAO report is focused 
entirely on proprietary schools, that sector. And, Mr. Scott, 
in response to an earlier question, you indicated that other 
sectors in education accept students through the ATB test 
process, and so they may be subject to some of the same 
problems. Can you tell me--do you know, is the GAO looking at 
the rest of the schools, beyond the proprietary sector?
    Mr. Scott. Mr. Kline, the work that was requested by 
Chairman Hinojosa asked us to focus specifically on proprietary 
schools. So, no, we are not looking more broadly across other 
sectors.
    Mr. Kline. Okay, thank you. That is what I assumed. I just 
want to get it straight here.
    On the fraudulent activity, again, were you able to 
determine--and make sure I have got this clear--that this is 
not pervasive throughout the sector?
    Mr. Scott. As I mentioned earlier, the scope of our work 
was narrowly focused. We visited a few schools in the 
undercover investigation that we conducted, took place at one 
school. So I am not really in a position to say. GAO is not 
really in a position to say whether this is widespread or not.
    As I mentioned, you know, the fact that this has continued, 
you know, despite prior I.G. work and the work of others, does 
cause concern. And so we think, at the end of the day, this is 
really about protecting students, protecting the taxpayers and 
the integrity of our higher education system.
    So it is important for the Department of Education to 
really step up here and improve its oversight of this area.
    Mr. Kline. And look across the board.
    Mr. Scott. And look across all sectors, absolutely.
    Mr. Kline. Right. Okay. Thank you very much.
    Mr. Miller, since we are talking about proprietary schools, 
career colleges, and you are here representing them, just a 
couple of comments and questions. I come from a district where 
I have got every sector represented, I have got some very fine, 
traditional, 4-year colleges located in the same city, which I 
always find interesting, so they have a cross-city rivalry 
there in Northfield, Minnesota. I have got some wonderful 
community colleges. And, of course, we have quite a large 
number of career colleges and across a wide array, some of them 
granting master's degrees and PhDs, and some A.A.s and so 
forth.
    And it seemed to me--and I visited all of them, even walked 
out of my district and visited the giant University of 
Minnesota. It is big enough to be a lot of districts. But it 
seemed to me--I mean, it was pretty clear to me, as I was 
visiting the career colleges, that they seem to be pretty 
nimble in adjusting to the work demands and the need to shift 
careers. And that, I suppose, applies to the name of career 
colleges.
    But as we see the economy in shambles and unemployment 
continuing to rise, there is this demand for a shift in 
careers, a shift in jobs in many places, and the career 
colleges seem to be adjusting to that, and we are picking up 
students for everything from pharmacy assistants to nursing 
and--why do you think that those career schools are able to do 
that, to make that adjustment?
    Mr. Miller. I agree with your assessment, Mr. Kline, and it 
is because we are single purpose. Traditional colleges and 
universities, community colleges serve a whole series of 
missions and functions. They have a lot of different groups 
they have to respond to: trustees, faculty, alumni, all of whom 
are pulling in different directions, lots of fights about what 
kind of programs, they would have, football coaches, sometimes.
    Mr. Kline. You don't have any alumni pulling in any 
direction?
    Mr. Miller. We listen to our alumni, but our number-one 
customer is our student, always. Our number-two customer are 
the employers who hire our students. And that means that every 
single one of our members has a close relationship with the 
employer community in the locality in which that school 
operates.
    And that enables two things, Mr. Kline. Number one, that 
ensures that the school is offering the coursework, the 
textbooks, the technology in the classroom that is current to 
the career opportunities, not teaching computer programming 
courses that were for computer programs that aren't being used 
anymore, and not using nursing technology that are in no 
hospitals today. They teach what is current today.
    And secondly, Mr. Kline, that enables the school to work 
with the employers to make sure that the students have 
internships, externships, and most importantly, a chance to 
actually launch their career, because the employer community 
knows these schools, knows the quality of the students, so you 
have that constant dialogue.
    Today, in Florida, for example, according to the Florida 
Department of Health, 56 percent of all new entrants into the 
allied health field in the state of Florida come from career 
colleges, even though we are only about 12 percent of the 
students in the state of Florida. Well, Florida needs a lot of 
health care workers. It is an older population. They need it. 
And so our schools are ramping up their programs quickly 
because that is what the employment market demands.
    Mr. Kline. And that addresses the issue of how you are 
getting such--what it appeared in my district, that the career 
colleges had a very high success rate in actually placing their 
graduates in jobs. And I think that--I was going to go into 
that, but I think you have covered that there with your answer, 
that it is this close working--focusing on the needs of the 
students and their career aspirations and the employers.
    And I applaud the schools that I visited in your sector for 
doing that and hope that the rest of my very fine schools are 
going to be able to do, as well.
    Thank you, Mr. Chairman. I yield back.
    Chairman Hinojosa. Thank you.
    I now call on the gentleman from the great state of New 
York, Timothy Bishop.
    Mr. Bishop. Thank you, Mr. Chairman. Thank you very much 
for holding this hearing.
    And to the panel, thank you all for your testimony.
    I want to focus on the issue of test administration. My 
understanding is that current regulations require the ATB test 
to be administered independently, but our definition of 
independent is a rather liberal one. That definition would 
allow for on-campus assessment offices to provide the testing.
    Am I correct in that, Mr. Shireman?
    Mr. Shireman. That is my understanding, yes.
    Mr. Bishop. All right. So my question: Mr. Scott, do you 
know if the two examples you cited of the--where there was 
clearly fraudulent behavior taking place--were the testers, 
were they truly independent of the school for which the testing 
was being conducted? Or were they employees of the school, but 
independent of the admissions office?
    Mr. Scott. My understanding from our undercover visit, that 
the independent test administrator was contracted, was under 
contract. It is not clear in terms of, you know, whether they 
were contracted by the test publishers or by the school itself, 
but they were certified, you know, by the test publishers to be 
eligible to administer tests.
    Mr. Bishop. Okay. But eligible based on a rather liberal 
definition of independent, correct?
    Mr. Scott. Consistent with, yes, current rules.
    Mr. Bishop. The House version of the Higher Education Act 
that we passed, whenever that was--a year-and-a-half ago or 
longer--included a provision that, if a school enrolled more 
than 5 percent of its Title IV-eligible population under 
ability to benefit testing, that the test, the ability to 
benefit test, would have to be administered by a truly 
independent entity, that it could not be an employee of the 
school in some other department. And that provision was knocked 
out in conference, so it was not in the final Higher Education 
Act.
    If we were to make such a provision law, do you think that 
might help us deal with at least a part of this problem?
    Mr. Scott. Mr. Bishop, in light of, you know, some of the 
problems we and others have identified, I think that--you know, 
there are clearly opportunities to improve oversight of this 
area.
    I mean, currently, you know, the Department of Education is 
already in a position to take certain steps that we think would 
help address certain vulnerabilities. So, at a minimum, I would 
expect the department to follow through on some of the things 
Mr. Shireman pointed out, in terms of steps it is in the 
process of taking to improve oversight of ATB testing.
    Mr. Bishop. Ms. Mitchelson, do you think that provision 
might help to mitigate this problem somewhat?
    Ms. Mitchelson. It does sound as though it would be a 
provision that would take a step toward integrity, yes.
    Mr. Bishop. Okay, thank you.
    Mr. Shireman?
    Mr. Shireman. Yes. In fact, those are the kinds of things 
that we will discuss in the context of the current rulemaking, 
as well as we are developing the ability for us to know what 
percentage of a school's population is there under an ability 
to benefit test, which will also help in our monitoring, with 
or without any particular rule applied to those institutions.
    Mr. Bishop. Let me go to a somewhat different suggestion. 
Mr. Miller, I mean, and I know that the GAO study focused just 
on proprietaries. I also know that this is an issue for any 
non-selective or open admission school.
    The other way that a student may qualify for Title IV money 
is to earn six credits with a reasonable average and show that 
he or she is capable of post-secondary-level work. Would there 
be any interest in a pilot program for schools to allow a 
student to enroll for six credits at no charge to the student, 
to demonstrate that they can handle post-secondary-level work?
    My thought here is that, unless the population that is--
that would be subject to such a pilot program is too large, I 
mean, there would be no marginal cost to the institution. If 
you are going to enroll 15 students in an entry-level course 
and now you are going to enroll 18, you are not going to add an 
instructor.
    So would there be any interest in trying that as a pilot 
program, to see if students truly are capable of post-
secondary-level work? And that would then allow us to offer 
loans to them once they fully enroll with greater confidence 
that they can succeed, greater confidence that they will repay. 
Any interest in that?
    Mr. Miller. With your usual brilliant insight, Mr. Bishop, 
some of our schools are already trying this.
    Mr. Bishop. Okay.
    Mr. Miller. Whether they----
    Mr. Bishop. See, I have never had an original idea in my 
life, so this is----
    Mr. Miller. Whether they--this is their competitors, of 
course, though, whether they would be willing to allow me to 
anonymize and share it with you, I can talk to them about it. 
But I do know some of our schools have been experimenting in 
this area, because they feel it is best for the students and 
ultimately for the school itself, that they know these school 
students are high risk.
    Actually, Mr. Bishop, what we haven't talked about is the 
fact that some of our schools, candidly, are cutting way back 
on ATB students, and that is a blessing and a curse for our 
society. I mean, it is a blessing, one can argue, because it is 
more likely that you are not going to have fraud and not going 
to have the problems and not going to have the negative 
outcomes that frequently occur with ATB students, even those 
who are legitimately enrolled.
    But for our society, for the purposes that President Obama 
articulated in his speech in February, which many members on 
both sides of this aisle have talked about, the need to have a 
more highly educated workforce and not drop to 12th or 14th in 
the world, where we are today, in terms of post-secondary 
education, when our schools, the schools who try to be open, in 
many cases, are cutting back on ATB because of concerns about 
cohort default rate, because of concerns about 90-10, because 
of concerns about failure to graduate and not meeting their 
accreditation standards, is that good from the societal point 
of view? I would argue, as a citizen, it is not.
    Now, maybe that is what they have to do, as self-interested 
parties, to stay inside the lines that we have all drawn. But I 
will tell you candidly: That is what occurring, that many of 
our schools are beginning to cut back on their ATB population, 
and I am not sure that is good for our society, but that is 
sort of in the box that many of them are finding themselves in.
    Mr. Bishop. Thank you.
    I yield back, Mr. Chairman. Thanks.
    Chairman Hinojosa. Thank you.
    I now call on the gentleman from Colorado, Congressman 
Polis.
    Mr. Polis. Thank you, Mr. Chair.
    A question, you know, for Mr. Scott, two questions, 
actually. In your report, you discuss a number of the factors 
related to higher default rates, including the demographic 
characteristics of the borrowers, their success in school, the 
characteristics of their loans, their repayment options.
    However, it seems that pricing and availability of 
institutional grant aid would also be critical factors and are 
also a critical variable. Despite serving a high share of low-
income students, tuitions and fees at the for-profit 
institutions are among the highest in post-secondary education. 
And given the profitability levels, one would think that they 
could offer significant grant aid to their students. Some do; 
some don't. And an evaluation of their efficacy could be 
valuable.
    So my first question is if you can explain why pricing and 
grant aid were not discussed in your report. Secondly, are 
there any studies that you are aware of that compare default 
rates for students attending proprietary, public, and nonprofit 
institutions that control for student characteristics to allow 
for an apples-to-apples comparison that could shed light on 
issues of quality by comparing the actual default rates over 
time and how they differ between the graduates of public, 
proprietary, and nonprofit institutions?
    Mr. Scott. In response to your first question, the scope of 
our study was really limited to the--in the respect that we 
were asked to look specifically at the cohort default 
differences across, you know, a variety of institutions. We 
were not asked to sort of look at other factors, you know, such 
as institutional based aid that, you know, clearly would play 
some role in that.
    In terms of your second question, our report did contain 
some comparisons of cohort default rates across a number of 
sectors. However, you know, by and large, as we point out in 
our study, the general research that we saw in this area is 
pretty limited, and so we were really constrained to sort of 
looking at the existing research.
    Mr. Polis. Thank you.
    Mr. Shireman, in addition to the surge in demand in 
proprietary schools for federal student loans, proprietary 
schools have the largest proportion of students taking out much 
higher cost private loans and the largest increase in private 
loan borrowing: 42 percent of all proprietary school students 
have private loans. Students attending for-profit schools 
composed about 9 percent of all undergraduates, but 27 percent 
of those with private loans.
    Even more troubling, about two-thirds of the private loans 
borrowers borrowed less than they could have in the Stafford 
Loan program, compared to less than half of private loan 
borrowers.
    As Congress is expanding and making even more safe and 
reliable the federal student aid program, how can we encourage 
students to exhaust every last dollar of the lower cost federal 
aid options before turning to high-cost private loans that 
aren't eligible for the deferment income-based repayment or 
loan forgiveness options that come with federal student loans? 
Do you think that schools should be required to inform 
prospective students of these federal loan measures or the 
default rates?
    Mr. Shireman. We are very concerned about the amount of 
debt that students are taking on, whether that be federal 
student loans, as well as private loans, that do tend to have 
much higher interest rates and lack the kind of consumer 
protections that federal loans have.
    The previous administration did begin a campaign, really, a 
federal aid first effort to make sure that students and 
colleges did more to help students be aware of the availability 
of federal loans. We are noticing in this current economy a lot 
of families had assumed they weren't eligible for federal loans 
and were pleasantly surprised to find out that they were, once 
applying.
    We do think it will help to simplify the FAFSA to make 
that--some of the advertisements for private student loans say, 
you know, easy to apply, easier--you know, no FAFSA required, 
things like that. So getting that complicated FAFSA out of the 
way could help for those who don't take--who aren't using 
federal loans at all.
    I think the toughest question is a question of students who 
for some reason, they do have some federal loans, but they are 
not taking full advantage. And we need to take a closer look at 
what is happening in those situations and whether it is the 
school not having enough information about levels of--potential 
levels of borrowing students could take out, so that is an area 
where we need to get a better handle on what is going on in 
those situations.
    Mr. Scott. I would just second Mr. Shireman's statement 
there. I think the level of student debt across all sectors in 
a post-secondary education world is of concern. And I think the 
area in particular that we should be concerned about is, you 
know, the level of financial literacy among parents and 
students when it comes to, you know, deciding how best to pay 
for college, and in particular in instances where students are 
not, you know, sort of maximizing their federal student aid 
options before going to other non-federal options. And I think 
that is an area where further study is definitely warranted.
    Mr. Polis. Thank you. I yield back.
    Chairman Hinojosa. Thank you.
    At this time, I would like to call on the gentleman from 
Pennsylvania, Congressman Altmire.
    Mr. Altmire. Thank you, Mr. Chairman.
    Ms. Mitchelson, when the GAO did their investigation, they 
sent its staff into a school posing as prospective students and 
intentionally failed ATB exams to test compliance. And I 
wondered, under your umbrella at OIG, is that a technique that 
the OIG uses as part of its work, as well? And what do you 
think about the use of that technique?
    Ms. Mitchelson. Yes, sir. We have used that a number of 
times, and we do--we will continue to use it as appropriate. It 
is a very effective technique to develop an individual case 
against an individual tester, which sometimes then can be 
related back to a school.
    Mr. Altmire. Thank you.
    And, Mr. Miller, similar to that, the CCA uses audit 
tactics such as mystery shopping to ensure that schools are not 
committing fraud in admissions and financial aid. And does your 
evidence from these exercises indicate the same results as the 
GAO investigation?
    Mr. Miller. Unfortunately, once in a while, Mr. Altmire, 
there is a case. And, of course, that summarily leads to firing 
of the employee, whether it is an admissions representative or 
a financial aid officer. Generally, we find these cases rare, 
but any school focusing on compliance--and I hope that is all 
the CCA members, because we have reached compliance all the 
time--has a mystery shopping program.
    The simple reality is that humans are fallible and they 
make mistakes. Obviously, sometimes they are apparently 
intentional mistakes--this is the one Mr. Scott demonstrated 
earlier--sometimes for inadvertent mistakes, that they simply, 
even with all the training, they don't understand. And that is 
why our schools focus so much on compliance, including 
anticipating the situation that a person will either 
intentionally mislead a prospective student or unintentionally, 
but in both cases our schools engage, usually hiring an outside 
firm, often headed by a former law enforcement person, who will 
come in and do mystery shopping to try to make sure that the 
people at ground level, actually talking to the students, are 
telling them the truth.
    Obviously, we do not control directly the testing 
companies, but we support the GAO recommendation that there 
needs to be aggressive oversight of the testing companies for 
the ATB program.
    Mr. Altmire. And, Mr. Miller, also, one of the concerns 
that you highlight--high default rates at CCA institutions, 
especially from inner cities and low-income areas, which you 
have talked about at some length, does the CCA identify 
targeted institutions for specific monitoring or default 
prevention? What is your process there?
    Mr. Miller. The CCA does not do that itself. The 
accrediting agencies do. And as Mr. Shireman said, that is 
often a yellow light that goes on when the department itself is 
deciding whether to do a detailed program review.
    But what we have tried to do, Mr. Altmire, is to come up 
with best practices, to find out from our schools--many of whom 
have very low default rates, Mr. Altmire. We recently had an 
article in our quarterly magazine, we have a welding school 
where the default rate is less than 0.5 percent. And in the GAO 
report, Mr. Scott and his colleagues reported that they found 
many schools in our sector with very low default rates, 
including even a few in inner cities. So, clearly, they are 
doing something different, doing something better.
    And so our purpose at CCA, working in conjunction with Mr. 
Shireman and his colleagues at the Department of Education with 
our default prevention initiative, is to take those best 
practices and make sure they are dispersed widely through our 
association so that our members know what works and what 
doesn't work.
    Mr. Altmire. Thank you.
    And lastly, Mr. Shireman, the GAO report highlights the use 
of invalid high school diplomas to inappropriately gain access 
to financial aid. And as Mr. Scott pointed out, these students 
who are unqualified are at risk of dropping out of school, 
incurring substantial debt, defaulting on their loans.
    And I was wondering what your opinion is on striking the 
balance between having unqualified students who have no 
business being in a higher education setting of any kind versus 
giving an opportunity to troubled kids who have had hard times 
in their life and maybe on the surface might not look like a 
good prospect, but giving them that opportunity that could pay 
off for society in the long run?
    Mr. Shireman. Well, I think it makes sense to provide 
opportunity. It is useful to use something like a placement 
test or an ability to benefit exam so that the students are 
provided with the kind of instruction that meets their needs, 
to increase the likelihood that they will succeed.
    So I think it should be done carefully. And we certainly 
don't want to be, if we know that they are not well prepared, 
throwing them into a program where they are likely not to 
complete, especially if it is a program where they are taking 
on student debts that they are likely not going to be able to 
repay.
    Mr. Altmire. Thank you.
    Thank you, Mr. Chairman. I yield back.
    Chairman Hinojosa. Thank you.
    I would like to at this time call on Congressman Andrews 
from New Jersey.
    Mr. Andrews. Thank you, Mr. Chairman.
    I would like to thank my friend, Mr. Courtney, for letting 
me go out of turn. I appreciate it.
    I thank you for holding this hearing. I think that the work 
that you are doing here, the subcommittee is doing on 
fraudulent administration tests is very important. Test 
integrity is very important. I think there is unanimity among 
the panel members that that is the case.
    I wanted to also talk about the loan default problem. And, 
Mr. Scott, as usual, the GAO has done exemplary work in 
examining this area. Thank you for the excellent report that 
you have written. And I wanted to walk through some of the 
issues in it.
    First of all, does the academic research tend to indicate 
that students who are nontraditional students, which I believe 
is defined as 25 and over, for purposes of this, are more 
likely to be loan defaulters than conventional students?
    Mr. Scott. Mr. Andrews, as I said, based on the limited 
research, we did find a number of characteristics associated 
with higher default rates. I mean, that included, you know, for 
example, you know, being more nontraditional students, family 
income, parental education of the parent. So there are a number 
of factors in that research.
    Mr. Andrews. Was one of those factors also financially 
independent, that students who were financially independent had 
higher instances of default?
    Mr. Scott. I don't recall. I would have to look that up.
    Mr. Andrews. And I think there was also a gender issue, 
that women tend to have higher default rates, as well. The 
reason I raise this question is that, is there any research 
that has been done on the effect of the combination of these 
factors on default rates? In other words, if there are four or 
five indicia which tend to lead toward higher default rates, is 
there any research on what happens when you combine those 
indicia?
    Mr. Scott. Based on the limited studies that we looked at, 
I think there was some research that pointed out that, you 
know, there are a combination of factors. I would have to look 
back--I would have to research to see whether there was some 
regression or some other analysis that looked at all of those 
factors in combination.
    Mr. Andrews. Yes. And I do think I read in your report that 
the proprietary sector has a disproportionately high share of 
students that have some of those indicia of default problems, 
right, so that--if I read this correctly--students over the age 
of 25 make up 56 percent of the student body at the proprietary 
schools, only 35 percent at the publics, and 38 percent at the 
private nonprofits.
    Students at proprietary schools make up 76 percent--or, 
rather, 76 percent of the students at proprietary schools are 
financially independent of their parents, whereas it is only 50 
percent at the publics and 39 percent at the private 
nonprofits. And I think the income data would reflect that, as 
well.
    I think we would be interested in seeing more robust 
research by GAO in this area, for this reason. I think we want 
to be very--certainly, I think there is unanimity that we want 
to discourage student loan defaults. I think everyone here 
agrees to that.
    But I think it is important that we not run the risk of 
mischaracterizing the ownership of a school with the problem of 
student loan default. Would you agree that there is nothing in 
the record that would suggest that the form of ownership of a 
school is a causal factor of the rate of default?
    Mr. Scott. I mean, that is clearly the balance we were 
trying to strike in our report, while pointing out, you know, 
as Mr. Miller and others have stated, I mean, clearly, 
proprietary schools are offering opportunities to students who 
probably otherwise would not have access to post-secondary 
education.
    And so we want to make sure that, you know, we didn't try 
to draw some causal link there between the type of school or 
the sector of school. And we really wanted to see what the 
research said. And the limited research we did look at pointed 
more to student characteristics as being key indicators of 
default rather than type of ownership.
    Mr. Andrews. That is right. So I would just repeat that, 
that because the report seems to indicate that student 
characteristics are more causal in the area of defaults than 
ownership characteristics, I think we would be interested in 
some regression analysis that could be done on those points.
    If you follow, that if we could identify the key factors 
that drive loan default, we could then reduce defaults, by 
focusing on those factors--on the very serious problem.
    The other thing I want to ask you--the data show that, not 
surprisingly, loan defaults climb as students are further away 
from their graduation. So, for example, for the traditional 
private nonprofits, there is a 3 percent default rate after 
the--in the second year, 6.5 percent in the fourth year. In the 
proprietaries, it is 8.6 percent for the second year, 23.3 
percent for the fourth year.
    Is there any evidence that suggests that that jump in 
default is caused by defects in educational quality? Or would 
the evidence suggest that it is caused by other life factors, 
like losing your job or getting sick or going through a family 
crisis? What is the causal relationship there, do we know?
    Mr. Scott. I am not aware of whether the research was able 
to sort of tease out what some of the causal factors are there. 
I mean, clearly, you know, to the extent that as students get 
further away from their education, life intervenes, especially 
when you are looking at populations who are traditionally 
disadvantaged, in some cases, first-generation students. There 
are a number of factors that will affect those students' 
abilities to persist and complete successfully and then go on 
to enter the workforce and be able to obtain----
    Mr. Andrews. I see my time is up, and I appreciate it. I 
would just reiterate, then, if I read the GAO report correctly, 
you are not suggesting there is any research that says that the 
climb in default rates over time is attributable to lack of 
quality education? I am not saying it isn't, but you are not 
saying it is?
    Mr. Scott. Right.
    Mr. Andrews. Okay. Thank you.
    I yield back.
    Chairman Hinojosa. Thank you.
    I certainly want to welcome Congressman Vernon Ehlers from 
Michigan and, if and when you wish to ask questions, I will be 
glad to recognize you.
    At this time, I wish to call on Congressman Courtney from 
Connecticut.
    Mr. Courtney. Thank you, Mr. Chairman.
    I just wanted to follow up on Mr. Bishop's questions 
earlier, where he inquired whether or not there is more that we 
should be doing in terms of tightening up the statutes. I mean, 
the recommendations seem to be focused on administrative 
enforcement.
    And, Mr. Scott, I would just--it sort of was silent on 
whether or not there are statutory changes, you know, that 
would help, in terms of this problem that your report 
identified.
    Mr. Scott. You know, as I stated earlier, I believe that, 
you know, from our perspective, you know, while additional 
statutory changes may be warranted, we believe that the 
Department of Education is already currently in the position to 
take action on its own. And it sounds like from Mr. Shireman's 
statement that they are, in fact, doing that.
    Mr. Courtney. Well, maybe this is kind of a simpleminded 
question, but I guess, in a situation where there is an open-
and-shut case of fraud, which--you know, whether it was by OIG 
or self-reporting by the schools, I mean, is there some 
procedure for referring that to the Department of Justice? I 
mean, is there some criminal sanctions or other sanctions that 
people are exposed to?
    Mr. Scott. Well, in the case that we highlighted here--and 
I would like to, just for the record, thank the Department of 
Education's Office of Inspector General. We work closely with 
them, and we did refer that case to the department's inspector 
general for further investigation.
    Ms. Mitchelson. Yes, sir. We commonly investigate these 
cases of fraud, and we work with the Department of Justice or a 
state prosecutor to bring the prosecution against the 
individuals.
    And I might add to the litany of penalties that were 
addressed earlier, we talked about administrative penalties, 
criminal penalties, could be and could encompass prison time, 
probation, or restitution, and then a third penalty is civil 
fraud. The False Claims Act provides that the individual or the 
institution may be liable to three times the damages of the 
harm they cause the United States, plus an $11,000 penalty for 
each false claim submitted. So those are the three common 
avenues of penalties that we find are levied against those 
individuals and institutions.
    Mr. Courtney. Okay. Well, again, I got here a little late, 
so I apologize if you have already been over this ground 
before. I guess the only other question I just was wondering is 
that is--when people take these tests, I mean, is there some 
warning that is on there that, you know, maybe people should be 
alerted to, that, you know, they have got to do this by the 
book?
    Mr. Shireman. Do you mean in terms of the people who are 
administering them?
    Mr. Courtney. And taking the test. I mean, that--you know, 
that if you, you know, act fraudulently, that you are exposed--
--
    Mr. Shireman. Right, right.
    Mr. Courtney [continuing]. To some penalties.
    Mr. Shireman. I am not aware of anything. I don't know if 
my colleagues here are aware of anything like that that is on 
the actual exam.
    Ms. Mitchelson. I am not aware either, sir.
    Mr. Courtney. Okay. Thank you.
    All right. I would yield to Mr. Bishop.
    Mr. Bishop. Yes, I would just--if the chairman--with your 
indulgence, if I could just pick up. We right now have a 
situation where if a student--if an institution's default rate 
exceeds a certain threshold, they are subject to penalty where 
they would lose eligibility to administer Title IV programs for 
2 years, have to apply for readmissions on it.
    Does such a penalty exist--is it in the menu of penalties 
that could be visited upon a school that engages in the kind of 
fraudulent behavior that Mr. Scott uncovered?
    Mr. Shireman. Certainly, a school that engages in fraud 
could be subject to limitation, termination of their 
eligibility for financial aid at all under our, the Department 
of Education's, responsibility of affirming their ability to 
efficiently and properly administer federal financial aid. So 
we certainly have that authority in these kinds of severe 
cases.
    Mr. Bishop. Has it ever been imposed for the kind of 
situation we are dealing with now, with ability to benefit 
testing being fraudulently administered?
    Ms. Mitchelson. Yes, it has, sir. We commonly work with the 
federal student aid office. When we have a successful 
prosecution against an individual or a school, we will then 
refer that matter to FSA for a debarment proceeding. And we 
have had some experience in ATB fraud cases.
    Mr. Bishop. Okay. Thank you very much. I yield back.
    Thank you, Joe.
    Chairman Hinojosa. I want to be sure that I give Mr. Ehlers 
an opportunity, if he wishes to make a statement or to ask 
questions.
    Mr. Ehlers. Thank you, Mr. Chairman. And I will not ask any 
questions. It has been one of those busy mornings again, but I 
wanted to drop in.
    I do want to make a brief statement. And based on the 
experience I had some years ago when I first got here, we had a 
small college in my district run by people I knew well who were 
working at essentially a substandard wage and a faculty that 
was equally dedicated.
    And they developed programs to try to get students who--
from very limited educational backgrounds--in fact, to get 
parents, as well, interested in higher education, get involved 
in the program, and so forth.
    The school eventually went out of business, primarily 
because the Department of Education was very suspicious of the 
school and felt that they were misusing the student loan 
program, et cetera, et cetera, for their own benefit, and they 
were not, both--and Senator Levin and I argued strenuously that 
these were good people trying to do something good in very bad 
neighborhoods. And we did not prevail.
    So I am just saying that, Mr. Chairman, to let you know, 
there is two sides to some of these stories. And this was a 
case I felt where some really good effort was--based on good 
principles--failed because they didn't fit in the framework of 
law and practice as it was then observed in the Department of 
Defense.
    So we shouldn't automatically assume that someone is trying 
to commit fraud when they are in a very tough situation like 
that. And I am sure you are very sensitive to that, as well.
    So I am not saying go easy. Clearly, I expect you to really 
go after those who have done something wrong, but just make 
sure that it is people who have done something wrong.
    With that, I will yield back. Thank you.
    Chairman Hinojosa. Thank you very much, Congressman. I have 
a great deal of respect for you, and I certainly agree with 
you, that not everybody is bad, not everybody is committing 
fraud, but those who do, I think, should be reprimanded.
    Mr. Ehlers. Yes.
    Chairman Hinojosa. I also want to acknowledge the 
chairman--rather, the member of our committee, John F. Tierney 
from Massachusetts, who arrived. And if you have questions or 
wish to make a statement, please feel free.
    Mr. Tierney. No, I appreciate the opportunity, but I am 
going to let it pass, Mr. Chairman. I am content to just listen 
to the witnesses and read their testimony, as well. Thank you.
    Chairman Hinojosa. Very well.
    If there are no other questions, I would like to give my 
closing statement. I would like to thank our witnesses for 
their testimony, as well as my colleagues on this committee for 
their questions and comments today. This has been a very 
productive and informative hearing.
    I commend the Department of Education for taking initial 
steps to address the GAO recommendations. It is clear that 
Congress needs to provide guidance and oversight in this sector 
of post-secondary education.
    At the state level, the secretary may want to reach out to 
existing federally sponsored entities that have the capacity or 
that they are already involved in collecting student financial 
aid data to join this effort in accordance with regulatory 
guidance or directives of the department.
    The Education and Labor Committee and this administration 
have been working diligently to increase affordability and 
accessibility in higher education. In the past 2 years, we have 
passed landmark legislation to make college more accessible and 
affordable. We have also encouraged states to keep tuition 
costs down so that students can go to college without carrying 
the burden of long-term debt.
    In closing, I want to say that, as we continue to increase 
accessibility and affordability in higher ed, I urge the 
department to act on the GAO's recommendations and to take a 
much more active role in monitoring the practices of for-profit 
colleges and universities. We must do our due diligence to 
protect the interests of our students and their families.
    Without objection, all members will have 14 days to submit 
additional materials or questions for the hearing record.
    With that, I call this meeting and this hearing to adjourn.
    [Whereupon, at 11:43 p.m., the subcommittee was adjourned.]

                                 
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