[Senate Hearing 112-774]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 112-774
 
 BRIDGEPOINT EDUCATION, INC.: A CASE STUDY IN FOR-PROFIT EDUCATION AND 
                               OVERSIGHT

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


                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,

                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING BRIDGEPOINT EDUCATION, INC., FOCUSING ON A CASE STUDY IN FOR-
                     PROFIT EDUCATION AND OVERSIGHT

                               __________

                             MARCH 10, 2011

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions


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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman
BARBARA A. MIKULSKI, Maryland
JEFF BINGAMAN, New Mexico
PATTY MURRAY, Washington
BERNARD SANDERS (I), Vermont
ROBERT P. CASEY, JR., Pennsylvania
KAY R. HAGAN, North Carolina
JEFF MERKLEY, Oregon
AL FRANKEN, Minnesota
MICHAEL F. BENNET, Colorado
SHELDON WHITEHOUSE, Rhode Island
RICHARD BLUMENTHAL, Connecticut

                                     MICHAEL B. ENZI, Wyoming
                                     LAMAR ALEXANDER, Tennessee
                                     RICHARD BURR, North Carolina
                                     JOHNNY ISAKSON, Georgia
                                     RAND PAUL, Kentucky
                                     ORRIN G. HATCH, Utah
                                     JOHN McCAIN, Arizona
                                     PAT ROBERTS, Kansas
                                     LISA MURKOWSKI, Alaska
                                     MARK KIRK, Illinois
                                       
                    Daniel E. Smith, Staff Director
                  Pamela Smith, Deputy Staff Director 
     Frank Macchiarola, Republican Staff Director and Chief Counsel

                                  (ii)




                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                        THURSDAY, MARCH 10, 2011

                                                                   Page

                           Committee Members

Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, 
  opening statement..............................................     6
Hagan, Hon. Kay R., a U.S. Senator from the State of North 
  Carolina, statement............................................    49
Blumenthal, Hon. Richard, a U.S. Senator from the State of 
  Connecticut, statement.........................................    51
Merkley, Hon. Jeff, a U.S. Senator from the State of Oregon, 
  statement......................................................    55
Durbin, Hon. Richard J., a U.S. Senator from the State of 
  Illinois, prepared statement...................................    66

                            Witness--Panel I

Tighe, Kathleen S., Inspector General, U.S. Department of 
  Education, Washington, DC......................................    11
    Prepared statement...........................................    12

                          Witnesses--Panel II

Willems, Arlie, Ph.D., Retired, Iowa Department of Education, 
  Anamosa, IA....................................................    23
    Prepared statement...........................................    25
Manning, Sylvia, President, The Higher Learning Commission, 
  Chicago, IL....................................................    33
    Prepared statement...........................................    34
Cruz, Jose, Vice President for Higher Education Policy and 
  Practice, The Higher Education Trust, Washington, DC...........    39
    Prepared statement...........................................    40

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Why Do Ethics Stories Still Quote CREW's Melanie Sloan?, The 
      New Republic, article......................................     9
    Gregory D. Kutz, Managing Director, Forensics Audits and 
      Special Investigations, GAO, reissued testimony............    70
    GAO redlined summary of revisions............................    91
    GAO memorandum...............................................    97
    Response to questions of Senator Enzi by:
        Kathleen S. Tighe........................................    98
        Sylvia Manning...........................................   101
        Jose Cruz................................................   101

                                 (iii)
  
    Letters:
        William J. Taggart, CEO, U.S. Department of Education's 
          Federal Student Aid (FSA)..............................    10
        Michael D. Bopp, Gibson Dunn, from Daniel E. Smith, Staff 
          Director, Senate HELP Committee........................   102
        William O'Reilly, Jones Day, from the Hon. Tom Harkin....   102
        Duncan Anderson, Education Affiliates, from the Hon. Tom 
          Harkin.................................................   104
        Hon. Lamar Alexander from:
            Louis Gladney, student, Ashford University...........   106
            Amanda Knochel, student, Ashford University..........   107
            Samantha Rhea, student, Ashford University...........   107
        Hon. Michael B. Enzi, from Stehpanie Vallejo, student, 
          Ashford University.....................................   108
        Arne Duncan, Secretary, U.S. Department of Education, 
          from Citizens for Responsibility and Ethics in 
          Washington, (CREW).....................................   109
        Kathleen Tighe, from the Hon. Richard Burr and the Hon. 
          Tom A. Coburn, M.D.....................................   116
        Hon. Tom Harkin and Hon. Mike Enzi, from DicksteinShapiro 
          LLP....................................................   119
        Michael Zuver, student, Westwood College.................   122
        Beth Stein, Esq., Chief Investigative Counsel, Senate 
          HELP Committee, from WilmerHale........................   122
        Andrew S. Clark, CEO, Bridgepoint Education, Inc., from 
          Daniel E. Smith, Staff Director, Senate HELP Committee.   123
        Hon. Tom Harkin, from Andrew Clark, CEO, Bridgepoint 
          Education, Inc.........................................   124
        Daniel E. Smith, Staff Director, Senate HELP Committee, 
          from WilmerHale........................................   125





 BRIDGEPOINT EDUCATION, INC.: A CASE STUDY IN FOR-PROFIT EDUCATION AND 
                               OVERSIGHT

                              ----------                              


                        THURSDAY, MARCH 10, 2011

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m., in 
Room SD-430, Dirksen Senate Office Building, Hon. Tom Harkin, 
chairman of the committee, presiding.
    Present: Senators Harkin, Hagan, Merkley, Blumenthal, Enzi, 
and Isakson.

                  Opening Statement of Senator Harkin

    The Chairman. The Committee on Health, Education, Labor, 
and Pensions will come to order.
    This is the committee's fourth hearing focusing on the 
Federal investment in for-profit higher education companies and 
whether the $26 billion in annual taxpayer money flowing to 
this sector is a good value for students and taxpayers.
    Now I intend to make quite a lengthy opening statement with 
charts, and I certainly will yield whatever time I take to my 
Ranking Member to use whatever time that he would like to take 
also, just so that we are fair in terms of the time.
    We have previously taken a look at the specific aspects of 
this sector, including recruiting practices, placement, 
accreditation issues, student outcomes, and, most recently, the 
for-profit industry's targeting of veterans and GI educational 
benefits. These were in previous hearings.
    Today's hearing is our first opportunity to bring all of 
these pieces together with a case study of a single for-profit 
education company, Bridgepoint Education, Inc. This will give 
us a window into the key elements of the for-profit education 
business model and the implications of that model for students 
and taxpayers.
    Today's hearing will examine not only Bridgepoint, but also 
the regulatory environment that allowed a school of just 300 
students to grow into big business with a student body of 
78,000 students in just 4 years, capturing more than $600 
million in Federal subsidies annually.
    All institutions of higher education that receive Federal 
student aid are regulated by at least three different 
entities--the Federal Government, the State in which the 
institution operates, and an accrediting body recognized by the 
Secretary of Education. Together, these three bodies are 
referred to as ``the triad'' and are collectively tasked with 
ensuring that the schools are meeting basic guarantees of 
academic quality and fiscal soundness and are complying with 
pertinent State and Federal laws.
    With us today are representatives from each of the three 
bodies with responsibility for regulatory oversight of 
Bridgepoint. On our first panel is Kathleen Tighe, the 
Inspector General of the Department of Education. The 
Department of Education enforces basic Federal standards for 
schools that participate in the Federal student aid programs. 
These standards range from prohibitions on paying recruiters on 
a per student basis, to prohibitions on having more than 30 
percent of a school's loan recipients defaulting within 3 years 
of leaving college. The Inspector General's office recently 
found Bridgepoint in violation of several of these rules.
    On our second panel, we will hear from Sylvia Manning, 
executive director of the Higher Learning Commission of the 
North Central Association of Colleges and Schools--HLC, for 
short. HLC is the accreditor of Bridgepoint's two colleges: 
Ashford University and the University of the Rockies.
    Institutions that want to receive Federal student aid must 
be accredited by 1 of 19 organizations recognized by the 
Secretary of Education. Accreditors are private, nonprofit 
organizations of schools that organize peer reviews of 
institutions of higher education conducted by volunteers within 
its membership. The organizations are funded by membership 
fees.
    The role of accreditors is to evaluate the academic quality 
of institutions of higher education. For more than 50 years, 
the Federal Government has relied on the judgment of 
accreditors to ensure that schools eligible for taxpayer 
support meet minimum standards of quality.
    The third part of the triad is State government, which 
provide colleges with the legal authorization to operate within 
their borders. The State authorization role is very clear when 
it comes to public, State-run universities like the University 
of Iowa or Iowa State University. These institutions have 
public boards of trustees, receive large amounts of State 
dollars, and have corresponding State scrutiny.
    However, very few States provide serious scrutiny of for-
profit colleges operating within their borders. Many allow 
these institutions to operate with only a basic business 
license. That, I believe, is a missed opportunity for oversight 
because State regulators have the best knowledge of local 
communities and are closest to the for-profit institutions that 
have a significant impact on citizens.
    We will hear today from Arlie Willems, recently retired 
from the Iowa Department of Education, about her review of the 
Bridgepoint teaching programs.
    Now, for Bridgepoint. Bridgepoint Education, Inc., is run 
by CEO Andrew Clark. I had, of course, invited Mr. Clark here 
today to provide his company an opportunity to be a part of the 
hearing, and I had even moved the hearing date to accommodate 
concerns his company raised. But Mr. Clark decided not to join 
us.
    In 2005, Bridgepoint Education, Inc., a newly formed 
corporation run by at least four executives formerly with the 
University of Phoenix, received seed money from Wall Street 
private equity giant Warburg Pincus. They used the money to 
purchase a regionally accredited but struggling religious 
school, which had already been approved to offer some distance 
learning programs.
    The small, religious, nonprofit school, Mount St. Clare 
College of Clinton, IA, had an enrollment of just 332 students. 
Between 2005 and 2010, Bridgepoint grew its enrollment to 
77,892 students, becoming a behemoth, with 99 percent of 
students taking classes exclusively online.
    This first chart gives you an idea of how this small entity 
grew from nonexistence, sort of like the ``big bang'' theory. 
They didn't exist at this point in time and then, all of a 
sudden, almost 78,000 students.
    Despite this radical reinvention as a giant, for-profit, 
overwhelmingly online institution, Bridgepoint--which I will 
point out is 65 percent owned by Warburg Pincus--prefers to 
market itself as a longstanding, traditional 4-year 
institution. Here is the description they gave to U.S. News and 
World Report.

          ''Founded in 1918, Ashford University is committed to 
        providing accessible, affordable, innovative, high-
        quality degree programs to its campus, online, and 
        accelerated students.''

    This statement is totally misleading.
    Now let me read what they said to their investors. That is 
what they said to their students and prospective students. Here 
is what they said to their investors.

          ''One of the biggest advantages we have enjoyed as an 
        organization has been the fact that we started this 
        company ourselves 6 years ago.''

    Not founded in 1918.

    ``We did not inherit any of the legacy systems that you 
often do as I know when you come into other organizations.'' 
Which one is correct? Talk about duplicity.
    This committee's analysis of records provided by 
Bridgepoint is that for students who enrolled in 2008 and 2009, 
as of September 2010, 84 percent of 2-year students and 63 
percent of 4-year students had already dropped out of school. 
That is what this chart shows.
    This is the 63 percent. This is the bachelor's program. 
Sixty-three percent had withdrawn. And on the associate, the 2-
year program, 84.4 percent had withdrawn. These are students, 
mind you, who signed up in 2008 and 2009, and we wanted to know 
where they were in 2010. Sixty-three percent already gone here. 
Eighty-four percent in the associate's already gone.
    These dismal outcomes should be deeply disturbing to all 
American taxpayers. But remarkably, the withdrawal of nearly 
two-thirds of its students in less than 2 years doesn't seem to 
trouble Bridgepoint's executives in the least. Instead, they 
are basking in the applause of Wall Street for growing the 
company's student enrollment and increasing profits, increasing 
profits, from $81 million in 2009 to $216 million in 2010.
    This is profit. It went from $81 million in 2009 to $216 
million in 2010. In the world of for-profit higher education, 
spectacular business success is possible despite an equally 
spectacular record of student failure.
    This is Bridgepoint's profits in 2007, I am sorry, $3.9 
million in profits. This last year, $216 million in profits in 
just 4 years. In just 4 years, $3 million to $216 million.
    Now here is why Bridgepoint's record is a matter of 
necessary and urgent concern to this committee. Chart 6, in 
2009, this company received 86.5 percent of its revenues 
directly from the Federal Government, including $4.15 million 
in military educational benefits, and not including an 
additional $500,000, almost $500,000 from the State of Iowa.
    So Bridgepoint is a private company, but it is almost 
entirely dependent on public funds. The profits from this 
enterprise go into private pockets, but the losses are borne by 
the public--by students, who leave with a mountain of debt, but 
no degree, and taxpayers, whose investment is often squandered 
through Pell grants.
    Now, to understand how Bridgepoint has been able to grow so 
fast, let us take a look at how it spends the revenue brought 
in from various Federal and State sources. In 2010, Bridgepoint 
retained 30 percent of its revenues as profit--30.3 percent. 
That is, the profit was $216 million, as we saw. The company 
spent another 30 percent on recruiting, marketing. That 
includes advertising, paying for names of prospective students, 
called ``leads,'' paying the salaries of the extensive staff of 
salespeople who are known as ``enrollment advisers.'' 
Enrollment advisers, these are the people that go out and 
recruit these students.
    That left just 40 percent of revenues for spending on 
everything else--instructional expenses, student services, 
faculty salaries, administrative expenses, and, of course, 
executive compensation, which ate up another $36.7 million just 
to the top 5 executives. Let me repeat, $36.7 million of the 
other 40 percent went just to the top 5 executives.
    Meanwhile, students are paying at least $46,000 to $50,000 
for tuition and fees for a 4-year program. As for a comparison, 
at the University of Iowa, it is about $24,500 for those 4 
years. Of course, if you don't actually provide much in the way 
of student services, the actual education piece doesn't cost 
your company very much.
    And this chart, as you can see, while Bridgepoint employs 
1,703 recruitment sales staff--you know, those, what did they 
call them, ``enrollment advisers''--1,703. They have plans, we 
got from their internal documents, to add at least 500 more 
this year.
    Got that? Seventeen hundred and three people to go out and 
get students, but the company employs just one person charged 
with job placement for all 77,892 students. One person.
    Mr. Clark himself told an interviewer, ``We don't provide 
them with job placement. They are using education to further 
their career within the company they are working for.''
    I think this statement would come as a surprise to the many 
students at Bridgepoint who are unemployed or are looking to 
enter a totally new field than the one they are in right now. 
They may be working at McDonald's, and they want to do 
something else.
    So given what we know about the withdrawal rates and the 
lack of quality education services, it shouldn't come as a 
surprise to see what has happened to instructional costs per 
student as Bridge-
point has rapidly grown the student body at Ashford University. 
As you can see, this is a chart that shows what Bridgepoint 
spends on instruction on a per student basis.
    When they purchased Mount St. Clare, run by the nuns, the 
college was spending about $5,000 per student on instruction. 
That went down last year to $700 per student in 2009. In fact, 
internal Bridgepoint documents show that spending on faculty 
costs alone plummeted from $1,133 per student in 2007 to $377 
in 2008, in just 1 year. Their own internal documents, spending 
on faculty alone plummeted from $1,133 per student to $377 per 
student in just 1 year.
    I asked committee staff to compare this to per student 
spending at other Iowa schools. Here are the comparisons with 
the University of Iowa--Bridgepoint is on the left in the 
blue--the University of Iowa, Iowa State, and Kirkwood 
Community College in terms of just showing a perspective on how 
much money is spent by these schools on instruction. So I think 
that sort of kind of speaks for itself.
    As I said, last year, Bridgepoint's top 5 executives took 
home combined compensation of $36.7 million. The CEO alone 
received compensation of $20.5 million in 2009. That is more 
than 20 times the compensation of the president of Harvard 
University.
    And while they were making all this money, mind you, not 
off of making a product that someone is going to sell competing 
with somebody else. Now they are not making software. They are 
not making hardware. They are not making a better pencil or a 
pen or anything else. This is all public money. It is coming 
from the taxpayers directly and from student loans guaranteed 
by the Federal Government.
    And Bridgepoint, while they were making all of this--
Bridgepoint left in its wake tens of thousands of drop-outs 
burdened with a mountain of debt. And so, I guess you could say 
that 86 percent of Mr. Clark's $20 million, $17.4 million, came 
from U.S. taxpayers. I think this is a scam, an absolute scam.
    Data reviewed by this committee paints a picture of a 
company, and perhaps an industry, that is premised on 
aggressively recruiting largely low-income, disadvantaged 
students. Why? That is the best business model because the 
poorer the students you can get, the bigger Pell grant. The 
more in student loans you get, the poorer students you get, 
poorer people you get.
    And these are, many times, kids who got through high school 
with a D average or a C average, but they get recruited 
heavily. And I have other documents to show how recruiters push 
the pain points and how they recruit these students--I spoke 
about this on the floor of the Senate--to get these kids to 
sign up. And they handle all the paperwork. They handle all the 
Pell grants, all the requests for student loans.
    So they aggressively recruit largely low-income, 
disadvantaged students. They collect their Federal grants and 
loans, even as the vast majority, as we have seen, drop out. 
And then, their executives and shareholders get a lot of money, 
get a lot of money.
    We listened in on the last investor call including Warburg 
Pincus and Ashford. Nothing about students and how they are 
doing. Profit, how much profit did they make? And 
congratulating each other on how much profit they made.
    Now I am not against making a profit. But when this is done 
only basically 86 to 90 percent of it from taxpayers' money or 
going after the military--it is both taxpayers' money--and 
disadvantaged students, who then drop out with a mountain of 
debt, I get disturbed. I think we all ought to be disturbed by 
that.
    It is very closely akin to the subprime. A lot of the 
subprime mortgages happened because people were chasing the 
American dream. They wanted a home, and we wanted to promote 
people to have homes, their own homes. But a few very bright 
individuals figured out how to take that and securitize it and 
get derivatives on it and make a ton of money.
    Well, I think the same thing is happening here in the for-
profit industry. For-profit schools in the past have done a 
good job in many ways, in providing good instruction for 
technical schools. Most of them started out as welding schools 
and truck driving schools and secretarial schools and things 
like that. But now, because of the Federal Pell grants and the 
amount of loans, a few bright people have figured out how to 
turn this and how to make it into a huge profit-making 
industry.
    The difference between the subprime and this is at least in 
the subprime mortgage crisis you could walk away from your 
home. You could walk away from it. These students with these 
debts cannot walk away from them. They will be around their 
necks until they pay them off. They won't be able to get other 
loans. They won't be able to get credit ratings, and they can't 
walk away from it.
    So, from a strictly moneymaking perspective, what I have 
described is a highly successful model. But I must say, from an 
educational perspective and from the perspective of public 
moneys and disadvantaged students, from an ethical perspective, 
I think it is a deeply disturbing model.
    I would like to take this opportunity to introduce into the 
record a number of documents provided to the committee by 
Bridgepoint and by Higher Learning Commission that we will be 
using today.
    [The information referred to is retained in committee files 
and may be accessed at http://help.senate.gov.]
    The Chairman. I would also like to take this opportunity to 
enter into the record over 700--here they are. I have over 700 
student complaints, student complaints received by Bridgepoint.
    [The information referred to is retained in committee files 
and may be accessed at http://help.senate.gov.]
    We will hear more about these complaints later in the 
hearing. But let me say they paint a very grim picture of the 
student experience at Ashford University, owned by Bridgepoint.
    Now I have taken a lot of time. As I said, in all fairness, 
I will yield to whatever time my Ranking Member would like to 
have.
    Senator Enzi.

                       Statement of Senator Enzi

    Senator Enzi. Thank you, Mr. Chairman.
    I noted from your first slide that there must be a 
tremendous demand for nontraditional education that they are 
able to pull that many students in. And also, there must be 
some problems with their financial literacy if they are 
spending $50,000 instead of $24,000.
    So I appreciate those points in the information. But 
throughout these hearings, I have been consistently requesting 
that we examine the issues you have identified objectively and 
across all sectors of higher education--issues such as high 
default rates, rising tuition, low graduation rates, poor 
student outcomes. These are problems for nonprofit and for 
public institutions of higher education, and they deserve the 
attention of this committee.
    Unfortunately, my request has been ignored, and the result 
has been three of the most biased and poorly executed hearings 
in my nearly 15 years in the Senate. The highlight of the first 
hearing on June 24 was the inflammatory testimony of a Wall 
Street investor who possessed no expertise in education.
    Many questioned the propriety of his appearing as a 
witness, given his possible financial interest in the for-
profit sector. Since then, documents obtained through the 
Freedom of Information Act requested by the congressional 
watchdog Citizens for Responsibility and Ethics in Washington 
(CREW) have provided credible information that this witness was 
not only attempting to influence Department of Education 
rulemaking but may have improperly received information from 
department officials regarding this rulemaking.
    I ask unanimous consent to submit to the record the 
Citizens for Responsibility and Ethics in Washington's March 1, 
2001, letter to Secretary Duncan.
    The Chairman. Without objection.
    [The information referenced above may be found in 
additional material.]
    Senator Enzi. At the second hearing on August 4, we heard 
testimony regarding a GAO ``secret shopper'' investigation, 
which you requested and pressed for. That testimony was 
ultimately found to contain so many factual errors and 
mischaracterizations that it was substantially revised and 
reissued.
    Since then, the GAO has reassigned the managing director 
responsible for the investigation, reorganized the entire 
Forensic Audit and Special Investigations Unit, and is now the 
subject of a House Oversight and Government Reform Committee 
investigation.
    I ask unanimous consent to submit to the record the revised 
October 4 GAO testimony and redlined summary of the revisions, 
as well as GAO's memo detailing the reorganization of the FSI 
unit.
    The Chairman. Without objection.
    [The information referenced above may be found in 
additional material.]
    Senator Enzi. At the same hearing, we heard testimony from 
a witness who recounted his experience as a recruiter at a for-
profit school. Since then, credible information has been 
provided to both the majority and minority staff that suggests 
this witness may have given false testimony to the committee.
    I ask unanimous consent to submit to the record the 
December 17, 2010, letter from Mark Paoletta regarding the 
testimony of Joshua Pruyn.
    The Chairman. Without objection.
    [The information referenced above may be found in 
additional material.]
    Senator Enzi. Unfortunately, it appears this hearing is no 
different. In a March 1, 2011, letter to Bridgepoint regarding 
their appearance at this hearing, your staff director states 
that,

          ``You should be aware that it would be made clear at 
        the hearing that your failure to appear is based on 
        nothing other than your own apparent unwillingness to 
        testify regarding how a company that receives over 86 
        percent of its revenue from the Federal Government saw 
        a 1-year increase in profit from $81 million to $216 
        million, but also has student withdrawal rates of at 
        least 65 to 75 percent.''

    Notwithstanding my concern that your staff would send such 
a heavy-handed letter on behalf of the committee, it disturbs 
me that the majority would indicate its willingness to 
intentionally mischaracterize a desired witness's legitimate 
reasons for declining an invitation to testify.
    As this letter to your staff from Bridgepoint's attorney 
shows, Bridgepoint had expressed to you in detail its 
reservations about appearing before it had fully responded to 
the Inspector General's audit and while the Department of 
Education's process is ongoing.
    I ask unanimous consent to submit to the record the March 
1, 2011, letter from the HELP Committee majority staff 
director, Daniel Smith, and the March 7, 2011, response from 
Bridgepoint's CEO, Andrew Clark.
    The Chairman. Without objection.
    [The information referenced above may be found in 
additional material.]
    Senator Enzi. Make no mistake, the Inspector General's 
findings trouble me as much as they do you. These are 
potentially serious violations of the law, which need to be 
pursued. However, a process is in place to objectively review 
these matters without interference from Congress.
    This hearing is an agenda-driven rush to judgment. It is a 
cart before the horse, a verdict before the trial. The first 
step in this process is an IG audit, but a final decision by 
the Secretary will not be made until Bridgepoint has had a 
chance to respond to the IG's findings. Bridgepoint is 
currently in the process of responding, and it deserves to do 
so without our interference.
    This process has worked countless times before, and I trust 
that Secretary Duncan will take the appropriate actions. I see 
no reason why we have reached this point. There are many 
problems in higher education that have to be addressed. Most 
exist throughout all sectors of higher education. And yes, many 
are more acute for the for-profit sector.
    Had you come to us at the outset, I am quite certain we 
could have found common ground to address these issues in an 
objective and bipartisan successful way. That tradition of 
bipartisanship and respect for the views of all Senators is 
what has made this one of the most productive committees over 
the past decade. Unfortunately, that tradition has been 
abandoned with these hearings, and I fear we will do lasting 
damage to this committee's ability to conduct credible 
oversight and investigations.
    As I have said repeatedly, I do not condone any 
inappropriate behavior. If a school is improperly using Federal 
money, it needs to be dealt with immediately. However, if these 
problems are systemic, we need to work toward solutions on how 
to address them. Unfortunately, by only focusing these hearings 
on individual examples of a problem in one sector of higher 
education, we have no understanding of the true extent of the 
problem, nor have we heard any constructive solutions for 
solving that problem.
    So I am going to leave to see if I can put the horse in 
front of the cart for a change.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Enzi.
    I have some documents I would like to include in the record 
regarding the CREW allegations against the Department of 
Education.
    [The information referenced above may be found in 
additional material.]
    I would also like to enter into the record a March 4 post 
from The New Republic on the subject of CREW and its executive 
director that looks at this question as well.

                   [The New Republic, March 4, 2011]

        Why Do Ethics Stories Still Quote CREW's Melanie Sloan?

                           (By James Downie)

    Kudos to the New York Times for a well-done investigation, 
published yesterday, on how companies operating in Louisiana are 
donating large amounts of money to Bobby Jindal's wife's charity. Of 
course, that does not immediately prove something unethical has 
actually taken place, but, well, I'll let a quote from the Times piece 
sum it up:

          ``The motives might be good,'' said Melanie Sloan, director 
        of Citizens for Responsibility and Ethics [in Washington], 
        which has also examined public records detailing the operations 
        of Mrs. Jindal's charity. ``But the donations that come in to 
        charities like this are almost always from folks who want 
        something from a politician. It is a troubling phenomenon.''

    Melanie Sloan is exactly right: Even if your motives are well-
intentioned, if the surrounding relationships look unethical, then 
people should be troubled. It reminds me of another news item from last 
November:

          When the executive director of a prominent Washington ethics 
        watchdog group goes to work for a well-known corporate 
        lobbyist, it's bound to raise a few eyebrows.
          But in the case of Melanie Sloan of Citizens for 
        Responsibility and Ethics (CREW), who last week announced she 
        is [leaving CREW and] joining the new firm of lobbyist Lanny 
        Davis, there's another layer of intrigue: Sloan came under fire 
        over the summer for appearing to go to bat for the for-profit 
        schools industry, which is currently a paid lobbying client of 
        Davis. At the time, Sloan and CREW explicitly cited a column 
        Davis wrote defending the for-profit industry. Now, Sloan is 
        going to work for Davis.
          In interviews with Salon, Sloan and Davis both said that the 
        concatenation of events is a pure coincidence . . . ``It was a 
        coincidence'' that CREW cited Davis' column in July, Sloan 
        says. ``This is not any different than anything else CREW does 
        where people automatically ascribe a motive to us--it's not 
        true.'' She argues that there is disturbing evidence that short 
        sellers are pushing the new regulations, adding that ``I'm 
        really comfortable with where we are on this.''

    Sloan eventually reversed course and announced she would stay at 
CREW, but she has continued to lash out at groups advocating against 
for-profit colleges. And since the transparency group does not release 
its donor list, we still do not know exactly why Sloan has decided to 
make for-profit colleges a crusade. Given that the Times story was 
otherwise well-reported, it's a shame that the quoted ethics source has 
undermined herself so thoroughly, and reporters will (or at least 
should) think twice in the future before citing Sloan.

    The Chairman. I also want to introduce into the record 
statements from the GAO regarding its investigation and 
reorganization, especially the statement from GAO,

          ``We were pleased to see that the inspection showed 
        the revised report was fully supportable, and there was 
        no bias or conflict of interest at all involved in the 
        work. We continue to stand by the overall message of 
        our report, and we have no plans to withdraw it.''--
        Statement from the GAO.

    And in fact, the tapes of all of the GAO investigations are 
both on the committee Web site and my own Web site. So I would 
like to introduce those into the record.
    [The information referred to may be accessed from the 
committee Web site at http://help.senate.gov.]
    And a letter from the Chief Operating Officer of the 
Department of Education, dated March 9.

          ``This letter is to confirm that the U.S. Department 
        of Education's Federal Student Aid has no concerns or 
        reservations with representatives of Bridgepoint 
        Education testifying on March 10, 2011. FSA met with 
        counsel for Bridgepoint's Ashford University on March 
        4, 2011, provided them with an opportunity to share 
        information which they considered relevant to the 
        Office of Inspector General audit of Ashford University 
        that FSA is currently resolving. There was nothing in 
        that meeting that FSA believes would have any impact on 
        Bridgepoint's ability to testify.''

    I want to introduce that also into the record.
    [The information referred to follows:]

                              U.S. Department of Education,
                                                     March 9, 2011.
Hon. Tom Harkin, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510-6300.

    Dear Mr. Chairman: This letter is to confirm that the U.S. 
Department of Education's Federal Student Aid (FSA) has no concerns or 
reservations with representatives of Bridgepoint Education, Inc. 
(Bridgepoint) testifying on March 10, 2011.
    FSA met with counsel for Bridgepoint's Ashford University on March 
4, 2011 and provided them with an opportunity to share information 
which they considered relevant to the Office of Inspector General's 
audit of Ashford University that FSA is currently resolving. There was 
nothing in that meeting that FSA believes would have any impact on 
Bridgepoint's ability to testify.
    Please let me know if you have any additional questions.
            Sincerely,
                                        William J. Taggart,
                                     Chief Operating Officer (CEO).

    The Chairman. Now we will start with our witnesses. I 
appreciate your patience and appreciate your being here today. 
And first, we will start with Kathleen Tighe, the Inspector 
General, who was sworn in as Inspector General for the 
Department on March 17, 2010.
    Prior to that, she was Deputy Inspector General at the U.S. 
Department of Agriculture. And from 1995 to 2005, she served as 
counsel to the Inspector General of the GSA and before that as 
assistant counsel for the Office of Inspector General.
    Ms. Tighe has lectured frequently to both Government and 
industry groups. She earned her law degree with honors from 
George Washington University, her master's degree in 
international relations from American University, graduated 
with distinction from Purdue, a member of Phi Beta Kappa.
    So, Ms. Tighe, again, I welcome you. Your statement will be 
made a part of the record in its entirety, and I would ask if 
you could basically sum it up for us in several minutes.

    STATEMENT OF KATHLEEN S. TIGHE, INSPECTOR GENERAL, U.S. 
            DEPARTMENT OF EDUCATION, WASHINGTON, DC

    Ms. Tighe. Thank you, Mr. Chairman.
    Good morning. Good morning, Senator.
    Thank you for inviting me here today to discuss our recent 
audit report on Ashford University's administration of Federal 
student aid for its distance education programs. We chose to 
audit Ashford due to the tremendous growth in the amount of 
Federal student aid it disbursed to its students over the last 
several years and its rapid expansion into distance education.
    I note that in a 5-year period, the title IV funds that 
Ashford received grew from about $3 million to $613 million. 
Our initial objectives were to focus on the types of problems 
we had identified at other institutions that provide distance 
education, such as Federal student aid disbursements and return 
of Federal student aid funds.
    After we began our onsite audit work, though, we decided to 
add to our review Ashford's compliance with the incentive 
compensation safe harbor regulations because of the significant 
increase in the number of Ashford's enrollment advisers, which 
in a 2-year period had increased from about 100 to nearly 
1,000.
    Our audit identified significant deficiencies in Ashford's 
administration of the Federal student aid programs. We first 
found that Ashford had established a highly incentivized 
compensation plan for its enrollment advisers but could not 
demonstrate that it qualified for the regulatory safe harbors. 
Ashford had designed a compensation plan using a complex matrix 
to evaluate its enrollment advisers' performance and related 
salary adjustments, assigning points for factors tied to 
enrollments and other factors based on performance measures.
    Initially, 35 out of 100 possible points were based on 
securing enrollments. In April 2007, Ashford increased the 
points assigned for securing enrollments to 74 points out of 
100. We reviewed Ashford's salary adjustments and found that 
fully 92 percent of the actual salaries did not match the 
amounts they should have under the compensation plan.
    We also found that Ashford's processes for determining 
academically related activity in the distance education 
environment did not meet Federal requirements. Institutions are 
required to ensure that students receiving Federal student aid 
are engaged in academically related activities.
    Ashford considered mere clicks into the learning block of 
its online educational software as equating to academic 
activity. In our own analysis, we looked instead for evidence 
of submissions of homework assignments, participation in 
quizzes, and the like.
    We found that Ashford also disbursed Federal student aid 
for students who were ineligible because the students had not 
yet completed the prior payment period. Seventy-five percent of 
the improper disbursements in our sample were made for students 
who never became eligible. We estimated that the total amount 
of ineligible disbursements Ashford made during the award year 
we looked at to be between $3.7 million and $8.9 million.
    In addition, Ashford's procedures for charging tuition and 
fees and disbursing Federal student aid resulted in credit 
balances on students' accounts. Schools may hold credit 
balances if they follow Federal requirements. We found that 
Ashford violated these requirements by holding credit balances 
for which there were no currently assessed institutional 
charges and by not properly obtaining the students' 
authorization to hold a credit balance.
    Ashford also did not maintain a subsidiary ledger account 
to identify those credit balances it was holding, as required 
by regulation. So we could not readily identify the total 
amount of credit balances Ashford was, in fact, holding.
    When students cease attending an institution, institutions 
are required to follow specific regulations to determine if 
Federal student aid must be returned to the department or to 
the lender. We found that Ashford did not properly calculate 
the amounts it was to return because of a combination of 
factors.
    It did not properly calculate the payment period end date 
for students who did not complete their credits according to 
schedule. It didn't always use the correct last day of 
attendance as the withdrawal date, and it didn't always 
correctly project the applicable tuition charges. For the award 
year we looked at, we estimated that Ashford improperly 
retained about $1.1 million for its students.
    The findings we identified at Ashford and through our 
related audit work, as well as our investigative work, 
highlight the difficulty that all institutions face in 
administering Federal student aid in the distance education 
online environment. The overarching challenge, we believe, in 
this area is adapting to distance education the regulatory and 
oversight environment that is based on traditional semester-
based classroom instruction.
    To help address the challenges facing higher education, my 
office--in the area of distance education, my office recently 
initiated an audit to determine what the department has done 
and can do to help reduce the risks associated with distance 
education at all institutions--public, nonprofit, and for-
profit. We are also compiling a report on the vulnerabilities 
we have identified through our investigative work in the 
distance education area that we will use to recommend program 
enhancements to help mitigate these vulnerabilities.
    That concludes my statement, and I am happy to answer any 
questions.
    [The prepared statement of Ms. Tighe follows:]
                Prepared Statement of Kathleen S. Tighe
                                summary
    Inspector General Kathleen S. Tighe will testify before the U.S. 
Senate Health, Education, Labor, and Pensions Committee on Thursday, 
March 10 on the U.S. Department of Education (Department) Office of 
Inspector General's (OIG) audit of Ashford University's administration 
of the Title IV, Higher Education Act programs, issued on January 21, 
2011.
    Inspector General Tighe will share that Ashford was chosen for 
audit due to the tremendous growth in the amount of Federal student aid 
it disbursed to its students, its rapid expansion into distance 
education, and the significant increase in the number of enrollment 
advisors it employed over a short period of time. She will present the 
findings of the audit, which identified the following deficiencies in 
Ashford's administration of the Federal student aid programs:

     Incentive Compensation--Ashford established a highly 
incentivized compensation plan for its enrollment advisors but could 
not demonstrate that its policies and business practices for 
compensating its enrollment advisors qualified for the regulatory safe 
harbors;
     Student Eligibility for Federal Student Aid--Ashford's 
processes for determining ``academically related activity'' in the 
distance education environment did not meet Federal requirements.
     Federal Student Aid Disbursements--Ashford disbursed 
Federal student aid for students who were ineligible as they had not 
completed coursework to qualify for additional aid disbursements;
     Credit Balances--Ashford held credit balances for 
institutional charges that had not been assessed and also did not 
obtain required student authorizations; and
     Return of Federal Student Aid Program Funds--Ashford did 
not properly calculate the amounts it was to return, and often paid the 
returns late.

    Inspector General Tighe will also update the committee on OIG 
investigative work in the distance education arena and will share with 
them information on other work the OIG is presently conducting 
involving distance education. This includes an audit to determine what 
the Department has done and can do to help reduce the risks associated 
with distance education at all institutions, and a report on the 
vulnerabilities OIG investigative work has identified that will 
recommend program enhancements to help mitigate these vulnerabilities.
                                 ______
                                 
    Chairman Harkin, Ranking Member Enzi, and members of the committee, 
thank you for inviting me here today to discuss the U.S. Department of 
Education (Department) Office of Inspector General's (OIG) recent audit 
report on Ashford University's administration of the Title IV, Higher 
Education Act programs. This is my second appearance before this 
committee since I became the Inspector General last year. It is an 
honor to lead this organization and to have the opportunity to share 
with you our efforts to ensure integrity and efficiency in Federal 
education programs and operations.
    As requested, I will testify today on the findings of our audit 
that sought to determine whether, for its distance education programs, 
Ashford University (Ashford) complied with selected provisions of the 
Higher Education Act of 1965, as amended (HEA). I will also discuss 
more broadly our concerns involving Federal student aid used for 
distance education, an area vulnerable to risk and one in which OIG is 
currently focused on combating fraud and abuse.
    Our audit of Ashford University's distance education programs was 
the fifth audit that my office has conducted involving distance 
education over the last 3 years. The explosion of distance education in 
recent years--at for-profit, non-profit, and public institutions--has 
demanded our audit and investigative attention and the findings of our 
work highlight the need for greater oversight and/or statutory or 
regulatory change. The overarching challenge in this area is adapting 
to distance education the regulatory and oversight environment that is 
based on traditional, semester-based classroom instruction, and in 
particular, determining whether students in distance education are 
``regular students'' as required by the HEA and actually in attendance 
for Federal student aid purposes. I will discuss this in more detail 
throughout this testimony.
               summary of oig audit of ashford university
    The following is a summary of our findings at Ashford and the 
recommendations we made to the Department to address the deficiencies 
identified.
Background
    The institution was established in 1918 as a non-profit, 
residential junior college located in Clinton, IA, originally named 
Mount St. Clare College. In 1979, the institution received approval to 
award baccalaureate degrees, and in 2002, changed its name to The 
Franciscan University. In 2004, the school conferred its first graduate 
degrees and changed its name to The Franciscan University of the 
Prairies. The institution struggled financially due to declining 
enrollment. In 2005, Bridgepoint Education, Inc. (Bridgepoint), a 
publicly traded for-profit corporation headquartered in San Diego, CA, 
purchased the institution and changed its name to Ashford University. 
Ashford experienced immediate, tremendous growth by offering distance 
education programs. This growth coincided with the 2006 elimination of 
the HEA's limitation on distance education. The limitation required 
that 50 percent or more of any schools' students could not be enrolled 
in distance education programs and that a school could not offer more 
than 50 percent of its courses on-line or via distance education. From 
the 2005-6 award year to the 2008-9 award year, recipients of Federal 
student aid enrolled in distance education at Ashford increased from 
about 1,800 to nearly 33,000. For award year 2004-5, Ashford received 
just under $3 million in Federal student aid funds, increasing to $16 
million for 2005-6, and exceeding $81 million for 2006-7. The 
tremendous growth continued, with Ashford receiving approximately $613 
million in Federal student aid funds for the 2009-10 award year.
    We selected Ashford for audit due to the significant amount of 
Federal student aid disbursed to its students and to Ashford's rapid 
expansion into distance education. We consider both to be risk factors 
that could impact an institution's ability to adequately administer the 
Federal student aid programs. Our initial objectives at Ashford were to 
focus on the types of problems we have identified at other institutions 
that provide distance education: (1) student eligibility for Federal 
student aid; (2) Federal student aid disbursements; and (3) return of 
Federal student aid program funds. After we began our onsite audit work 
and gained an understanding of Ashford's business model, we decided to 
also review its compliance with incentive compensation safe harbor 
regulations promulgated by the Department in 2002. We added this 
objective because we identified a significant increase in the number of 
Ashford's enrollment advisors, which in a 2-year period had increased 
from about 100 to nearly 1,000.
Audit Findings
    Our audit identified significant deficiencies in Ashford's 
administration of the Federal student aid programs. Our primary finding 
was that Ashford had established a highly incentivized compensation 
plan for its enrollment advisors but could not demonstrate that its 
policies and business practices for compensating its enrollment 
advisors qualified for the regulatory safe harbors. Our other findings 
identified deficiencies similar to those that we found at other 
distance education institutions we have audited, such as deficiencies 
related to disbursement of Federal student aid funds and return of 
Federal student aid program funds. A summary of our findings at Ashford 
follows.
                         Incentive Compensation
    In 1992, Congress banned incentive payments to school enrollment 
advisors based directly or indirectly upon success in securing student 
enrollments or awarding financial aid. However, in 2002, the Department 
issued regulations that provided 12 exceptions, known as safe harbors, 
that an institution may practice without violating the statutory ban. 
The first safe harbor allows for the payment of fixed compensation as 
long as the compensation is not adjusted up or down more than twice 
during any 12-month period and any adjustment is not based solely on 
the number of students enrolled.
    Our audit found that Ashford had designed a compensation plan using 
a complex matrix to evaluate its enrollment advisors' performance and 
related salary adjustments with the intention of qualifying for the 
first safe harbor. The plan assigned points for eight quantitative 
factors tied to enrollments and 10 qualitative factors based on other 
professional performance measures. Every 6 months, enrollment advisors 
were to be evaluated and assigned points. Initially, 35 out of 100 
possible points were based on securing enrollments. In April 2007, 
points assigned for securing enrollments rose to 74 out of 100. The 
point totals correlated to five different salary ranges within which 
salaries could vary between $9,000 and $34,000.
    We found that Ashford did not adjust salaries based on its 
compensation plan as the plan was explained to us during our audit. For 
the 27 evaluations of enrollment advisors we tested, 92 percent of 
actual salaries did not match the amount we calculated using the 
formula that some Ashford officials stated was used to set salaries 
under the plan (other Ashford officials could not provide an 
explanation of how they determined salaries.) Four of the twenty-seven 
evaluations resulted in salaries outside of the expected salary range.
    In response to a draft of our audit report, Ashford explained that 
it allowed discretion for its managers in adjusting salaries; however, 
Ashford did not explain how the discretion was to be exercised and 
ultimately could not demonstrate why its enrollment advisors received a 
particular salary. As a result, we could not conclude that it qualified 
for the safe harbor its compensation plan was designed to meet.
              student eligibility for federal student aid
    Institutions are required to ensure that students receiving Federal 
student aid are engaged in academically related activities. Ashford 
considered ``clicks'' into the ``Learning Block'' of its on-line 
educational software to support academically related engagement to 
demonstrate attendance. In our analysis, which we based on the 
Department's guidance, we did not consider a mere ``click'' of a link 
on Ashford's Web site or in the ``Learning Block'' to be evidence of 
academic attendance as required by the regulations. For example, a 
student's click on the announcement section of a ``Learning Block'' did 
not reflect academic attendance by the student. We obtained and 
reviewed electronic records for the courses that the students attended 
and used the course records that showed students' academic postings to 
document attendance. We considered a student to have attended if we 
found evidence in the system that the student:

     Responded to an academically related question asked by the 
instructor;
     Contributed to an academically related discussion;
     Submitted a homework assignment; or
     Participated in an on-line quiz.

    Ashford's reliance on clicks rather than on actual academic 
activity to determine student attendance was a contributing factor to 
the findings we identified involving disbursing and returning Federal 
student aid.
                   federal student aid disbursements
    Ashford delivered distance education programs in non-term, credit-
hour programs. For undergraduate programs, the courses were, for the 
most part, offered in three credit modules of 5 weeks in length. For 
non-term, credit-hour programs, an institution must disburse Federal 
student aid based on its payment period. Ashford's payment period 
comprised four 5-week modules that began on the first day of the first 
module and ended on the day that the student successfully completed the 
fourth module or 12 credits.
    Ashford allowed students to take breaks of up to 29 days between 
modules, so payment periods varied by student. Based on our sample, we 
found that Ashford disbursed Federal student aid for students who were 
ineligible, because the students had not yet completed the prior 
payment period. Seventy-five percent of the improper disbursements to 
students in our sample were made to students who never became eligible. 
For the 2006-7 award year, we identified over $89,000 disbursed to 
students in our sample who were not eligible to receive Federal student 
aid and estimated that the total amount of ineligible disbursements 
Ashford made during the award year to be between $3.7 and $8.9 million. 
Although in most cases Ashford identified and corrected improper 
disbursements after they were made, Ashford had use of the funds and 
may have earned interest it was not entitled to.
    Ashford's procedures for charging tuition and fees and disbursing 
Federal student aid resulted in credit balances on student accounts. A 
credit balance occurs when funds disbursed exceed current allowable 
charges. Schools may hold credit balances if they follow regulatory 
requirements. We found that Ashford violated these requirements by 
holding credit balances for which there were no currently assessed 
institutional charges and by not properly obtaining a student's 
authorization to hold a credit balance for funds that normally would be 
promptly paid to the student. Ashford's authorization form did not 
provide the option to have the credit balance paid to the student. If a 
school does not obtain an authorization--or if the student revokes his 
or her prior authorization--the school must pay the credit balance to 
the student within 14 days. Ashford did not maintain a subsidiary 
ledger account to identify credit balances it held for longer than 14 
days, as required by regulation, so we could not readily identify the 
total amount of credit balances Ashford was holding.
              return of federal student aid program funds
    When students cease attending, institutions are required to follow 
specific regulations to determine if Federal student aid must be 
returned to the Department or to the lender, as applicable. The Federal 
Government is harmed when an institution does not return Federal Family 
Education Loan funds to lenders timely because it must pay interest on 
the average unpaid principal to lenders on subsidized student loans 
during in-school status and the grace period prior to entering 
repayment. Borrowers are harmed when an institution improperly retains 
loan funds because borrowers are responsible for any interest that 
accrues on their unsubsidized loan amounts that should have been 
returned to the lenders.
    Ashford did not properly calculate the amounts it was to return 
because it did not (1) revise the payment period end date for students 
who did not complete their credits according to schedule; (2) use the 
correct last date of attendance at an academically related activity as 
the withdrawal date; and (3) correctly project the tuition charges that 
would have been charged to the students if they had completed the 
credits for the payment period. For the 2006-7 award year, we 
identified more than $29,000 in improperly retained funds for the 
students in our sample and estimated that Ashford improperly retained 
at least $1.1 million for all students in the award year.
    Ashford also did not return funds in a timely manner. Institutions 
are required to return unearned funds as soon as possible but no later 
than 45 days after they determine that a student has withdrawn. Of the 
47 returns for students in our sample, 21 (45 percent) were paid late. 
The late payments ranged between 3 and 273 days.
    A contributing factor to some of Ashford's incorrect calculations 
of funds to be returned and late payments was that Ashford did not 
always have documentation to support students' leaves of absence. If a 
student was not attending and was not on an approved leave of absence, 
Ashford was required to treat the student as having withdrawn and to 
determine if funds needed to be returned. Unapproved leaves of absence 
resulted in incorrect determinations of the last date of attendance for 
students who did not return to school, and in many cases, the incorrect 
determination of the last date of attendance resulted in incorrect 
amounts to be returned and contributed to late returns being paid.
Audit Recommendations
    Based on our incentive compensation finding, we recommended that 
the Department require Ashford to provide records of all salary 
adjustments made during our audit period, and take appropriate 
administrative action for all salary adjustments that did not qualify 
for the safe harbor.
    For our other findings, we recommended that Ashford be required to:

     Return Federal student aid funds which Ashford was not 
entitled to retain; and
     Cease drawing, disbursing, and holding credit balances for 
which there are no currently assessed institutional charges.

    We also recommended that the Department consider taking appropriate 
administrative action based on Ashford's improper disbursement and 
return of Federal student aid funds. Ashford officials disagreed with 
all of our findings and recommendations.
    We issued our final report on January 21, 2011. The Department must 
now determine how to address our recommendations. Ashford officials 
have the opportunity to provide additional comments and information 
that they believe may have a bearing on the Department's resolution of 
the audit. The Office of Management and Budget Circular A-50, Audit 
Followup, requires the Department to resolve our audit within 6 months 
after the final audit report was issued.
    I would now like to take a moment to update you on our other work 
involving distance education.
                           distance education
    The findings we have identified through our distance education 
audits and investigative work highlight the difficulty that all 
institutions face in administering Federal student aid in the distance 
education/on-line environment. These difficulties leave Federal student 
aid funds at significant risk of being disbursed to ineligible students 
and that inadequate refunds will be made for students who cease 
attendance in these programs.
    Our investigative work continues to affirm the vulnerability of 
distance education to fraud. Since 2005, we have initiated 100 
investigations of ``fraud rings'' targeting distance education programs 
at public, non-profit, and for-profit schools. Since we first testified 
about this issue in October 2009, our case load in this area has more 
than doubled. We are currently investigating 66 fraud ring cases.
    Our work in this area has revealed that large, loosely affiliated 
groups of criminals seek to exploit distance education programs to 
cause Federal student aid to be paid to them. These groups, which we 
refer to as ``fraud rings,'' typically have one or more ring leaders 
and associates who work to recruit friends, relatives, and other 
acquaintances to enroll into distance education programs for the sole 
purpose of improperly obtaining Federal student aid funds.
    Once someone agrees to collaborate in the scheme, the ring leader 
often completes and submits admission forms, Federal financial aid 
applications, and supporting documentation, often including forgeries 
and false statements of eligibility, such as having a high school 
diploma or GED. The ring leaders sometimes assume the identity of 
scheme participants to access a school's on-line classes in order to 
generate records of the individuals' participation in the classes, 
which causes school officials to authorize financial aid payments. By 
targeting distance education programs, the participants avoid setting 
foot on campus and can exploit institutions outside their geographic 
area.
    These fraud rings mainly target lower-cost institutions because the 
Federal student aid awards are sufficient to satisfy institutional 
charges (such as tuition) and result in disbursement of the balance of 
an award to the student for other educational expenses (such as books, 
room and board, and commuting expenses). Participants in these fraud 
rings, however, have no intention of pursuing a degree or credential 
and have no legitimate educational expenses. Once a disbursement is 
received, a portion is typically kicked back to the ring leader or 
recruiter, who often controls the address or bank account where 
payments are sent.
    Many of these fraud ring investigations have involved dozens of 
participating individuals. In one recently completed case, we obtained 
convictions of 64 participants who fraudulently obtained over $530,000 
in Federal student aid funds. A number of institutions have been 
aggressively engaged in trying to identify fraud in this area and have 
been communicating with our office regarding their findings or 
concerns.
    To help address challenges facing the higher education community in 
the area of distance education, my office recently initiated an audit 
to determine what the Department has done and can do to help reduce the 
risks associated with distance education at all institutions. The 
objectives of this audit are to determine whether the Department: (1) 
adapted Title IV, HEA program requirements and guidance to mitigate the 
unique risks of fraud, waste, and abuse inherent in the distance 
education environment; and (2) adequately revised its monitoring of 
other entities (e.g., accrediting agencies, State agencies, 
institutions of higher education) to provide reasonable assurance of 
those entities' adherence to the requirements for distance education. 
This audit work will look at 2-year and 4-year distance education 
programs at public and non-profit schools, as well as for-profit 
schools. Our audit is just underway and we look to release a final 
report later this year.
    We are also compiling a report for the Department on the 
vulnerabilities that we have identified in our investigative work in 
the distance education area that will recommend program enhancements to 
help mitigate these vulnerabilities. We plan to release this report 
within the next few months.
    In addition, the Department's program integrity regulations that 
will go into effect on July 1 of this year make changes to the 
regulatory framework that we hope will help reduce waste, fraud, and 
abuse in the area of distance education. The changes include a further 
definition of academically related engagement, defining a credit hour, 
calculating refunds in a non-term module system, and expanding the 
definition of misrepresentation. The Department will need to be 
vigilant to ensure the effectiveness of the new regulations and 
determine whether further changes are needed. We will monitor the 
implementation of the Department's new regulations, and will do 
whatever we can to ensure that the new regulations assist in protecting 
our Nation's students, parents, and taxpayers.
    This concludes my remarks on our audit of Ashford University and 
our concerns about Federal student aid funds used for distance 
education. I want to thank you again for inviting me to testify today. 
We look forward to working with this committee and the 112th Congress 
to help improve Federal education programs and operations so they meet 
the needs of America's students and families and ensure tax dollars for 
education are protected from waste, fraud, and abuse. I am happy to 
answer any of your questions.

    The Chairman. Thank you very much. Thank you very much, 
Inspector Tighe.
    Let me first get into this whole issue of safe harbors. 
When you have a regulation called a safe harbor, and as you 
pointed out, the initial legislation in 1992 that was 
instigated by former Senator Sam Nunn at that time, the 
legislation passed the House and Senate that provided you could 
not pay--in the for-profit sector, you couldn't pay recruiters 
a capitation payment. In other words, based on how many 
students they enrolled.
    Ms. Tighe. That is right.
    The Chairman. In 2002, regulations issued by the Department 
of Education--not a law that we passed, but regulations--set up 
12 different kinds of safe harbors, which could be used so that 
if you didn't base all of your compensation on recruitment, 
then you would be in a safe harbor.
    When you have a regulation like a safe harbor, it implies 
it should be pretty easy to comply with. Again, tell us what 
you found in the Bridgepoint audit regarding their executive 
incentive, their incentive compensation. You reviewed the 
school. You said that it set a policy that 74 percent could be 
based on points directly related to securing enrollments.
    But documents produced, revealed later they based more on 
that. So it seems to me 74 percent is a pretty generous policy. 
How can you violate that kind of a policy?
    Ms. Tighe. Well, it was a generous policy. The problem, and 
if they had actually followed their policy, they would have met 
the safe harbor. All they had to do was show that the 
enrollment advisers' compensation was based on something other 
than enrollments. It really isn't a very hard criteria to meet. 
Most schools have met it very readily.
    Ashford, in this case--I mean, it surprised us, I think, as 
much as anyone that the matrix and the compensation plan on 
their face looked like they met the safe harbor. But when we 
went in and tested it, we found that, in fact, the salaries 
didn't match up with the plan at all. So we could not actually 
tell what factors the compensation was based on. So Ashford, in 
the end, could not demonstrate that it met the safe harbor.
    The Chairman. In the student complaints that we have 
reviewed, there are innumerable student complaints about 
mishandled financial aid, students being told to start before 
financial aid came through, and students being unable to 
resolve financial aid concerns as a result of frequent staff 
changes or inability to reach the financial aid staff.
    A number of students complained they had their financial 
aid and/or billing mishandled, often resulting from withdrawals 
that were also mishandled, and usually resulting in thousands 
of dollars of charges. Again, we had over--as I pointed, it is 
over 750 complaints.
    And these are the complaints--these are not just all the 
complaints that someone called in. These are 750 complaints 
that went through the formal grievance process. Probably 
thousands more that just called up and never got anybody.
    One student said she sent,

          ``one email every other day to my financial aid 
        adviser, begging for a response, and didn't receive a 
        response at all. To date, I have not received a call 
        back or email response to any of my inquiries.''

    Another said, ``During my time at Ashford, I have been 
assigned over six different financial services 
representatives.''
    A third said,

          ``My major complaint is the fact that when I was 
        enrolling in classes, I had no problem with someone 
        from the school returning my phone call. Now that I am 
        an existing student, I cannot get anyone to return my 
        phone calls.''

    Again, it has to do with the chart I showed in terms of 
services or the lack of services to students. What consequences 
does this have for the handling of title IV dollars?
    Ms. Tighe. Well, I think it is significant. I think it is 
reflective of what we have seen in schools that grow very 
rapidly. When they grow very rapidly, particularly in the 
distance education area, handling title IV funds becomes a 
challenge.
    And I think that what we have seen in schools, although we 
did not specifically look at it at Ashford, what we have seen 
at other similar institutions is that there is a high turnover. 
They don't hire financial aid administrators who are up on all 
the requirements, and it has implications, I think, for the 
schools and for the students. And I think you end up having the 
same kind of problems we found in this audit.
    The Chairman. Last, I have a chart here. All of the alarm 
bells that the growth at Ashford set off in my mind, when I saw 
this huge growth--I think it set it off for your office. I 
guess then I don't know if that is a reason, but your office 
performed the audit.
    And so, we looked at your audit, but that was conducted, if 
I am not mistaken--you correct me if I am wrong. That audit was 
conducted based on Ashford in 2006, when they had 4,471 
students. And even with all of the findings that you found, 
look where Ashford is now, at 78,000 students. Am I right in 
that, that the audit was really based upon the 4,000?
    Ms. Tighe. That is correct. We looked at the 2006-7 award 
year, and I think there were roughly--so it would include the 
whole time period, 2006 through July 2007. And I think at the 
time we looked at Ashford, there were about 8,500 students, but 
that is nowhere near the 77,000 students there.
    The Chairman. I understand that. My question is, with all 
those findings, what is it like now? We don't really have a 
handle on that, and I guess is the audit process the best tool 
we have to assess for-profit schools' handling of Federal 
financial aid? Do we need a closer snapshot in time as to what 
is going on?
    Ms. Tighe. Yes. I mean, I know there is obviously a lag 
time here between the period of time we looked at and our being 
able to come out with a written audit product. I will say this, 
I think that the issues we found--we are aware specifically 
that Ashford, on a couple of areas, has taken action to fix the 
problem.
    For example, on the credit balances, it developed a new 
form that gave voluntary authorization by the students to 
Ashford to hold the credit balances. It worked with its service 
provider on the timeliness of the returns of title IV funds. 
But there are a lot of other issues that we point out that we 
are not sure they have fixed. And I think that I would be 
concerned that those issues are still ongoing. How are they 
calculating payment periods? How are they calculating the 
dates?
    And I think that, you know, there are a couple of areas 
where I think you can get maybe a more current snapshot. I 
think in the process FSA is going through right now with 
Ashford in the resolution of our audit, FSA could ask Ashford 
to do a file review of the later years, the years past when we 
looked at.
    They themselves could go in and do a program review, based 
on our audit findings, of its current processes and take a look 
at it now. So I think there are a couple of things that can be 
done.
    I know you are aware that Ashford--all the for-profit 
schools have compliance audits that are done every year. Now, 
the compliance audit that will come out this year won't have 
the benefit of our findings. So you will have to wait another 
year for that to happen. But it is an imperfect process, but 
right now, it is sort of what we have.
    The Chairman. You said, ``We recommend''--in your 
statement, you said,

          ``We recommend Ashford be required to return Federal 
        student aid funds which Ashford was not entitled to 
        retain and cease drawing, disbursing, and holding 
        credit balances for which there are no currently 
        assessed institutional charges.''

    Do you have any knowledge of whether or not that has been 
done?
    Ms. Tighe. I do not.
    The Chairman. You don't know that?
    Ms. Tighe. I do not know, but I don't think they have.
    The Chairman. OK. Thank you. Thank you very much, Ms. 
Tighe.
    Senator Isakson.
    Senator Isakson. Ms. Tighe, would you consider your 
position to be somewhat similar to that of a district attorney?
    Ms. Tighe. I think in some cases maybe a little broader, 
because we do more than do criminal investigations. We also do 
audits, but----
    Senator Isakson. Do you make a determination as to whether 
or not there should be an ``indictment,'' I guess?
    Ms. Tighe. I think that would be a little strong in this 
case. I don't see criminal behavior here. I see not handling 
title IV funds very well. But I don't think we give any 
evidence that we would see--we have seen criminal behavior.
    Senator Isakson. And you haven't completed your 
investigation, have you?
    Ms. Tighe. We have completed our audit process, yes.
    Senator Isakson. Have you completed your report back to the 
committee, or has the Department of Education FSA totally 
responded?
    Ms. Tighe. It is up to--our report process is done at this 
point. FSA has the ball in their court.
    Senator Isakson. So it is up to them. But they haven't made 
a decision yet?
    Ms. Tighe. Yes. They have not made a decision, no.
    Senator Isakson. Well, I just want to say that I want to 
associate myself with the remarks of the Ranking Member. I have 
concerns about some of the accusations that are being made, but 
I have deeper concerns about getting into a prosecutorial-type 
environment before a final report has even come back from the 
department.
    I am not criticizing you, but I do think the committee 
needs to have a pretty even balance in terms of these things. 
And some of the presentations, although they may be accurate to 
the extent information is considered, they illustrate things 
that, in fact, don't take in all considerations. I will give 
you one example.
    Senator Kerrey, Bob Kerrey from Nebraska, and I were 
charged in the Clinton administration with what was known as 
the Web-based education commission to investigate the delivery 
of college content over the Internet, which resulted in the 
creation of the eArmyU.
    If you went and looked at numbers today, you would find the 
number of people in 1999 in the military getting distance 
learning was probably zero, and now it is a substantial part of 
the deployment because it became available.
    So I think the growth in enrollment--and I am not--this is 
not a defensive statement. But I think when you talk about Web-
based delivery, the reason the safe harbors were created, Mr. 
Chairman, in terms of the 50/50 rule, the 90/10 rule, and the 
incentive compensation rule was to address the uniqueness of 
Web-based delivery of content for higher education and training 
because all of the old rules were archaic to that type of 
delivery of the system.
    You could have a totally disproportionate number that looks 
horrible, but when you study the facts, you understand this was 
a new delivery system, when developed, that became very popular 
with students. Because the growing number of students in 
America are nontraditional students, not traditional students, 
and that is what most of these type of institutions deliver.
    Again, I am not defending them, but I am saying I do know a 
little bit about those numbers. And you have got to put all of 
the numbers out there if you want to make an appropriate 
comparison.
    The other thing, are you familiar with AES?
    Ms. Tighe. AES? No, I am not.
    Senator Isakson. OK. That stands for Advanced Education 
Service--something like that. Anyway, are you familiar with the 
email traffic that was solicited in a FOIA request from the 
department?
    Ms. Tighe. No, I am not. I am sorry.
    Senator Isakson. Well, I would just suggest, Mr. Chairman, 
without getting into those details, that we should make sure 
before we proceed any further with this that we have a result 
on the FOIA request and the analysis of the emails that were 
received that were transferred between the department and those 
who might financially benefit from the activities of this 
investigation.
    I think it is very important that we make sure that we 
don't get used by somebody on the outside. I am talking about 
``we,'' the committee, somebody on the outside to prosecute a 
case that may or may not have all the evidence in.
    And the last thing I will say is this. I want Bridgepoint 
to come to the hearing, but I want them to come to the hearing 
after everything is on the table. And I think they probably 
made an intelligent decision based on the incomplete nature of 
FSA's determination as to whether or not they should be here.
    I think when that determination is made, that is the point 
in time which they should come and defend themselves, if a 
defense is necessary. And with that, I appreciate your hard 
work, and thank you very much.
    Ms. Tighe. Thank you.
    The Chairman. First of all, I would just reply to my friend 
from Georgia, and he is my friend. I don't think anyone on this 
committee is objecting to Web-based content at all.
    What we are reacting to is the growth in low-quality Web-
based content that is taking a lot of public moneys, having 
huge default rates, and sticking a lot of low-income kids and 
adults with a mountain of debt. That is what I am objecting to. 
This cries out for regulation.
    Ms. Tighe, you said that one of your recommendations was 
cease holding credit balances?
    Ms. Tighe. That is correct.
    The Chairman. Again, our internal documents from Ashford 
show that, as of December 31, 2009--that is the most recent we 
could get--they were holding, are you ready for this, $94.9 
million in credit balances.
    Ms. Tighe. I think their most recent 10-K that was just 
filed has increased that amount to about $130 million.
    The Chairman. That they are sitting on?
    Ms. Tighe. That they are sitting on.
    The Chairman. So I guess you draw interest on that money, 
don't you?
    Ms. Tighe. Yes, you do.
    The Chairman. I mean, this is unconscionable. That is my 
own--just unconscionable, unconscionable.
    Do you have anything else, Ms. Tighe?
    Ms. Tighe. That is it.
    The Chairman. Thank you very much for your testimony and 
your audit.
    Ms. Tighe. Thank you very much.
    The Chairman. Thank you very much.
    We will now move to our second panel.
    On the second panel, as I said, we have Dr. Arlie Willems 
from Anamosa, IA, recently retired from the Iowa Department of 
Education, where she was responsible for State reviews of 
teacher preparation programs. Prior to her work at the 
department, she was a faculty member at two colleges in Iowa, 
where she focused on the preparation of new teachers.
    Earlier in her career, Dr. Willems spent 18 years as a 
classroom teacher and a coordinator for her district's program 
for gifted and talented students. After Dr. Willems, we will 
hear from Dr. Sylvia Manning, president of the accrediting 
agency known as the Higher Learning Commission, HLC, of the 
North Central Association of Colleges and Schools. Dr. Manning 
came to HLC after 8 years as chancellor at the University of 
Illinois at Chicago and previously served for 19 years in 
various capacities at the University of Southern California, 
including chair of the English Department and executive vice 
provost.
    Next we have Dr. Jose Cruz, vice president for higher 
education and policy and practice at the Education Trust, a 
nonpartisan, nonprofit organization here in Washington, DC. Dr. 
Cruz is a former vice president of the University of Puerto 
Rico, where he was responsible for admissions, financial aid, 
and student life programs. He previously served as professor 
and chair of the Electrical and Computer Engineering Department 
and dean of academic affairs at UPR-Mayaguez campus.
    Thank you all for being here. We will start in the order in 
which I presented our panelists.
    We will start with Ms. Willems. Welcome.
    All of your statements will be made a part of the record in 
their entirety, and if you could sum it up in several minutes, 
I would appreciate it.
    Ms. Willems, thank you.

STATEMENT OF ARLIE WILLEMS, Ph.D., RETIRED, IOWA DEPARTMENT OF 
                     EDUCATION, ANAMOSA, IA

    Ms. Willems. Thank you, Senator Harkin. And thank you for 
inviting me here today.
    I recently retired from the Iowa Department of Education, 
where, for 5 years, I was responsible for reviews of teacher 
preparation programs for the purpose of State approval. My 
reasons for testifying before this committee are twofold: my 
concern for the future of our preK-12 teaching force in Iowa 
and nationally and my concern for individuals who have been 
misled by a for-profit university.
    My testimony will give this committee a look into one 
window of one for-profit institution, with an eye toward the 
quality of programming offered by that institution. The 
institution is Ashford University. The window is the teacher 
preparation program.
    The State of Iowa values education and continues to 
implement high standards for the preparation of its teachers. 
To that end, the Iowa review process, outlined on pages 3 and 4 
of my written testimony, is a rigorous process, including a 
self-study by the program, a preliminary review by two groups 
of peers, and a 3-day site visit.
    Although the work of teachers has become eminently more 
complex in recent decades, attempts at streamlining teacher 
preparation have mushroomed. One group of players in this new 
system of teacher preparation, the for-profit institutions of 
higher learning, presents a specific threat to the future of 
our teaching force because of their priorities--bottom-line 
profits over quality.
    I chaired the State review of teacher preparation programs 
at Ashford University in Clinton, IA, during the 2005-6 school 
year. In my first encounter with the president of Ashford on 
July 21, 2005, he explained to me that the university is run 
according to a business model in which the focus is the bottom 
line.
    At the time of the review, Ashford offered a fully approved 
undergraduate teacher education program on the Clinton campus. 
This program earned continuing full approval.
    The program under discussion, the Master of Arts in 
Teaching, the MAT program, was a completely online graduate 
program for initial teaching licensure, but it served students 
across the Nation. This program had been given conditional 
approval by the Iowa State Board of Education on August 12, 
2004. Full approval required a full review, including a site 
visit, which was conducted on April 3-5, 2006, by a seven-
member team.
    The results of the full review, found on pages 5 to 7 of my 
written testimony, indicated 55 items of concern. In 
comparison, the undergraduate program received seven items of 
concern.
    In the MAT, five of the six standards were reported as not 
met in the initial findings and remained not met once the 
Ashford program had been given opportunity to come into 
compliance and had filed its response to the State. The MAT 
program accepted the option of a ``teach-out,'' whereby the 
students in the program were allowed to finish. One hundred of 
the 108 successfully completed and became eligible for Iowa 
licensure.
    In response to a requirement by the State Board of 
Education, 2005 Iowa Teacher of the Year Vicki Goldsmith was 
hired by Ashford to supervise the teach-out. The teach-out was 
completed by July 1, 2007, at which time the program ceased.
    Following the teach-out, Ashford University entered into a 
partnership with Rio Salado College in Maricopa County, AZ. 
Ashford currently offers a bachelor of arts in social science 
with a concentration in education. Courses from this program 
can apply to Rio Salado's online post baccalaureate teacher 
education program.
    Completion of the Rio Salado program can result in an 
Arizona teaching license, which can be transported to other 
States depending on each State's reciprocity or exchange 
policies. An individual who has attained an Arizona license in 
this way does not automatically receive an Iowa license.
    The Iowa Board of Educational Examiners, the State 
licensing board, is just beginning to receive applications from 
Iowans who have taken this route. Such applicants have been 
found lacking in requirements for an Iowa license.
    Since the teach-out, the department and the licensure board 
have received numerous complaints from individuals across the 
country. Time and again, my heart has gone out to Ashford 
students who contacted me, voicing frustration, anger, 
helplessness, and stories of time and money wasted on shattered 
dreams of an education.
    Often, these stories were of mounting debt with nothing to 
show for it, individuals and families who could easily be 
devastated by such debt. Ashford recruiters, paid on a 
commission basis, have led many prospective students to believe 
that the completion of an Ashford online program or the 
combination of the Ashford/Rio Salado programs will result in 
an Iowa teaching license.
    Students relying on this misinformation in good faith have 
found themselves in great debt and have not attained their goal 
of becoming teachers. The problem is that Ashford University, 
unable to meet Iowa's requirements, reconfigured offerings 
within a new partnership and then misrepresented their program 
to prospective students, driven by a business model where the 
bottom line is the bottom line.
    If we believe that education of our children is the key to 
the future of this country, we cannot afford the preparation of 
our teachers to be shortchanged by an unbridled business model. 
The example that Ashford University provides is instructive. I 
respectfully submit that we need to pay attention.
    This concludes my remarks. I am happy to answer questions.
    [The prepared statement of Ms. Willems follows:]
               Prepared Statement of Arlie Willems, Ph.D.
                                summary
    I am Arlie Willems, recently retired from the Iowa Department of 
Education where, for 5 years, I was responsible for State reviews of 
teacher preparation programs for the purpose of State approval. My 
reasons for testifying before this committee are twofold: my concern 
for the future of our PreK-12 teaching force, in Iowa and nationally, 
and my concern for individuals who have been misled by for-profit 
university recruiters. My testimony will give this committee a look 
into one window of one for-profit institution with an eye toward the 
quality of programming offered by that institution. The institution is 
Ashford University. The window is the teacher preparation program, one 
of few programs at any university that is required to undergo thorough 
scrutiny.
    In 2005, Bridgepoint Education purchased a private college in 
Clinton, IA, and developed a for-profit university, Ashford University. 
In my first encounter with the president of Ashford on July 21, 2005, 
he explained the university is run according to a business model in 
which the focus is the ``bottom line.''
    Ashford offers most of their programs completely online. The much 
smaller on-ground portion of the university continues to offer 
programming on the Clinton campus .
    I chaired the State review of teacher preparation programs at 
Ashford University in Clinton, IA, in the spring of 2006, following a 
protocol that enforces rigorous standards. At the time of the visit, 
Ashford offered a fully approved undergraduate teacher education 
program on the Clinton campus; this program earned continuing approval. 
The program under discussion is the Master of Arts in Teaching (MAT) 
program, a completely online graduate program for initial teaching 
licensure. This program had been given conditional approval by the Iowa 
State Board of Education on August 12, 2004; full approval required a 
full review, including a site visit which was conducted April 3-5, 
2006.
    The results of the full review indicated 55 items of concern among 
six standards; five of the six standards were reported as ``not met'' 
in the initial findings and remained ``not met'' once the Ashford 
program had filed its response to the State. The graduate program 
accepted the option of a teach-out, whereby the 108 students in the 
program were allowed to finish the program; most successfully completed 
and earned an Iowa teaching license. In response to a requirement by 
the State Board of Education, 2005 Iowa Teacher of the Year Vicki 
Goldsmith was hired by Ashford to supervise the teach-out. The teach-
out was completed by July 1, 2007, at which time the program ceased.
    Following the teach-out Ashford University entered into a 
partnership with Rio Salado College in Arizona. Ashford currently 
offers a Bachelor of Arts in Social Science with a Concentration in 
Education. Courses from this program can apply to Rio Salado's post-
baccalaureate teacher education program. Completion of the Rio Salado 
program can result in an Arizona teaching license which can be 
transported to other States, depending on each State's reciprocity/
exchange policies.
    Ashford recruiters, paid on a commission basis, have led many 
prospective students to believe that completing an Ashford online 
program or the combination of the Ashford/Rio Salado programs will 
result in an Iowa teaching license. Students relying on this 
misinformation in good faith have found themselves in great debt with 
education degrees that have not allowed them to become teachers. The 
problem is that Ashford University, unable to meet its home State's 
requirements, reconfigured offerings within a new partnership, and then 
misrepresented their program to countless prospective students, all in 
the name of a business model focused on the ``bottom line.'' The 
example that Ashford University provides is instructive. I respectfully 
submit that we need to pay attention.
                                 ______
                                 
                              introduction
    I am Arlie Willems and have recently retired from the Iowa 
Department of Education (Department) where I served for 5 years as 
Administrative Consultant for Practitioner Preparation. In that role I 
was responsible for State reviews of teacher and administrator 
preparation programs for the purpose of State approval. In my 5 years 
at the Department I reviewed 25 of the 32 teacher preparation programs 
in Iowa. I respectfully submit the following testimony to the Senate 
HELP Committee at the request of Senator Harkin in hopes that my 
comments may shed additional light on the issues of for-profit 
institutions of higher education.
                         reasons for testifying
    My primary reason for being here today is my concern for the future 
of our PreK-12 teaching force, in Iowa and nationally. The State of 
Iowa values education and continues to implement high standards and 
rigorous requirements for the preparation of teachers. Iowa understands 
the singular importance of the classroom teacher to student learning 
and the clear research on the necessity of quality preparation in 
providing quality teachers for our K-12 students. With the 
proliferation of for-profit institutions of higher education, this 
quality issue could certainly be extrapolated to the general education 
of our future workforce and leaders.
    Although the work of teachers has become eminently more complex in 
recent decades, attempts at streamlining their preparation have 
mushroomed. While ``traditional'' preparation of teachers faces and 
welcomes increased scrutiny and growing requirements, alternative means 
of moving individuals into the teaching force have been given what 
appears to many educators as carte blanche treatment. One group of 
players in the new system of teacher preparation, the for-profit 
institutions of higher learning, presents a specific threat to the 
future of our teaching force because of their priorities: bottom line 
profits over quality education. My last 5 years have been dedicated to 
ensuring quality teachers for the State of Iowa; my concern is how that 
quality control will continue as an increasing number of teachers are 
prepared by institutions for whom the bottom line and corporate profits 
trump attention to the quality of education received by these future 
teachers.
    My second reason for appearing here today results from numerous 
phone calls and emails that I received from individuals across the 
country when I worked at the Iowa Department of Education. Time and 
again my heart went out to individuals who, seeing my name on the 
Department Web site, contacted me voicing frustration, anger, 
helplessness, and stories of time and money wasted on shattered dreams 
of an education--an education promised by a for-profit institution of 
higher education and a promise unfulfilled by that for-profit 
institution. Often these stories were of mounting debt with nothing to 
show for it, individuals and families who could easily be devastated by 
such debt. Interestingly, in my 5 years at the Department, I received 
no such contacts regarding more traditional institutions of higher 
education, whether public or private.
                                purpose
    My purpose here today is to give you a look into a window of one 
for-profit institution with an eye toward the quality of programming 
offered by that institution. The institution is Ashford University. The 
window is the teacher preparation program, one of few programs at any 
university that is required to undergo thorough scrutiny. That scrutiny 
is for the purpose of State approval in fulfillment of the State's 
responsibility to ensure quality teachers for its K-12 schools.
         iowa system of review of educator preparation program
    In order to ensure quality preparation of teachers and other 
educators, the Iowa Department of Education operates an approval 
process based on continuous improvement. Rigorous requirements outlined 
in ``Chapter 79'' of the Iowa Administrative Code focus on six 
standards similar to those used for national accreditation by the 
National Council for Accreditation of Teacher Education (NCATE). Those 
standards include governance and resources, diversity, faculty, 
assessment (program), curriculum (student assessment), and clinical 
practice. Compliance to the standards is expected and required; 
acknowledgement of excellence and suggestions for further improvement 
are important aspects of the continuous improvement model. State 
approval entitles graduates from these programs to receive Iowa 
licensure upon recommendation of their programs without individual 
review.
    Each of the 32 teacher preparation programs is reviewed in a 7-year 
cycle. Key components of the process include the following:

    1. Dates for a program review are established. Technical assistance 
is available from the Department as a program prepares for its review.
    2. Several months prior to the site review a program submits to the 
Department an Institutional Report, a self-study based on a template 
provided by the Department. During the same time the program submits to 
the Department and to the Board of Educational Examiners (BOEE) 
documents that delineate requirements for each endorsement (area of 
licensure) offered by the program.
    3. The Institutional Report is read and then discussed in a day-
long preliminary review. Participating in the Preliminary Review are 
the State Team and the State Panel; the review is led by the consultant 
for preparation at the Department. The State Team consists of 7 to 15 
trained volunteer practitioner preparation peers and at least one 
current practitioner, usually the Iowa Teacher of the Year. This is the 
team that conducts the site visit. The State Panel consists of nine 
experienced State reviewers who serve as volunteers for a 3-year term; 
each State Panel member attends all preliminary reviews in a given year 
and participates on at least one State team. The use of the State Panel 
and the preliminary review process has proven to be very successful in 
assisting teams and programs as they prepare for a more in-depth site 
visit and in providing consistency in reviews of programs that vary 
greatly in size.
    4. Following the Preliminary Review the program receives a report 
specifying questions and requests for further information, if needed. 
This report provides both the State Team and the program a framework of 
focus for the site visit.
    5. The site visit is conducted by the State Team and led by the 
preparation consultant from the Department. A typical site visit begins 
on a Sunday evening and concludes on the following Thursday morning 
with an exit meeting between the State consultant and representatives 
from the program. The team usually works a minimum of 12-hour days 
(Monday and Tuesday) and concludes its work by mid-afternoon on the 
Wednesday of the visit. All team members, excluding the Department 
consultant, are volunteers who view this experience as both 
professional development and professional dues. Amazingly, to a person, 
these teams end their marathon work having enjoyed the time and the 
professional stimulation.
    Team members are assigned a specific standard; in large program 
reviews more than one team member will review a given standard. Similar 
to a national review, team members review documents provided by the 
program and interview faculty, students, administrators, graduates, 
employers of those graduates, advisory board members, and other 
stakeholders. Team members reviewing the clinical practice standard 
visit sample preK-12 schools where students in the program complete 
their student teaching and pre-student teaching clinical experiences. 
Team members then draft their segments of the Final Report to the 
program. The team as a whole discusses findings and makes the 
determination regarding an initial recommendation: whether or not each 
standard has been met.
    6. Results of the site visit reported for each of the six standards 
fall into one of three categories: met or met with strength; met 
pending conditions; and not met. Any standard receiving a rating of 
``met pending conditions'' must be addressed by the program; the 
conditions of concern must be corrected within a reasonable amount of 
time in order for the program to be recommended to the State Board of 
Education for approval. A rating of ``not met'' for any given standard 
indicates that the conditions of concern are considerable; a program 
may correct such concerns and be recommended for approval within a 
reasonable amount of time. During that time period the Department is in 
communication with the program and provides technical assistance as 
appropriate. Once the Department has received the program's final 
response and has determined that all six standards have been met, the 
program is recommended to the State Board for approval. The State Board 
makes the final decision.
    If a program does not correct the concerns to an acceptable level, 
the program is not recommended for continuous approval. In such an 
instance a program may be given a 1-year conditional approval in order 
to further address issues that the Board determines problematic, or the 
Board may determine that the program will lose State approval. In such 
cases programs are allowed to ``teach out'' those students currently in 
the program with close attention to any serious concerns addressed in 
the report. The use of a ``teach out'' reflects the policy of the 
Department to cause ``no harm'' to students who have begun a program in 
good faith.
                           ashford university
    Ashford University, based in Clinton, IA, is a wholly owned 
subsidiary of Bridgepoint Education, Inc., a holding company located in 
Poway, CA. The school was founded in 1918 by the Sisters of St. Francis 
as a junior college for women and was known as Mount Saint Clare 
College. Baccalaureate degree programs were initiated in 1979; in 2002, 
as the institution added graduate degrees, the name of the school was 
changed to The Franciscan University, later the Franciscan University 
of the Prairies.
    When Bridgepoint purchased the Franciscan University of the 
Prairies, the university included an established, State-approved 
teacher preparation program. At a meeting with representatives from the 
Department and the BOEE on July 21, 2005, the president of Ashford 
University stated that, with the purchase of the university, 
Bridgepoint purchased an approved teacher preparation program. At that 
time he gave the impression to the State education officials that he 
fully expected an automatic continuation of State approval. The 
president also explained to those in attendance that Ashford University 
is run according to a business model in which the focus is on the 
``bottom line.''
    The approval in place at the time was that of a traditional 
undergraduate teacher education program, offered on the grounds of the 
Clinton campus and staffed by a combination of Franciscan sisters and 
experienced lay teacher preparation educators. This program was to be 
continued. Totally separate from the original on-ground undergraduate 
program were a completely online graduate program for initial 
licensure, the Master of Arts in Teaching (MAT), and a teacher intern 
program, the alternative preparation model approved in the State of 
Iowa. These new programs had been conditionally approved on August 12, 
2004, and would require a full review before being fully approved. On 
November 8, 2005, the Department received notice from Ashford 
University that the intern program had been discontinued and students 
in that program would have the option of transferring to the MAT 
program.
                  timeline for the ashford mat program
     August 12, 2004: Conditional approval for three on-line 
programs, including MAT:

          Teacher Intern Program
          Master of Arts in Teaching for Initial Secondary 
        Licensure
          Master of Arts in Teaching for Initial Secondary 
        Licensure, combined with the Teacher Intern Program

     Spring, 2005: Purchase of The Franciscan University (of 
the Prairies) by Bridgepoint Education, Inc., a holding company housed 
in Poway, CA. School renamed Ashford University.
     July 21, 2005: Iowa Department of Education (Department) 
one-day visit to Ashford.
     August 11, 2005: Conditional approval for the above three 
programs with full review to be completed in April 2006.
     November 8, 2005: Notification to the Department of 
Ashford's intention to discontinue the Teacher Intern Program.
     December 7, 2005: Department/BOEE meeting with Ashford 
representatives at Grimes Building.
     February 2, 2006: Preliminary Review followed by report to 
Ashford and submission by Ashford of revised Institutional Report.
     April 3-5, 2006: On-site visit.
     April 19, 2006: Letter to Department stating that Ashford 
is discontinuing new enrollments in the MAT Program; the most recent 
cohort to start the program began January 17, 2006.
     May 24, 2006: Department meeting with Ashford 
representatives at Grimes Building.
     July 14, 2006: Letter from Ashford to Department stating a 
commitment ``to meeting all the standards necessary for a successful 
teach out of the MAT Program.''
     July 27, 2006: State Board approves the Ashford University 
undergraduate practitioner preparation program through the completion 
of the next program approval process.
     July 27, 2006: The State Board granted (1) an extension of 
conditional approval of the MAT Program until April 1, 2007, to allow 
program completion by the cohort of candidates student teaching in the 
fall of 2006 and (2) an extension of conditional approval of the MAT 
Program until the September Board meeting to allow a decision to be 
made at that time regarding the remaining candidates in the MAT 
Program.
     August 29, 2006: Stipulations were specified for the 
Ashford MAT in a letter from the Department to Ashford University 
following the July State Board meeting.
     September 14, 2006: State Board grants extension of 
conditional approval of the MAT program for the limited purpose of 
permitting program completion by the cohort of (approximately 66) 
candidates who are scheduled to student teach in the spring of 2007. 
Conditional approval extends to July 1, 2007, for these candidates to 
accommodate completion of the portfolio course, EDU 698, following 
student teaching.
     July 1, 2007: Ashford MAT Program no longer approved in 
the State of Iowa.
                         report of state review
    The Preliminary Review of the Ashford Program was held on February 
2, 2006. Following review of the Ashford Institutional Report and 
discussion by the State Panel and State Team, a preliminary report was 
sent to Ashford University. A revised Institutional Report was 
subsequently submitted to the Department by the Ashford program.
    The State Team for the Ashford site visit was comprised of the 
following: four faculty members, including two program chairs, from 
approved Iowa teacher preparation programs in private colleges; the 
Administrative Consultant from the Iowa Board of Educational Examiners, 
the teacher licensing entity in Iowa; and the 2005 Iowa Teacher of the 
Year. All team members were trained and experienced reviewers. The team 
was led by the Administrative Consultant for Practitioner Preparation 
at the Iowa Department of Education.
    The Ashford University site visit took place on April 3-5, 2006. 
Per standard practice, the team reviewed documents provided by the 
program and interviewed faculty, students, administrators, and, as 
possible, graduates, employers of graduates, and stakeholders of both 
the undergraduate and graduate programs. At least 10 individuals in 
administrative positions from California were in attendance or were 
interviewed via phone. One key individual was not available for 
interviews: the chair of the teacher preparation program at Ashford 
until a few months following the Bridgepoint acquisition was under a 
confidentiality agreement. The State's request to speak with this 
individual was denied by Ashford University.
    A summary of the final report for the review of the Ashford 
programs is charted below. Both the graduate online program (MAT) and 
the undergraduate on-ground program are represented. The programs were 
reviewed separately, a decision made by the State Team and State Panel 
following the Preliminary Review because it was the judgment of the 
Team and Panel that these were two discrete, uncoordinated and very 
different programs. Later interviews with faculty members of both 
programs confirmed this fact and reinforced the total lack of 
communication, collaboration, and coordination between the two 
programs.


--------------------------------------------------------------------------------------------------------------------------------------------------------
                                    Undergraduate Program                                                          MAT Online Program
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Number of                                                  Number of
             Standard                  Initial Finding      Item to be      Final Finding         Initial Finding      Item to be      Final Finding
                                                            Addressed                                                  Addressed
--------------------------------------------------------------------------------------------------------------------------------------------------------
Governance and Resources..........  Met..................           0   Met..................  Not Met..............          13   Not Met
Diversity.........................  Met Pending                     1   Met..................  Met Pending                     1   Met
                                     Conditions.                                                Conditions.
Faculty...........................  Met..................           0   Met..................  Not Met..............          11   Not Met
Curriculum........................  Met Pending                     3   Met..................  Not Met..............           9   Not Met
                                     Conditions.
Assessment (Program)..............  Met Pending                     3   Met..................  Not Met..............          10   Not Met
                                     Conditions.
Clinical Practice.................  Met..................           0   Met..................  Not Met..............          11   Not Met
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In the standard process programs make needed changes, provide the 
Department evidence of those changes, and then are recommended to the 
State Board for approval. For the Ashford undergraduate program the 
Department received evidence of appropriate changes that allowed the 
designation for all standards to be ``Met.'' Regarding the MAT program, 
the Department received responses to all of the items that required 
attention. In some cases evidence indicated that appropriate changes 
had been made. In most cases, however, the response denied the 
existence of a problem or defended the current practice; in those cases 
no evidence of change was seen.
    The State Team found the Ashford MAT program to be more a 
collection of discrete courses than a cohesive program. The program was 
understaffed for appropriate interaction with students and supervision 
of both courses and clinical experiences, including student teaching. 
Many faculty members lacked appropriate academic background and/or 
experiences for their assigned responsibilities. The team saw no 
evidence of a comprehensive system for assessment of candidates or of 
the program, two critical requirements of the State administrative 
code. The most serious concern noted by the team was the lack of 
responsibility on the part of the program in providing quality clinical 
experiences, the aspect of teacher preparation considered the most 
important by preparation programs in Iowa. Generally, students were 
responsible for finding their own clinical placements; many of these 
resulting placements conflicted with what is considered best practice 
for Iowa preparation. Responsibility for supervision was basically 
relinquished to individuals within those K-12 schools with little 
consistency or quality control.
    Discussions within the Department and with State Team members 
determined that the MAT program did not meet the requirements for 
approval and that a teach-out of the students in the program at that 
time would be recommended to the State Board. This option had been 
discussed with the director of the Department of Education following 
the Preliminary Review. A teach-out was discussed with the Ashford 
Chancellor at the conclusion of the site visit when the team had 
synthesized their findings and determined the existence of significant 
areas of concern. The Chancellor expressed appreciation for that 
option; she, personally, wanted to cause as little harm as possible to 
students in the program.
                   teach-out of ashford mat students
    Following a meeting between Ashford representatives and the 
Department on May 24, 2006, Ashford University requested a teach-out of 
the MAT program, allowing all students in the program the opportunity 
to complete the program and graduate.
    Three stipulations were specified for the teach-out of Ashford MAT 
in a letter from the Department to Ashford University following the 
July State Board meeting. These requirements included the following:

    1. Each candidate shall student teach in an environment with 
appropriate support.
    2. Each student teacher shall have no fewer than six classroom 
observations during the 12 weeks of student teaching.
    3. Ashford shall hire a qualified person to monitor the 
finalization of coursework by candidates as well as student teaching.

    Additionally, specific information required by the Department 
addressed the following: candidate and student teaching information; 
candidate transcript review; online courses; responsibilities and 
training of clinical supervisors and cooperating teachers; 
documentation provided to students; and plans to address problems in 
student teaching.
    A critical requirement was the hiring of an independent 
professional educator to oversee the teach-out. Vicki Goldsmith was 
hired by Ashford on August 9, 2006, as Director of Supervision to 
monitor the final coursework and student teaching of Ashford MAT 
candidates. Ms. Goldsmith, the 2005-6 Iowa Teacher of the Year, is a 
retired English teacher and served as clinical expert on six 
practitioner preparation visit teams during the 2005-6 school year. In 
that capacity she monitored 11 online courses and oversaw the student 
teaching supervision of 108 student teachers. Having monitored threaded 
discussions within the online courses, Ms. Goldsmith reinforced concern 
about the quality of coursework that was initially found by the State 
Team during the onsite visit. Ms. Goldsmith observed student teachers 
who were determined to be having significant problems; at Ashford's 
expense, Ms. Goldsmith traveled to North Carolina, South Carolina, 
Kentucky, Michigan, Colorado, and Georgia as well as several schools in 
Iowa. Ms. Goldsmith recollects that, of the 108 student teachers, eight 
had serious enough problems to discontinue the student teaching 
experience, thus disallowing completion of the program.
    Regarding the student teachers, Ms. Goldsmith stated,

          ``The students in the MAT program were almost all middle-aged 
        people changing careers, people with maturity and life 
        experience, so several of them were competent and could use 
        past experience in their new work. One problem, however, was 
        that since we (the Ashford faculty) had not met any of the 
        students, it was easy for ones with significant problems to get 
        through the program without being noticed. Had we not called 
        attention to the poor quality of some of the courses and the 
        poor performances of some of the student teachers, I am 
        convinced that the ones we pulled from the program would now be 
        licensed. . . . I was relieved that the people we pulled were 
        not licensed from Iowa or in our classrooms.''

    In a recent interview Ms. Goldsmith shared this conclusion,

          ``In the past 5 years I have made 14 State approval visits. I 
        am concerned that the quality of the programs at for-profit 
        schools is inconsistent and not on a level with the other 
        teacher preparation programs.''

    As a personal point of privilege, I must note that my colleagues at 
the BOEE, the Department, and those on the site visit State team agree 
with me on an interesting dichotomy. As we have interacted with a 
number of individuals from Ashford over the years, we have encountered 
a lack of understanding of teaching and teacher preparation, arrogance 
and even blatant rudeness. We have, however, worked effectively with 
several individuals from Ashford who, personally, seem to understand 
teaching and preparation well and exhibit high degrees of 
professionalism.
                  partnership with rio salado college
    Some months after the completion of the Ashford teach-out I 
contacted an Ashford official regarding a student complaint. At that 
time I was told about a partnership that Ashford University had forged 
with Rio Salado College, 1 of 10 colleges in the Maricopa County 
Community College District in Arizona. Education courses from the 
Ashford BA in Social Science with a Concentration in Education apply to 
Rio Salado's post-baccalaureate teacher education program. Once 
students have completed the online Ashford BA and the online Rio Salado 
teacher education program, they are eligible for an Arizona teaching 
license. Such a license can then be transported to another State 
according to each State's reciprocity/exchange policies. This 
partnership could be seen as a creative way to solve a problem in order 
to continue drawing students, or it could be seen as a way to 
circumvent the accountability system for quality in order to continue 
collecting tuition from students.
    An individual who has attained an Arizona license in this way does 
not automatically receive an Iowa license. The BOEE is just beginning 
to receive applications from Iowans who have taken this route. The two 
following examples demonstrate the difference between an Iowa license 
and one attained through the Rio Salado program:

    1. An elementary education applicant for an initial Iowa teaching 
license had completed most of her coursework in an Iowa preparation 
program and then completed the Rio Salado program for an Arizona 
license. When she applied for an Iowa license she still had 
deficiencies; according to a consultant at the BOEE, had she not 
completed the coursework that she did at an Iowa college, the 
deficiencies would have been considerable.
    2. A current applicant for an Iowa license, having completed the 
Rio Salado program and holding an Arizona license, meets the 
requirements in Iowa for only one of the three teaching areas accepted 
in Arizona.

    From these examples one could conclude that an individual 
completing the Ashford BA and the Rio Salado program would still have 
considerable coursework to complete in order to attain an Iowa license.
           contacts with the department with ashford students
    At the time of the teach-out my colleague at the Department Dr. 
Carole Richardson and I received calls and emails from several Ashford 
students who were unhappy with the way they were being treated by the 
Ashford program. Some appeared to have legitimate complaints; some were 
angry that they had not been allowed to complete the program because 
Ashford had determined that they did not demonstrate the skills and 
knowledge necessary to complete student teaching and be licensed. In 
all cases we contacted the Ashford program in order for them to address 
the students' concerns.
    Following the teach-out in 2006-7 Dr. Richardson and I received 
numerous emails and phone calls regarding the Ashford MAT Program. 
Phone logs indicate that, as late as the spring of 2010, my last months 
at the Department, I was still receiving as many as three to six calls 
a month. My colleagues in the BOEE, the State's teacher licensing arm, 
received similar numbers of calls.
    Some calls were simply information-seeking; many were calls of 
frustration by students with stories of incurring loans and no 
resulting job that would enable them to make payments. Contacts with 
the Department have fallen into one of four categories: officials from 
States other than Iowa; potential education students; current non-
education students; and current or recent education students. Licensure 
officials in several States have called to ask whether the Ashford MAT 
is an approved program in Iowa in order for them to determine whether 
or not they will issue a license to an Ashford graduate in their State. 
Potential Ashford students usually have the same question as those 
State officials; some potential students immediately determine to look 
elsewhere and some decide to follow the option of contacting the 
Ashford program to discuss the partnership with Rio Salado College. 
These are the fortunate individuals; they are able to prevent an ill-
fated situation for themselves. At times Ashford non-education students 
call the Department with complaints for lack of anyone else to call, 
voicing complaints that I could only refer to the Iowa College Student 
Aid Commission.
    Common complaints have included such issues as the following: 
inaccurate information, lack of or tardy response from the university 
when students attempt to ask questions or share concerns; financial 
issues of many types; pressure to enroll or purchase text books in 
short timeframes; rudeness; and general lack of helpfulness. One 
student summed up her experience in the comment, ``That school has been 
a nightmare.''
    Calls from current or former Ashford education students may have 
included any of the above complaints, but more often these complaints 
addressed misinformation received from Ashford recruiters. As a result 
of the 2006 State review of Ashford University, the only Ashford 
program that results in qualification for an Iowa teaching license is 
the on-ground undergraduate program. Recruiters for Ashford University 
have provided misinformation to numerous individuals regarding the 
ability to attain an Iowa teaching license through online course at 
Ashford. Specifically, the following examples are representative:

    1. Individuals from Iowa and many other States who had completed 
Ashford's online Bachelor of Arts in Social Science with a 
Concentration in Education. These individuals had been led to believe 
that, upon completion of this program, they would be eligible for a 
license in their home State because Ashford has a State-approved 
teacher education program (the on-ground undergraduate program).
    2. Individuals who were students or graduates of the Ashford online 
baccalaureate program, but were not aware of the need to complete the 
Rio Salado program as well in order to receive an Arizona license. 
These individuals were not even aware of the Rio Salado partnership.
    3. Ashford students who were intending to complete student teaching 
through Rio Salado College and believed they would then automatically 
be eligible for an Iowa teaching license.
    4. Students who were completing an online degree through Ashford in 
early childhood and believed that this degree would lead to an Iowa 
teaching license. It does not.

    The basic problem is the misinformation provided to potential 
students by recruiters who, according to conversations with an Ashford 
official, are paid on a commission basis. The height of ignorance and/
or arrogance was evident when the Department received a phone call from 
one of the recruiters to chastise us for telling a potential student 
that the Ashford program was not approved in the State of Iowa.
    A concern that my colleagues and I have discussed repeatedly over 
time is the question of how many other students have similar 
complaints, but have not voiced them to us--or to anyone else. We are 
concerned that we have heard from just the ``tip of the ice berg.''
    This overriding concern regarding misinformation continues. As the 
Department and the BOEE have shared student stories with Ashford and 
have referred students to the Dean and Chancellor over the years, 
Ashford has made changes in their Web site that reflect more accurate 
information about licensure. One could argue, however, that the 
advertising, both on the Web site and in the media, regarding the goal 
of becoming a teacher via Ashford are much more visible than the single 
statement within a paragraph in smaller print that explains the 
limitations of licensing for graduates from this program. According to 
Administrative Consultant Susan Fischer and other BOEE officials, the 
BOEE currently receives up to a dozen calls a month regarding Ashford's 
online program.
                            closing comments
    When the bottom line dominates the decisionmaking process for 
educational programming, businesses providing the ``service'' of 
education will continue to circumvent a system that protects college 
students and potential college students. More importantly--for those of 
us focused on K-12 education--such shortcuts in preparing teachers, if 
allowed to continue and grow, will result in inadequately prepared 
teachers in our Nation's future classrooms.
    Conscientious educators understand that changes need to be made in 
many of our K-12 classroom as well as in the preparation of our 
teachers. Conscientious educators understand that innovation and 
technology must be part of these changes. But change for the sake of 
change, change that fails to look to the future for unintended 
consequences, is not true innovation.
    If we believe that the education of our children is the key to the 
future of this country, we cannot afford the preparation of our 
teachers to be short-changed by businesses for whom the bottom line is 
the ``bottom line.'' An unbridled business model in education will lead 
to disaster for education in the United States.
    The example that Ashford University provides is instructive. I 
respectfully submit that we pay attention.

    The Chairman. Thank you very much, Ms. Willems.
    And now we will turn to Ms. Manning, Dr. Manning.

  STATEMENT OF SYLVIA MANNING, PRESIDENT, THE HIGHER LEARNING 
                    COMMISSION, CHICAGO, IL

    Ms. Manning. Senator Harkin, thank you for the opportunity 
to speak to you this morning on the issues that are before you. 
I believe they are very important.
    We accredit, of our 19 States, approximately 1,000 
institutions, approximately 40 of which are for-profit. I have 
two messages I would like to give you today. One is that 
accreditation does add real value within our assigned role.
    The second is that our agency got a bit behind the curve 
when two things came together. One was the entry of large 
private equity funds into higher education and the other, the 
development of distance education into a modality that was 
really user-friendly and would work.
    We were behind the curve. We had catch-up to do. We have 
done a lot of catch-up. That is my main message. There is still 
work ahead of us.
    Let me elaborate a little bit on both those points. 
Accreditation, deep in its DNA, is about continuous 
improvement. It is about taking institutions beyond minimum 
requirements, and that, I believe, is the distinction between 
accreditation and regulation. We don't believe that minimum is 
good enough for America or America's higher education, and we 
press institutions to go further.
    We have been doing this for about 100 years. About 60 years 
ago, Congress, looking to ensure that GI bill funds went to a 
bona fide education, assigned to accreditation the role of 
assuring the academic quality. But it assigned only academic 
quality to accreditation. It quite explicitly left the 
financial and administrative capacity of institutions, along 
with the integrity of that process--fraud and abuse and those 
issues--to the forerunners of the Secretary of Education.
    That separation of roles made sense then, and I believe it 
still does today. We have the expertise to look at academic 
quality, but we do not have the authority or the tools, and 
shouldn't, to look at cases of fraud or abuse or the 
administration of Federal funds.
    The story about Bridgepoint happened in 2005. I came to the 
commission in July 2008. In all fairness to my predecessors, I 
don't think they were able to foresee what would happen. When I 
got there in 2008, it was quite possible to see what had 
happened, and it was possible to see that because this thing 
was a new phenomenon on the face of the Earth, we did not have 
the policy framework and we did not have the procedures to deal 
with it adequately.
    And so, we set about changing those policies and changing 
our procedures. We have done a fair amount. We have made five 
major policy changes. What happened in 2005 and then culminated 
in growth by 2009 simply could not happen today.
    Just as a quick example of a couple of things, we have 
immensely tightened our oversight of distance education. And we 
have changed our process so that it is no longer a staff member 
who can approve this sort of change of control. This sort of 
change of ownership can only be approved by our board of 
trustees. And two cases in point, in 2010, we had two such 
institutional acquisitions come before us, and the board turned 
down both of them.
    In addition to the five policy changes, we have made a good 
10 initiatives to improve and tighten our standards and 
procedures. These include six additional standards that have 
just been proposed on transparency. I deeply believe that a lot 
of the problems you hear about come from a failure of 
transparency on the part of institutions. We have become very 
explicit about what we expect of them, and we will be able to 
enforce those explicit regulations.
    We have a new focus on student persistence and completion. 
We have increased our oversight of institutions that are new to 
us or that have undergone a change of ownership or that are 
rapidly growing. And I think perhaps most important in some 
extent, we are developing a capacity to survey students on the 
Internet. We will not have to rely on the happenstance of 
student complaints or the students a visiting team can manage 
to round up on campus. We will be using the Internet to survey 
them and to increase our awareness of the student experience 
from the student's point of view.
    I think, at the end of the day, everything we are about is 
the students. When we want quality for the institutions, we 
want quality for the students. It is our determined effort to 
do what we can to do our role as best we can.
    That concludes my testimony, and I am, of course, prepared 
to answer questions.
    [The prepared statement of Ms. Manning follows:]
                  Prepared Statement of Sylvia Manning
                                summary
    Accreditation is based on the belief that institutions that serve 
the public require rigorous review by professionals who know and care. 
In the 1950s, when Congress assigned to accreditation--already in 
existence by then for a half century--the role of ensuring that GI bill 
funds went to bona fide higher education, it assigned that role and 
only that role. Congress charged the forerunners of the Secretary of 
Education with ensuring that the institutions' administrative and 
financial capacity to manage Federal funds, including administrative 
and financial integrity. Those separate roles remain. Accreditation 
brings to the assessment of academic quality high levels of 
professional experience and current knowledge from thousands of 
volunteers in the field and members of the public.
    Regional accreditation has been challenged by the emergence of 
large, for-profit and mostly online universities. During most of the 
past decade, as this emergence was happening big and fast, we did not 
have the policies and procedures to deal with the changes as well as we 
needed to. We have now put those policies and procedures in place.
    These are five of these changes: (1) It is no longer possible to 
purchase an accredited institution for the sole purpose of acquiring 
its accreditation. Proposed purchases are scrutinized for continuity in 
the institution (no transformations) and if approved may have many 
restrictions applied. Decisions that once were made by staff can only 
be made now by the full Board of Trustees. This has had a huge effect: 
in 2010 we turned down two such proposals. (2) Institutions can no 
longer locate in a region just because they think that accreditation 
will be easier there--we have tightened our jurisdictional 
requirements. (3) Initial accreditation, never easy, is tougher, 
requiring a minimum of 2 years in candidate status. (4) We scrutinize 
major changes at institutions much more thoroughly, including growth in 
distance education. (5) We increased our capacity to consult legal and 
financial experts, especially on purchases or initial accreditation 
cases.
    We are implementing other changes as well, including a number of 
new standards just published last week as our proposed revised Criteria 
for accreditation. Six are requirements for greater transparency: (1) 
Institutions must disclose publicly full descriptions of their program 
requirements; (2) Students must be told whether an institution as a 
whole is accredited and whether its programs have professional 
accreditation, especially in licensed fields; (3) Institutions must 
make public not only their transfer policies but also how credit is 
applied to degree requirements; (4) Institutions must make public full 
and clear information on all costs and their refund policies; (5) 
Institutions must publicly disclose the names and credentials of their 
faculty; (6) Institutions must post telephone numbers through which 
students can reach them directly. Four more in the works strengthen the 
process: (1) Institutions are required to focus on keeping and 
graduating students; (2) We will be doing Internet-based surveys of 
students; (3) Institutions new to us, merged or purchased will be on a 
tighter, 5-year review cycle; (4) We are looking to give the public 
more information about schools in ways that people care about and can 
use.
    Higher education is changing rapidly. We are recognizing these 
changes and acting on them. That is how we can help institutions serve 
students well.
                                 ______
                                 
    Chairman Harkin, Ranking Member Enzi, members of the committee, 
thank you for this opportunity to address the important issues before 
you today.
    My name is Sylvia Manning, and I am president of the Higher 
Learning Commission of the North Central Association of Colleges and 
Schools. We are the regional accreditor for 19 States referred to as 
North Central.
    The administration, the Congress and the American people are 
increasingly concerned about the oversight of our Nation's institutions 
of higher education. Students, their parents and taxpayers all deserve 
real value for their investment of time and money as they pursue the 
American Dream of college education. At the Higher Learning Commission, 
we strive to fulfill our responsibilities to all these stakeholders.
    Before I go further, let me set forth three of the underlying 
premises that inform our work.

     We believe the higher education enterprise as a whole 
faces significant challenges: problems of access, cost, consumer 
information and students' completion of programs.
     We believe that standards of quality must be met and 
continuously improved. An organization is either improving its quality 
or losing it.
     We believe that accreditation is part of the solution, but 
by no means the entire solution.

    Let's start with the big picture. Accreditation is based on the 
belief that institutions and occupations that serve the public require 
rigorous review by professionals who know and care. More than 100 years 
ago, colleges created associations to set a common standard for college 
education. With time, more elaborate criteria evolved, all with the 
purpose of improving colleges. In the 1950s, Congress sought to ensure 
that GI bill funds went to a bona fide college education. Because 
Congress did not want an all-powerful European-model ministry of 
education dictating to every college, it instead entrusted the 
determination of academic quality to the accreditation process. It 
assigned to the forerunners of the Secretary of Education the role of 
assuring institutions' administrative and financial capacity to manage 
Federal funds, which of course includes administrative and financial 
integrity. Meanwhile, States authorized higher education operations 
within their borders.
    As decades passed, at the behest of Congress, accreditation assumed 
additional tasks, such as checking institutions' compliance with 
certain Federal requirements. But the essential division of 
responsibility remained. To assess capacity for administering Federal 
funds and to protect against fraud and abuse, you need the authority of 
government. But to assess academic quality at the level of higher 
education, you need the authority of professional experience and 
current knowledge.
    Here is how it works: A small staff manages a large corps of 
professionals from higher education--professors, college presidents and 
other educators--who volunteer their services. The decisionmaking 
bodies that act on these professionals' eventual recommendations--for 
example, to grant or reaffirm accreditation--also include ``public'' 
members, who have no connection to higher education but do this work as 
civic service.
    To make their recommendations, the higher education experts review 
voluminous written materials, conduct site visits and write reports. An 
institution that applies for accreditation goes through an eligibility 
review and then a review to achieve candidate status. Then after 2 to 5 
years in candidacy, the institution may be granted initial 
accreditation after another comprehensive review. After 5 years it will 
be reviewed for reaffirmation of accreditation. Then it enters a 10-
year cycle of comprehensive reviews, but about two-thirds of our 
institutions have various reporting requirements during that 10-year 
period. We also collect data from them on an annual basis to watch for 
indicators that might raise concern.
    What is the value of accreditation to the institutions? For some, 
it is access to title IV Federal funds. But getting access to funds was 
not the basis of accreditation's historical covenant with institutions 
of higher education, and it still is not. That covenant was for a 
shared commitment to quality. When it comes to higher education, the 
Nation needs more than minimum standards. ``Minimum'' is not how 
America built the best higher education system in the world, and 
``minimum'' is not how we will sustain it.
    Regulation is good for enforcing minimum standards. But the mission 
of accreditation is to go far beyond ``minimum'' to stay ahead in an 
ever-more competitive world. That is why colleges accept the demands of 
accreditation, agreeing to hold themselves accountable to the entire 
group. It is in the interest of every college to make and keep American 
higher education the best it can be. Like most enterprises, 
accreditation has room for improvement. But I do believe that were this 
role lost--the role of continuously pushing colleges and universities 
to be better than they are currently--the overall quality of higher 
education would decline, and the students would suffer.
    In that spirit, I am here to discuss five major changes we have 
already made in the accreditation process, 10 initiatives that we are 
in the process of implementing, five ways in which public policies can 
further these changes and the cautions we must keep in mind as we move 
forward together.
    Let me turn to the story that is on your minds. For many years, the 
Higher Learning Commission accredited a small Catholic university in 
Clinton, IA, called Mount St. Clare College and later Franciscan 
University of the Prairies. Like many other institutions of higher 
education, the University struggled with debt, declining enrollments 
and the likelihood that, without help, it would close. To avoid that 
fate, in 2005 the university sold its assets to Bridgepoint Education, 
which bought the university with private equity and changed the name 
from Franciscan to Ashford University. From 2007 onward, tens of 
millions of dollars in private equity transformed that small university 
in Iowa into a huge online entity, most of whose operations are 
headquartered in California.
    The Commission continued the accreditation of Franciscan University 
of the Prairies through its acquisition by Bridgepoint and the change 
of name, and the changeover was never subject to the normal rigors of 
initial accreditation, as a new school would be. The purchase took 
place 3 years before I became president of the Higher Learning 
Commission. In fairness, my predecessors could not have foreseen in 
2005 what would happen. Additionally, it is a virtual certainty that 
had Franciscan University of the Prairies not been purchased when it 
was, it would not exist today under any name. There would be no campus 
in Clinton, IA. As it is, there is a campus, its facilities have been 
improved and its enrollment has increased significantly.
    That said, with a better understanding of today's transformations 
in higher education, in 2008 we began to develop policies and 
procedures to respond to them, allowing us to address such situations 
thoroughly and effectively. Let me explain the changes that we have 
made.
                          changes we have made
    1. First and foremost, to prevent the purchase of an institution 
for the sole purpose of acquiring its accreditation, a proposed 
purchase is subject to intense scrutiny. After the purchase the 
institution must remain essentially the same institution that the 
Commission examined when it last reaffirmed accreditation. If the 
purchase is approved, the approval can attach numerous stipulations as 
to future development of the institution, including returning the 
institution to candidacy status, effectively removing full 
accreditation. These purchases used to be approved by the Commission's 
staff. Now, in a major change of policy, they are subject to a fact-
finding examination beforehand and a final review by the entire Board 
of Trustees of the Commission.
    Two examples that this worked: In 2010 we had two situations 
similar to Bridgepoint and Franciscan. When we refused to extend 
accreditation under a proposed purchase of Dana College in Nebraska, 
the refusal attracted attention because the school unfortunately closed 
in consequence. There was less public attention to a similar denial a 
few months earlier because the school slated for purchase, Rochester 
College in Michigan, is still in business.
    These decisions reflect our new, strengthened policy on 
acquisition. I am happy to provide additional details of those changes 
should you be interested.
    2. Our second new policy was to put a halt to ``forum shopping.'' 
``Forum shopping'' was the practice of institutions choosing to locate 
in a region in which accreditation is perceived to be easier and in a 
State with favorable regulation and taxation. This was always 
impossible for an institution such as the University of Michigan, 
because it can only exist in Michigan. But it was fairly easy for an 
institution operating in several States, especially for an online 
institution. We made ``forum shopping'' in our region impossible for 
all institutions by tightening our jurisdictional requirements. Under 
new bylaws, institutions must both be incorporated in our region and 
have substantial operating presence in our region.
    3. Third, we made initial accreditation tougher. It used to be that 
an institution could bypass the candidacy period and go directly to 
full accreditation. We now require that an institution spend a minimum 
of 2 years in candidacy before applying for initial accreditation. This 
mandated candidacy lets us get to know the institution well, thus 
strengthening the determination as to whether it deserves 
accreditation. Accreditation has never been easy or automatic. In the 
past 10 years, 120 institutions came to us seeking accreditation. Of 
those 120, today 37 are accredited, 34 are still somewhere in the 
application process (and may or may not get accredited) and 49--or 40 
percent--have been denied or discouraged and are no longer at our 
doorstep. We ensure that undeserving institutions do not receive 
accreditation.
    4. Fourth, we apply greater scrutiny to major institutional changes 
such as development of programs at a new level (for instance, beginning 
to offer master's degree programs), new sites of instruction, change of 
mission or student body and initiation or growth in programs delivered 
through distance education.
    5. Fifth, we increased our capacity for consulting legal and 
financial experts as we need them, particularly in cases of change of 
control and initial applications for accreditation.
                         changes we are making
    Now, for the changes that we are making. Last week we released a 
proposed revision of our Criteria for Accreditation, the result of more 
than a year's work in reviewing our standards. We are implementing 10 
new requirements. The first six advance transparency:

    1. First, institutions need to disclose full descriptions of their 
program requirements to the public.
    2. Second, students must be made aware not only of whether an 
institution as a whole is accredited but also whether its programs have 
professional accreditation, especially when licensure requires 
completion of a professionally accredited program.
    3. Third, institutions must make public not just their transfer 
policies, which Federal regulations now require, but how credit is 
applied to degree requirements. And they must make no promises to any 
individual student regarding credit for prior work unless and until an 
evaluation has been completed.
    4. Fourth, institutions must make publicly available full and clear 
information on all costs and their refund policies.
    5. Fifth, institutions must publicly disclose the names and 
credentials of their faculty.
    6. Sixth, institutions are required to post telephone numbers 
through which students can reach them directly.
    In addition:

    7. Seventh, the new criteria bring new focus on keeping and 
graduating students. We will require institutions to pay greater 
attention and report on what they are doing. We will also analyze the 
data we collect annually from institutions to determine when it is time 
to look more closely at their persistence and graduation rates.
    8. Eighth, we are developing the capacity to survey students 
extensively. Hitherto, accreditation has relied on the happenstance of 
student complaints and on interviews with students during campus visits 
by accrediting teams. The ease of Internet surveying will allow us to 
reach large numbers of students.
    9. Ninth, we are strengthening our oversight of institutions that 
are newly accredited, that have recently undergone a change of control 
(e.g., a merger, acquisition or change of structure), or that are 
rapidly changing. They will undergo a comprehensive review every 5 
years, not 10, and will be subject to midpoint review.
    10. Tenth and finally, we, the accreditors, need to be public about 
more of our findings. Many will point out that families are already 
inundated with more information on colleges than anyone can deal with. 
We need to figure out and provide the information that will be 
meaningful to a general public, and we intend to do so.
                      how public policies can help
    I'd like to spend a few minutes on how Congress, the administration 
and other policymakers can help us do better.

    1. First, the Department of Education collects data from 
institutions through its Integrated Postsecondary Education Data System 
(IPEDS). While it is in everyone's interest that we all use the same 
data, there are some things that are inadequate. For example, we need 
student retention and graduation rates based on contemporary student 
attendance patterns to improve our oversight.
    2. Second, the 2008 Higher Education Opportunity Act made it more 
difficult for accreditors to withdraw accreditation from an 
institution. While we accept the importance of due process, future 
legislation need go no further in that direction. Instead, I 
respectfully suggest that accreditors be afforded some safe harbors 
from ruinous litigation that may now be initiated when we take tough, 
but necessary, adverse action.
    3. Third, just as we are building stronger ties to the State higher 
education authorities in our region, it would be helpful for us to be 
better informed when the Department of Education or the Inspector 
General has concerns about the behavior of an institution that would 
bear upon our standards for institutional integrity, enabling more of a 
partnership toward common goals.
    4. Fourth, we are hampered in our efforts when institutions can 
settle charges of non-compliance with Federal regulations simply by 
paying fines. When an administrative agency or court declares no 
findings as part of a negotiated settlement with no admission of 
liability by the institution being investigated, the institution is 
effectively absolved, leaving the accreditor no record upon which to 
build a case for non-compliance with, for example, standards for 
integrity. It would be helpful if fines were large enough to be 
effective deterrents, and settlements stuck by the findings in the 
case.
    5. Fifth, Peter McPherson, president of the Association of Public 
and Land-Grant Universities, has suggested another type of action 
against institutions that have violated Federal requirements with 
regard to financial aid. The idea is to penalize institutions by 
limiting for some period of time the number of students on Federal 
financial aid that the institution is allowed to enroll. In some ways 
similar to the NCAA penalties of limiting athletic scholarships, this 
is a proposal well worth consideration.

    Finally, as we work with Congress and the administration to promote 
quality and accountability, I would ask that we keep the following 
cautions in mind:

     The vast majority of institutions of all types today offer 
courses and whole programs on the Internet. The larger for-profits have 
attracted attention for their scale, but there are very large programs 
at traditional institutions as well. Distance education is the most 
powerful invention for increasing access to higher education since the 
light bulb. Skillfully and ethically used, it has the potential to 
exceed the access created by the Morrill Act, the establishment of 
community colleges and the GI bill, especially for rural areas. If 
there are problems with distance education, it is not with the modality 
itself but in how the modality is used or exploited.
     Both accreditors and regulators need to be cognizant of 
the ever-present potential for collateral damage. Laws or regulations 
designed with bad actors in mind often can create more damage for good 
actors than impediments for bad actors. I have pleaded before, and do 
so again, that whatever laws or regulations are devised be tested 
especially for their effects on small colleges. Hundreds of these 
colleges do wonderful work with small budgets and create great value 
for their students and the often-limited regions in which they are 
known, and they can be enormously impacted by regulation designed with 
other types of institutions in mind.

    If our economy is to become more competitive, our middle class to 
thrive and grow and our democracy to become even more inclusive and 
vibrant, our Nation has no higher priorities than expanding access to 
our institutions of higher education and enhancing their quality. That 
is why we must continue to improve the oversight of our colleges and 
universities and to spur their improvement. Higher education has 
changed rapidly and will continue to change. We recognize these 
changes, and we are acting on them, enabling us to help institutions 
serve their students well.
    Thank you again for the opportunity to be with you today. I would 
be happy to answer any questions you might have.

    The Chairman. Thank you very much, Dr. Manning.
    And now, Dr. Cruz, welcome and please proceed.

  STATEMENT OF JOSE CRUZ, VICE PRESIDENT FOR HIGHER EDUCATION 
POLICY AND PRACTICE, THE HIGHER EDUCATION TRUST, WASHINGTON, DC

    Mr. Cruz. Good morning, Chairman Harkin, and thank you for 
the opportunity to testify before you on the impact of the for-
profit college sector on low-income and minority students. The 
Education Trust, as you know, is a research and advocacy 
organization that promotes high academic achievement for all 
students at all levels, pre-kindergarten through college.
    While many organizations speak up for the adults who, as 
employees or, increasingly, as shareholders, have financial 
interests in schools and colleges, we at the Ed Trust speak up 
for the most vulnerable, the low-income students and the 
students of color, regardless of age, whose academic interests 
are so often ignored.
    Our November 2010 report, ``Subprime Opportunity,'' 
examined the troubling graduation rates and debt burdens 
incurred by students who entrust their futures to for-profit 
college companies. While I will not delve into all of the 
details, I do want to share some of our key findings.
    The for-profit sector, beyond what we have seen today here 
for Bridgepoint, has experienced massive growth. Between the 
1998 and 2008 academic years, enrollments at for-profit college 
companies grew by 236 percent. These college companies target 
the underserved. More than one in four black, Hispanic, and 
low-income students now begin their college careers at for-
profit colleges.
    At for-profits, success rates are low, and the costs are 
high. The median debt of the one in five who manages to earn a 
bachelor's degree from these colleges is over $31,000. That is 
four times the average debt of those that graduate from public 
colleges and twice that of those graduate from nonprofit 
colleges.
    The for-profit college sector takes a disproportionate 
share of our Federal financial aid dollars. For-profits 
represent only 12 percent of enrollments but receive 24 percent 
of Pell grants and Federal student loan dollars and are 
responsible for 43 percent of Federal student loan defaults. 
The full report is submitted as part of my written testimony.
    It is important to note that the Education Trust is not the 
only organization to have examined the practices and student 
outcomes in the for-profit sector and to have come away deeply 
concerned for students and for the Nation. More than 50 
groups--civil rights, education, consumer, and student groups--
are resisting the for-profits' aggressive campaign to obtain 
immunity from accountability in exchange for what at best can 
be described as the illusion of choice and opportunity.
    But rather than recite the concerns of this broad 
coalition, let me instead offer an explanation of the 
underlying problem. The problem, Mr. Chairman, is not one of 
``lax regulation,'' as this wording implies that the problem 
can somehow be fixed by enforcing existing regulation. The 
problem is, as engineers like to say, structural.
    Our higher ed regulatory structure is built upon the three 
pillars represented here today by my fellow panelists--Federal 
regulation, State regulation, and accreditation. These pillars 
are expected to distribute the load of the many forces that put 
undesirable pressure on higher ed institutions. But as has been 
said before, during the past 20 years, the rapid growth of the 
for-profit college sector has placed undue pressure on the 
regulatory structure supported by these pillars, overwhelming 
their capacity to fulfill their mission.
    The case of Bridgepoint, Inc., subject of today's hearing, 
is a good example of why for-profit college companies demand a 
new attention and a new approach to regulation. Inaction is not 
an option.
    At a time when the world is demanding more of students, we 
cannot expect less of the institutions that seek to educate 
them. At a minimum, the Education Department must be allowed to 
define standards by which to enforce longstanding regulations 
that require all career colleges interested in Federal 
subsidies to prepare their students for gainful employment.
    We must also take a hard look at the apparent willingness 
of accrediting agencies to accept as proof of academic quality 
an institution's ability to manage and navigate and even game 
the bureaucratic intricacies of the accreditation process.
    Finally, we need to identify and eliminate the perverse 
funding incentives that encourage for-profit colleges to invest 
more on marketing, recruitment, and shareholders than on 
instruction and student support services. After all, Mr. 
Chairman, choice and opportunity as concepts, as values, as 
concrete manifestations of the American dream deserve more 
respect.
    Thank you.
    [The prepared statement of Mr. Cruz follows:]
                    Prepared Statement of Jose Cruz
    Chairman Harkin, Ranking Member Enzi, and members of the committee, 
thank you for the opportunity to testify before you on the impact of 
the for-profit college sector on low-income and minority students.
    The Education Trust is a research and advocacy organization that 
promotes high academic achievement for all students at all levels--pre 
kindergarten through college. While many organizations speak up for the 
adults who, as employees or shareholders, have financial interests in 
schools and colleges, we at the Ed Trust speak up for those that are 
most vulnerable--low-income students and students of color--whose 
academic interests in those schools and colleges are so often ignored. 
Indeed, we evaluate every policy, every practice, and every dollar 
spent through a single lens: will it benefit students by raising 
achievement and closing gaps?
    In recent years, this lens has earned us a reputation--rightly or 
wrongly--as an organization that is very critical of public and non-
profit colleges that do not do well by students. Many of our 
publications have focused attention on flaws in institutional policies 
and practices. For example, our report ``Engines of Inequality'' 
examined how financial aid policies in public universities have limited 
student access and success, making it harder for low-income and 
minority students to obtain a postsecondary credential. We have also, 
however, identified and praised institutions that intentionally pursued 
a culture of success for all their students. And we have worked with 
institutions committed to diagnosing their problems and improving their 
level of service to the underserved.
    Given this history, it was only natural that eventually we would 
examine the for-profit college sector.
    Our November 2010 report, ``Subprime Opportunity,'' examined the 
graduation rates and debt burdens incurred by students who entrust 
their futures to for-profit college companies. While I will not delve 
into all of the details, here are a few of our key findings:

     The for-profit sector has grown substantially. Enrollments 
at for-profit colleges grew by 236 percent between the 1998 and 2008 
academic years.
     The for-profit sector targets the underserved. More than 
one in four black, Hispanic, and low-income students now begin their 
college careers at for-profit colleges;
     The success rates are low and the costs are high. The 
median debt of the few students who do manage to earn bachelor's 
degrees at for-profit colleges--only about one in five first-time, 
full-time freshmen--is over $31,000--four times that of graduates from 
public colleges.
     The for-profit sector takes an overwhelmingly large slice 
of our Federal financial aid programs. For-profit colleges represent 12 
percent of enrollments, but they receive 24 percent of Pell grants and 
Federal student loan dollars, and are responsible for 43 percent of 
Federal student loan defaults.

    The full report is submitted as part of my written testimony.
    It is important to note that the Education Trust is not the only 
organization to have examined the practices and student outcomes in the 
for-profit sector and to have come away deeply concerned for students 
and for the Nation. More than 50 civil rights, education, consumer, and 
student groups have joined together to resist the for-profits' 
aggressive campaign for immunity from public oversight accountability.
    But rather than recite the concerns of this broad coalition, let me 
instead offer an explanation of the underlying problem.
    The problem, Mr. Chairman, is not one of ``lax regulation''--as 
this wording implies that the problem can be fixed simply by enforcing 
existing regulation. The problem is, as engineers like to say, 
structural.
    Our higher ed regulatory structure is built upon three pillars: 
Federal regulation, State regulation, and accreditation. These pillars 
were designed to distribute the load of the many forces that put 
undesirable pressure on higher ed institutions, to mitigate any long-
term damage to the structure itself.
    Federal regulation assumes the fiduciary load. The Department of 
Education's role is to be a good steward of the Federal dollars that 
flow to colleges and universities, primarily through title IV. State 
regulation assumes the consumer protection load. Most State higher 
education agencies focus primarily on ensuring that students receive 
accurate information about each institution and its programs. And 
accreditation assumes the threats to academic quality load. Through the 
peer review process accreditors purport to ensure that institutions 
offer high quality programs.
    But during the past 20 years, the rapid growth of the for-profit 
college sector has placed undue pressure on this regulatory structure--
overwhelming its capacity to fulfill its mission. Federal regulation 
has lacked a strong enforcement arm, State regulation has not 
traditionally focused on outputs such as student achievement, and 
accrediting agencies have been overwhelmed with the rapid growth of 
non-traditional educational organizations, whose size and methods of 
educating are unfamiliar and demand protocols of assessment that 
accrediting agencies have historically lacked.
    Who could have foreseen, 20 years ago, that a group of investors 
would purchase small, well-established, fully-accredited, but 
financially troubled postsecondary institutions, intending to exploit 
their history and physical presence to build billion-dollar, publicly 
traded, for-profit college companies? Yet that is precisely what has 
happened in the case of Bridgepoint, Inc.--owner of Ashford University 
and the University of the Rockies. In just 6 years, Bridgepoint, Inc. 
has grown the enrollment of Ashford University by 17,000 percent.
    Bridgepoint has achieved operating profit margins that exceed those 
of Apple and Hewlett Packard. But, according to the investigations of 
this committee, it has done so at the expense of many of its students--
churning through 84 percent of their 2-year and 63 percent of its 4-
year students within these students' first year of enrollment.
    Who could have foreseen, 20 years ago, that one of only six 
regional accrediting agencies recognized by the Education Department 
would be so elastic in its definition of academic quality in this new 
profit-driven environment? The Higher Learning Commission of the North 
Central Association of Colleges and Schools is an accrediting agency 
responsible for over 1,000 institutions that, in 2008 alone, held the 
keys to over $27 billion of the $75 billion in Federal title IV 
financial aid. But, when faced with evidence of the rapid growth, low 
graduation rates, and high withdrawal rates at Ashford, HLC's 
evaluators--over the course of multiple reviews--found no problems and 
the school has remained accredited. It must make us wonder about the 
quality of those reviews--and the ability of the entity leading them to 
understand all of the complexities presented by a for-profit 
institution.
    But it doesn't much matter today if these corrosive forces, these 
stresses and strains, could have been predicted. The fact that they are 
present should be enough for us to recognize that it is time to 
reinforce the structure in those areas where it is most vulnerable, so 
that we can be capable of redesigning and rebuilding it for the longer 
term. Doing otherwise exposes our higher education system to the danger 
of total collapse.
    Clearly, for-profit college companies demand new attention and a 
new approach to regulation.
    At a minimum, the Education Department must be allowed to define 
standards by which to enforce long-standing regulations that require 
all career colleges interested in Federal subsidies to prepare their 
students for gainful employment--this will help ensure that Federal aid 
dollars are used to pay for programs that actually lead to gainful 
employment and not just to heavy debt burdens.
    We must also take a hard look at the apparent willingness of 
accrediting agencies to accept an institution's ability to manage the 
bureaucratic intricacies of the accreditation process as proof of 
academic quality. For instance, you might consider prohibiting the 
transfer of accreditation with a transfer of ownership from a non-
profit entity to a for-profit entity. New owners would have to reapply 
for accreditation as if the institution had not been accredited before. 
You might also consider requiring accreditors to consider student 
outcomes data such as completion rates, placement rates, and cohort 
default rates before they grant or renew institutions' accreditation.
    Finally, we need to identify and eliminate the perverse funding 
incentives that encourage for-profit colleges to invest more on 
marketing, recruitment and shareholders than on instruction and student 
support services. In doing so, we must strengthen consumer protections 
for our most vulnerable students.
    Preserving our higher education structure also requires that all of 
the players within that structure get serious about student success. 
For proprietary colleges, that means delivering on the promises of 
opportunity they are making to students and taxpayers alike. The 
promise is clear and unambiguous, seen in the recruitment ads depicting 
happy graduates working in state-of-the-art jobs they acquired thanks 
to their newly earned for-profit college degrees. The ads of course do 
not include the ``results not typical'' or ``individual results may 
vary'' disclaimers we are accustomed to seeing when the exception, 
rather than the rule, is showcased. But, unfortunately, they do present 
the exception. The data show that rather than getting a relevant 
credential and a job that pays a living wage, too many students walk 
away from these institutions with nothing but excessive debt and, 
ultimately, blame for their institutions' low graduation and high loan 
default rates.
    Our country's long-term economic competitiveness depends upon the 
shoring up of our higher education structure. At a time when the world 
is demanding more of students--higher degrees, more sophisticated 
knowledge--we cannot expect less of the institutions that seek to 
educate them. Choice and opportunity--as concepts, as values, as 
concrete manifestations of the American Dream--deserve more respect.
    Thank you.

    The Chairman. Dr. Cruz, thank you very, very much. Thank 
you all for your excellent testimonies.
    Let's begin a round of questions. Let us see if we can 
elicit some more information here.
    Dr. Willems, it sounds like Ashford University was able to, 
in your words, creatively get around the problem of not having 
their online MAT program--that is your Master of Arts in 
Teacher program--approved. If these for-profits can just shop 
around States to find the most lax regulatory environment, what 
does that mean for the students?
    Ms. Willems. Well, it means that college students cannot be 
assured of a quality education. And when applied to our teacher 
preparation, it also means that our preK-12 schools cannot be 
assured of quality teachers.
    This proliferation of online preparation and the resulting 
increase in teacher preparation, transporting licenses across 
States is really increasing the issue of quality control. And 
what it comes down to is, eventually, we will be looking at the 
lowest common denominator.
    The Chairman. Ashford University is accredited by the 
Higher Learning Commission, Dr. Manning's outfit. Ms. Willems, 
what do you make of the fact that Ashford University is 
accredited, that you found serious concerns with the online 
Master's of Arts in Teaching program? And why aren't you 
concerned about the quality of teachers that Ashford University 
is preparing through its online MAT program?
    And again, for my own State, what does it mean for the 
future of our teaching workforce in Iowa and across the 
country? In other words, what do you make of the fact that AU 
is accredited, but you found serious problems with their online 
MAT program?
    Ms. Willems. We did.
    The Chairman. How do you square that?
    Ms. Willems. Well, I can't speak for the Higher Learning 
Commission, of course, but I certainly can understand that it 
is impossible for a regional accrediting body to conduct the 
same type of review that we conduct on a program. They are 
looking at an entire university. We are looking at a specific 
program. But perhaps increased cooperation, communication 
between the accrediting entities could be valuable to that.
    As far as your question about the quality of teachers, 
research tells us that the singular most-critical factor in 
preK-12 education is the classroom teacher. The Ashford/Rio 
Salado partnership does not meet the Iowa standards for 
preparation of those teachers, and these standards and rules 
exist only for quality control. And when that quality control 
is missing or decreased, a State and the Nation cannot be 
assured of high-quality teachers.
    The Chairman. Do you have any idea why Ashford University 
entered into a partnership with Rio Salado College? In other 
words, they had an existing program. You talked about urging 
them to improve their existing program.
    Ms. Willems. Yes.
    The Chairman. But instead of doing that, they then went to 
Rio Salado.
    Ms. Willems. Right.
    The Chairman. Any thoughts on that?
    Ms. Willems. My guess is that improving the program, and 
basically, the issue was the clinical. That is very expensive. 
It would have been probably financially prohibitive because our 
issue was that they were not supervising the student teaching, 
the clinical experiences appropriately. And that would be very 
expensive to do across the country. So I would think that that 
was their issue.
    The partnership for them was probably a very creative 
solution. The problem was that they did not consider or perhaps 
they didn't care about the ramifications of licensure for 
students who are prepared across the country.
    The Chairman. We will come back. I have some more 
questions, but I want to shift to Dr. Manning here on this 
accreditation.
    I looked at the accreditation, the peer review that you had 
done from HLC on Ashford University. Correct me if I am wrong, 
but there were three inspectors or reviewers--I don't know what 
you call them. Two of the three were from for-profit colleges. 
Is that correct?
    Ms. Manning. You are talking about the post-IPO review? Is 
that correct?
    The Chairman. I think so.
    Ms. Manning. Yes.
    The Chairman. This was 2009, a 2009 HLC visit, report of a 
visit for institutional change of control, Ashford University. 
Visiting team members, there were three, and two were from for-
profit schools. Is that right?
    Ms. Manning. That is correct.
    The Chairman. Do you think that is good peer review?
    Ms. Manning. No.
    The Chairman. Well, this was done in 2009.
    Ms. Manning. That was done in 2009, and we have always 
had--in any peer review, we have always made sure that there 
was one or two representatives on the team, depending on how 
large the team was, that was from a like institution. And I 
have always had a lot of sympathy with that, not being happy 
when I was running an institution with a medical school, I got 
a team that had no one on it who had a clue what it was like to 
run a medical school.
    In this particular case, frankly, as I look back on it, we 
had a disproportion. We only had three people. I would have 
preferred to have the balance not one-to-two, but two-to-one. 
This question of assigning peer reviewers is something that we 
are in the process of reviewing and revising.
    The Chairman. I appreciate that. Let me read also from this 
document, the analysis. It said, ``The team also reviewed the 
impact''--I am just reading from this.

          ``The team also reviewed the impact of rapid and 
        significant growth at Ashford University, given the 
        recent surge in Ashford's online student population. 
        The team finds that the quality of instruction, 
        instructional and support services''--I want to 
        emphasize that--``instructional and support services 
        are growing as Ashford enrollment expands. Quality is 
        maintained. Sufficient faculty and support resources 
        are provided to deliver a quality learning experience 
        for the students.
          ``Growth is being experienced in both online and on-
        campus. Online faculty, students, and staff articulated 
        no impact from growth. Campus students''--campus 
        students--``campus students articulated familiar 
        concerns regarding growth--limited parking and 
        challenges finding parking, overcrowding in the 
        cafeteria, limited computer access in libraries and 
        designated resource centers.''

    Essentially, what this states is that educational quality 
at Ashford is fine, except for the parking and the cafeteria. 
Yet according to the data provided by Ashford, which I pointed 
out here, 84 percent of bachelor students and 63 percent of 4-
year students dropped out within a year. How do you reconcile 
those facts and that data with the statement I just read from 
the analysis?
    Ms. Manning. Senator, I have not seen the last data that 
you quoted, and so it is very difficult for me to respond 
directly to that.
    The Chairman. Put that chart up there.
    Ms. Manning. I have--somebody has handed me something on 
paper that I can read, but----
    The Chairman. What is it that we need to provide for you? 
Because we have all of the documents from Ashford, from 
Bridgepoint.
    Ms. Manning. And we----
    The Chairman. This is their own documentation, not mine. 
That is theirs. I guess what I am asking, let me just see if I 
am making myself clear.
    Ms. Manning. Mm-hmm.
    The Chairman. The statement that I read from the analysis 
says, basically, everything is fine, except parking and the 
cafeteria and computer access. Yet the data that we have from 
Ashford shows that in the bachelor's program 63.4 percent, in 
the associate's program 84 percent dropped out within a year.
    How can you reconcile that data with the fact that the 
quality of instruction and instructional support services are 
growing and sufficient faculty and support resources are 
provided to deliver a quality learning experience?
    Ms. Manning. And if, indeed, it turns out that those were 
students who dropped out because of dissatisfaction with the 
program or inability to complete. And in other words, there is 
always a big question about what is in the denominator when you 
come out with one of those numbers.
    But that if, indeed, it turns out that those are the data 
and that students didn't complete their programs and so forth, 
then I think those numbers are irreconcilable with what we 
have. And these are not numbers that we had, and I would very 
much like to have them.
    I would also say that under our new criteria, the revision 
that we are in the process of putting in place----
    The Chairman. I am sorry go ahead.
    Ms. Manning. Oh, that is OK. There will be much greater 
emphasis on student persistence and completion. Frankly, that 
was one of the things that, from the traditional context that 
we came from, we had assumed. We need to place much more 
emphasis on that and to require our institutions, above all, to 
place much more emphasis on that. We will be doing that.
    Also, of course, the comments about parking and the 
cafeteria are the on-ground campus. Students on the Internet 
don't worry about parking, and that is why it is becoming very 
important for us to be able to survey students and get those 
kinds of responses directly from them to get a better 
understanding of what they are thinking and what they are 
finding.
    The Chairman. Now, Dr. Manning, I have here again a 
document from Ashford, which we requested. They gave us the 
documentation. And they claimed this is data that was provided 
to HLC. Is that it right there? Yes.
    Yes, data provided to HLC, and you will see that full-time 
entering undergraduates, up on top, the retention rate. If I am 
not mistaken--full-time entering undergraduates, on the bottom. 
First-time entering undergraduates, retention rate--white, 46 
percent; black/nonHispanic, 35 percent; Hispanic, 39 percent; 
Asian or Pacific Islander, etc, etc.
    All these retention rates are below 50 percent. They tell 
me that they provided this document to HLC. So your reviewers 
would have had this document. So, again, I am wondering how you 
can reconcile accreditation based upon quality and support 
services when you have less than 50 percent retention rates for 
first-time entering undergraduates?
    Ms. Manning. That is a huge problem, and it is a problem 
across higher education. It is a problem that is more acute in 
the online environment. It is a problem that is more acute with 
nontraditional students. But it is, I think, the greatest 
problem that is facing us.
    As a country, we have made a commitment, a democratic 
commitment to opportunity for students, all kinds of students--
students who come out of lousy high school systems, students 
who are adults and have basically long forgotten what they did 
in algebra--for good reason, because it didn't really do them 
much good. And the consequence of that is that you are going to 
have a lot of students who aren't able to handle it.
    Now I will tell you one problem that I think, again, we are 
turning to fix. In our previous standards, we had assumed that 
the first thing that would happen when a student, particularly 
with a nontraditional background of any sort, came to college 
is that the students would be tested. And if they weren't able 
to do the work, if they didn't have the skills, then they would 
be placed in appropriate remedial courses.
    That has not happened, as it turns out, adequately in the 
distance environment. Those things are a turn-off to students. 
If they don't--if they are going to have to take a remedial 
course, unfortunately, being unenlightened, they go somewhere 
else where they don't have to take the course. What we are 
going to do is we are going to require that there be that sort 
of testing and placement and remediation because that is one of 
the large reasons they drop out.
    Other reasons, of course, have to do with finances and the 
fact that nontraditional students always find--not always find, 
more often find that life interferes with being a student, and 
you see large dropout rates. I saw that at the University of 
Illinois-Chicago, too. A very traditional institution, we 
served students in the greater Chicago area, but they had very 
special challenges.
    The Chairman. A difference here between the University of 
Chicago or University of Puerto Rico or University of Iowa or 
wherever, grant you, there are problems with dropouts, 
especially with people who aren't prepared. And people who are 
online with some of our community colleges and others, I 
understand that, not in this realm.
    I guess one of the differences is the University of 
Chicago's bottom line is not a profit. This bottom line is 
profit. As Ms. Willems said--am I correct, Ms. Willems--that 
the president told you that their business--what did he say? 
The business model was the bottom line?
    Ms. Willems. That is what he told me my first meeting with 
him.
    The Chairman. See? And so, when you have a Wall Street 
investment firm, Warburg Pincus, who owns 63 percent of 
Ashford, I mean, they want to make their investors happy. They 
went public and got their shareholders. They want to meet those 
shareholders' quarterly marks. That is their first and most 
important thing, and that is the difference and a lot of the 
difference here that we see.
    Now here, now that is not--the other thing I wanted to 
point out, Dr. Manning, is this. And again, in this analysis, 
what caught my eye was when it said support services are 
growing. Support resources are provided.
    Yet we know from internal documents that while Ashford has 
1,700-some recruiters, they have one placement officer. How 
could HLC possibly say--how could they say they have adequate 
support services when they have one placement officer for 
78,000 students? I am baffled by this.
    Ms. Manning. Let me respond also to your earlier remark at 
the beginning of this, which has to do with the profit 
incentive and the fact that the incentive can work in the wrong 
direction relative to quality of education.
    I thoroughly agree with you. Our job, I believe, is to pull 
in the other direction, just as it is the job of the Federal 
authorities to assure that there aren't any consequent abuses 
of Federal financial aid. I simply want to restate that and to 
say that what we are doing by making increasingly explicit 
requirements, in a sense, minimum requirements for what is 
offered to students and how students are handled, that is 
exactly what we are attempting to do.
    We traditionally have not had that much emphasis on the 
placement service. Our focus has much more been on the 
educational services that get students through the program.
    It is obviously appropriate to have placement officers. 
Although frankly, even traditional institutions--my own 
institution, for example, my past institution, we attempted to 
go into distance education in a big way because we thought, as 
a land grant university, that this was the way finally to 
really fulfill our land grant mission, to reach out to people 
who couldn't come to Urbana-Champaign or Chicago, where we had 
campuses.
    But when we did that, we did not expect to be having 
placement services in Quincy, IL. We were trying to make our 
educational services available to them, but not the kind of 
things like placement services. And I think that when you think 
of an institution drawing on a national population--and again, 
at the University of Illinois, we drew on a national population 
in our distance education--that placement becomes a little less 
clearly understood.
    I could place students in Chicago. I could not really do 
much to place a student from name any other State who would 
choose to enroll in the program at distance.
    The Chairman. Well, at other universities--I just have Iowa 
here--the number of career service employees are more than one.
    Ms. Manning. Yes.
    The Chairman. Much more than one for much less number of 
students. One of the reasons I am concerned about the 
accreditation process is that in an earlier hearing that we 
had, Dr. Manning, the GAO had done this investigation, 
undercover investigation, which, by the way, they have stood 
by, regardless of what has been said. They stand by their 
findings. The tapes are available.
    There was one school--Westwood? Westwood, out in Denver, if 
I am not mistaken, in which the accrediting agency--it wasn't 
yours, it was another accrediting agency--had gone in there and 
found that everything was fine. Just about the same time, the 
GAO was there and found all of these problems and 
misrepresentations and everything.
    I asked the individual--I am sorry, I can't remember his 
name now--who was from that accrediting agency how that could 
possibly be? So you can understand why we are somewhat 
concerned about what is happening with accreditation and what 
accrediting agencies are looking at and whether or not they are 
really fulfilling their responsibility in this new regime that 
we have, in this new regime of online schools out there.
    So, I think that is another area where this committee is 
going to have to take a look and see, and I am just--I am also 
curious as to why out of 24 publicly traded companies, 18 of 
them sought accreditation with HLC, 18 out of 24. That sort of 
raises some red flags in my mind.
    Dr. Cruz, could you just respond to the exchanges we had 
here and in terms of support services and whether or not 
accrediting agencies are doing their job? Could you just talk 
to us about that?
    You said one thing that really struck me because I hear 
this all the time. People say, ``Oh, Senator Harkin, there are 
just a few bad actors out there. Just one or two, you get rid 
of them, and you are fine.''
    Yet you said that the abuses are structural, not just a 
result of lax enforcement. Could you expand on that, please?
    Mr. Cruz. Sure. I think, basically, that what we have, as 
we have seen here today, those entrusted with enforcing 
regulation through the current structure are doing the best 
they can.
    The situation that we are looking at is one where there is 
a fundamental problem, and that is that this structure has been 
built under different premises, on the premises of having 
academic institutions that are particularly focused on student 
success, academic institutions that operate in a timescale that 
is very leisurely--it is an academic year--for institutions 
that include the concept of shared governance, where the 
faculty and the students and the administrators have some 
levers that they can pull in order to ensure that quality is 
maintained.
    When you look at the for-profit college sector, however, 
the premises are no longer there. There is not a concept of 
shared governance, per se. There is not a focus on long-term 
quality. There is more a focus on short-term profit.
    And when you try to regulate or do some quality control on 
the institutions whose profile is not consistent with the 
premise upon which you built these regulatory agencies, you are 
going to come away with problems. Just an example, when 
successful institutions--and they could be public, nonprofit, 
or profit--look at the data, look at data such as that you have 
shown here today, probably their first reaction would be to try 
to identify where the problems are and what they can do, how 
much more they can invest in programs and support services for 
students so that they can retain those students.
    They do not interpret the data through a different lens 
that takes them to the conclusion that maybe what we need to do 
is recruit five more students for every one we drop so that we 
can meet our quarterly projection earnings.
    So I think that, ultimately, it is about the fact that, for 
some reason, we have something that doesn't look like a duck, 
doesn't swim like a duck, doesn't quack like a duck, but we 
feel compelled to treat it as one. For-profit entities are very 
different. It doesn't mean that they are worse or better. And 
they should be treated differently, and that doesn't mean that 
they need to be treated unfairly.
    The Chairman. Mr. Cruz, as I pointed out on the floor of 
the Senate one time, and I used the documents that we had from 
some of the for-profit schools. For example, Bridgepoint spends 
an enormous sum on staffing call centers to contact leads, sign 
them up for class.
    One document is a training presentation that instructs 
these recruiter employees, ``If you do not discover what pain 
they are avoiding or what pleasure they are seeking, you do not 
know why the students really wants their degree.'' Now I have 
seen this kind of language at other schools about finding the 
``pain points'' as well.
    How do you view this kind of approach in getting a student 
to sign up for a school? I mean, I never thought--I guess I 
never thought of pushing a student's pain points.
    Mr. Cruz. Well, I think that, in general, anybody--the only 
thing they could say is that it is inappropriate. I personally 
find it particularly inappropriate coming from those that claim 
to be the sole purveyors of choice and opportunity for the 
underserved. I would have nothing more to say on that.
    The Chairman. Well, I have some more questions I want to 
follow up on. We have been joined by colleagues, and I will 
call them in order of appearance. It would be Senator Hagan and 
Senator Blumenthal and Senator Merkley.
    Senator Hagan, did you have some questions?

                       Statement of Senator Hagan

    Senator Hagan. Yes. First of all, Mr. Chairman, I really do 
appreciate you calling this hearing. And I appreciate the 
testimony of the witnesses here.
    I did want to ask Ms. Manning a question. As an accreditor 
of for-profit institutions, in your testimony, you state three 
underlying premises that inform your work, and that higher 
education, as a whole, faces significant challenges including, 
problems of access, cost, consumer information, and students' 
completion of programs.
    I want to look at cost for just a minute. Do you factor in 
the compensation made to the executives of the institutions? 
Andrew Clark, it appears, in 2009 received $20.5 million. Four 
other executives received a total of, counting his 
compensation, close to $37 million for this institution, at I 
believe it was Bridgepoint.
    As an accreditor, how much weight do you give to executive 
salaries, versus the compensation for faculty?
    Ms. Manning. Let me say first that when I listed those four 
areas as particular challenges for higher education, cost is 
not one of the issues that the accreditation has looked at 
particularly. That is to say we accredit very expensive, high-
end private and highly respected institutions like Northwestern 
University, which are very expensive. And we accredit community 
colleges, which, hopefully, will remain quite reasonably 
costed. And we don't factor in that into the accreditation 
consideration, rightly or wrongly.
    My comment, there really was more in recognition that the 
issue of the price of higher education has become one of the 
very difficult issues for the American public, and we do 
believe that higher education as a whole needs to address it.
    Senator Hagan. Do you know what the president of 
Northwestern makes?
    Ms. Manning. No, I don't. I am sure it is less than $20 
million.
    Senator Hagan. Do you look at the faculty salaries when you 
are determining accreditation?
    Ms. Manning. No. We look at faculty qualifications, not at 
the salaries.
    Senator Hagan. Why not?
    Ms. Manning. In part because the salaries are determined by 
very different factors. If you can get good faculty and you are 
not paying them that much, we don't see that as a problem.
    I can tell you that when I was the chancellor of a public 
institution that was steadily losing State support, I found 
myself in a position where the private institution in my 
hometown was recruiting faculty away from us at will because 
the differential in salaries had gotten up to 30 percent. And 
yet I don't think that that was any circumstance that was 
leading us to lower our quality. It was simply making life 
tough and difficult.
    Senator Hagan. I know that times are especially tough in 
States, especially those with so many excellent community 
colleges and State universities. I think that the cost of 
education is something that students are obviously concerned 
about. I think when you factor the cost of education in, you 
also have to factor in faculty salary. And we obviously all 
want to pay our faculty more.
    But I have to admit, I am absolutely flabbergasted that 
when I look at an institution that receives 90 percent of their 
funding from public dollars, and have the salaries and 
executive compensation demonstrated here. When I see what is 
going on around the country, talking around public employees, I 
think most people would be aghast to hear the unbelievable 
compensation figures that I have read today.
    Ms. Manning. I do not disagree with you.
    Senator Hagan. Well, it seems to me, from an accreditation 
standpoint, this is an issue you should be looking at. 
Particularly, when the student's cost is paramount of 
competition, whether it is community colleges, State 
universities, private universities, and for-profit 
universities, competition should come into play when you are 
looking at accreditation.
    I know that the accreditation agencies are private, 
independent entities linked to the Federal student financial 
aid program and that institutions eligible for title IV funds 
have got to be accredited by an accreditation agency recognized 
by the U.S. Secretary of Education. And in my opinion, when 
Federal dollars are involved, there needs to be oversight. 
There needs to be oversight on how all of this money is spent 
and by whom.
    And that said, could you please describe the process by 
which the U.S. Secretary of Education ensures that as an 
accrediting body, that you are providing an impartial and 
responsible review of an institution's practices, as well as 
academic and financial standards?
    Ms. Manning. Yes, in brief, I can. We undergo a review 
every 5 years by the Department of Education. A review that 
culminates in a recommendation from the National Advisory 
Committee on Institutional Quality and Integrity, otherwise 
known as NACIQI, to the Secretary as to the renewal of a 
recognition, which is good for 5 years. There are also often 
findings of noncompliance, and an accrediting agency will be 
given approximately 12 months normally to come into compliance.
    On the financial side, however, a great deal of the 
authority and the responsibility for investigation of 
institutions falls to the department itself. And so, they do 
not review us on those responsibilities that are held by the 
Financial Services Administration.
    Senator Hagan. You have also mentioned that the Higher 
Learning Commission is working to build stronger ties to the 
State higher education authorities in your region, and I think 
that that is important. In fact, I am told that in the 2 years 
that the executive director of the State approving agency in 
North Carolina, through you all, has been in this position, he 
has never directly spoken to anyone from the regional 
accreditation agency that has jurisdiction over North Carolina 
schools. And I think this is troubling, especially since 
communication needs to be a two-way street.
    Can you describe the traditional relationships and 
interactions that accreditation agencies have with higher 
education authorities in the States that they represent?
    Ms. Manning. Yes. Of course, we do not accredit in North 
Carolina. You are aware of that?
    Senator Hagan. But you do have students in North Carolina?
    Ms. Manning. Our institutions may have students in North 
Carolina. The communications that we have tried to build more 
strongly are with the higher education officers, the State 
higher education executive officers in our 19 States.
    What we have done in the last 2 years is create a 
communication network, create the opportunity to meet at least 
twice a year to share problems, common problems, and therefore, 
in a sense, to create a communication pathway so that when we 
see problems or they see problems that we think should come to 
the attention of the other party, we have a good communication 
line set up and are able to do that.
    Senator Hagan. How is your accreditation agency funded?
    Ms. Manning. Our accreditation agency is funded primarily 
through member dues and fees.
    Senator Hagan. So the schools that you accredit actually 
pay you for their accreditation?
    Ms. Manning. Yes.
    Senator Hagan. Thank you.
    Thank you Mr. Chairman.
    The Chairman. I think, Senator Hagan, you just hit on 
another point that I had not brought up, but one that concerns 
us, is that accreditors are paid by the schools they are 
accrediting. That kind of doesn't sound right. So I am glad you 
brought that up.
    Senator Blumenthal.

                    Statement of Senator Blumenthal

    Senator Blumenthal. Thank you, Mr. Chairman.
    And thank you for pursuing this topic and holding this 
hearing and giving us a chance to explore a subject that all of 
us believe is vital to the future of American education and the 
future of our economy because these kinds of opportunities for 
students who otherwise wouldn't have access to college 
education is critically important.
    And so are the scarce Federal dollars that enable these 
students to have access, and obviously, preserving and 
enhancing the use of those Federal dollars is one of the main 
reasons we are here today. And I think the chairman has pursued 
this topic very responsibly and vigorously, and I thank him on 
behalf of the people of Connecticut.
    And I must say that a number of students in Connecticut 
have approached me with these kinds of complaints about 
misrepresented degree programs, the transferability or 
nontransferability of credits, the recruiting tactics that have 
been used with respect to them. And I recognize that they may 
be the exception, rather than the rule. That there may be just 
a few bad actors or bad apples, as the saying goes. But the 
extent of the harm and of the wrongdoing and abuse is the 
reason that we are here today.
    And that leads to my first question, which is if you were 
to adopt metrics or criteria for knowing and measuring the 
results in a particular institution--for example, the number of 
dropouts, the numbers of defaults on loans, the numbers of 
failure to gain employment afterward--what combination of 
factors, Ms. Manning, would you use?
    Ms. Manning. I would use the combination that you 
mentioned, and those are things that we look at. The other 
thing that we place enormous emphasis on, though, is what a 
student learned.
    In many of these institutions, the job placement is going 
to look fine because people already have jobs. That is, there 
are people in jobs who are taking these courses or these 
programs in order to improve their prospects, get a better job, 
get a promotion, or whatever. And so, once you get out of the 
traditional world of the 18- to 22-year-old, job placement 
becomes difficult in a sense because sometimes the numbers can 
be inflated rather than deflated.
    We have put tremendous emphasis in the last 20 years on 
forcing institutions--and they have come a long way--to 
actually measure what the students learn, to create specific 
explicit student learning outcomes that are at college level to 
measure what the students do learn and then to act on what they 
discover about what the students aren't learning.
    The other thing I would put, and we are putting, very high 
has to do with persistence and completion rates, what we have 
been talking about. They are a tremendous problem. We need to 
always understand them within the context of an institution. An 
institution that is focused on certain sectors--students, 
again, who come from inner-city schools, students who have 
various disadvantages--are not going to have the same 
persistence and completion rates as an elite school because 
they filter out all those students.
    But we can, for any individual school, say this is what you 
have got, and it is or is not good enough. And frankly, it is 
never good enough to rest on your laurels, until it is 100 
percent. And so, we can then work with institutions to say, 
``OK, this is where you are. When are you going to get the next 
step?'' And that is what we intend to do.
    Senator Blumenthal. And how do you measure what students 
learn in a way that is reliable and standardized? In other 
words, one of the great challenges at every level of education 
is testing and the comparability of scores, and how do you look 
to measure the results if not by employment and repayment of 
debt?
    Ms. Manning. There is a lot that a school can do. Once you 
get beyond the basic skills, the things that you are looking at 
with freshman--basic math, basic writing, basic reading--you 
are looking at skills and learning that are simply not well 
measured by simple standardized tests. But if you have faculty 
who know what they are doing, and I believe our institutions 
do, there are other approaches to measuring what a student 
learns.
    One of the most promising developments in the last few 
years has been something called the ``electronic portfolio.'' 
And what happens is you collect the products of the student's 
work, and then you can, through the use of what are called 
rubrics, determine sort of rank, grade, what the students do as 
a whole. Not in one discrete course or another, but what the 
student has learned through the course of a history major or a 
chemistry major, you can see that. And faculty will see that, 
and they can normalize their scores.
    Now does that give you something that compares well from 
one institution to another? No, it doesn't. But it does compare 
well to known standards in the profession. There is a lot of 
work going on in higher education now to normalize those 
standards, and what is really interesting is that when you 
bring people together in the disciplines from the different 
institutions, it turns out they have pretty similar standards.
    Senator Blumenthal. Well, let me ask you, you would agree 
that those metrics or measures relating to debt repayment and 
employment are not only relevant, but important?
    Ms. Manning. Yes.
    Senator Blumenthal. And assuming that you applied those to 
Ashford, how could you have accredited it?
    Ms. Manning. Well, you need to remember that the Ashford 
that you are talking about now has only been around for a 
couple of years. That is part of our problem.
    What we had accredited was Franciscan University of the 
Prairies, which was a small school with about 400 students, 
declining enrollment, and, in fact, terrible persistence 
problems. They were having retention problems. What they needed 
was an infusion of cash to do things like spruce up their dorms 
and improve their quality so that they could hold and attract 
students.
    Now what was wrong in our process and what we have changed 
is that once we accredited that, when it was acquired by 
Bridgepoint, suddenly, Bridgepoint was accredited, and it grew 
this enormous superstructure of this enormous online 
institution. And because we had pretty much not seen that kind 
of thing before, we didn't have the tools that we now have 
either to predict that or control that. And that is what we are 
doing.
    Senator Blumenthal. And what are those tools?
    Ms. Manning. Those tools now have to do with written policy 
that says that the institution must be able to demonstrate the 
intention and the capacity to be after the acquisition the same 
institution it was the last time we visited it before the 
acquisition. That is primarily the tools.
    Senator Blumenthal. But what do you measure to determine 
whether those representations are correct?
    Ms. Manning. Business plans, academic plans. If it is 
publicly traded, SEC filings.
    Senator Blumenthal. But what about results? What results?
    Ms. Manning. Oh, well, the results, of course, will come 
afterwards. What I am talking about is what we try to stop 
before it happens. That is to say what we do to try to prevent 
it, and the fact that we do that has paid off.
    That is why, in 2010, we turned down two such acquisitions. 
And in one case, very sadly, Dana College in Nebraska, the 
institution went bankrupt. But we did it in another case, and 
the institution is still there. So those are preventive 
measures.
    After the fact, the difference is now that when we approve 
that sort of transfer of ownership, the board--and these 
decisions are all made at the board of trustees level, not at 
the staff level. But the board has the ability to hang 
stipulations on the transfer or the continuation of 
accreditation to control that sort of transformation of the 
institution.
    Senator Blumenthal. Well, my time is up, and I really do 
apologize, Mr. Chairman.
    The Chairman. That is OK. Go ahead, Senator. Go ahead.
    I just wanted to point one thing out to my friend from 
Connecticut, though. Dr. Manning, it is true that HLC gave that 
accreditation to Ashford when they bought that small private 
college. But it is also a fact that in 2009, HLC did visit 
Ashford University with three peer reviewers, which I pointed 
out earlier two of whom were from for-profit universities. So 
HLC has, indeed, visited Ashford since 2005. Is that right, Dr. 
Manning?
    Ms. Manning. It hasn't done a comprehensive review. That is 
the problem. We did the last comprehensive review in 2006. And 
when I look at it now, it is very dated.
    The Chairman. But what was 2009?
    Ms. Manning. 2009 was a focused, limited visit that we now 
require because they issued an IPO. We regard an IPO as a 
significant transfer moment, and so it was a very narrowly 
focused visit.
    The Chairman. And your analysis gave it high praise.
    Ms. Manning. And our analysis gave it high praise.
    The Chairman. Thank you.
    Senator Blumenthal. And I would just finish, Mr. Chairman, 
and I appreciate those very, very helpful questions.
    You know, my impression, from having read and studied this 
area, is that there is a role for these institutions, for the 
for-profit, for the distance learning. I think that you are 
sensing a strong sense of disquiet, if not dissatisfaction, 
maybe even stronger emotion of skepticism, about whether the 
oversight and scrutiny here has been sufficient to eliminate 
the bad actors and the bad practices in this industry.
    And I would just say that whatever the accreditation and 
scrutiny and oversight process is, I am not satisfied that it 
is sufficiently strong so far to provide credibility and trust 
on the part of policymakers and, equally important, the 
awarders of funds, Federal funds, taxpayer moneys that are 
very, very valuable in education these days.
    Thank you.
    The Chairman. Thank you. Thank you, Senator.
    Senator Merkley.

                      Statement of Senator Merkley

    Senator Merkley. Thank you very much, Mr. Chair.
    Thank you all for your testimony.
    It is my understanding, Ms. Manning, that you all did your 
major accreditation in 2006 shortly after it was purchased and 
became Ashford University. Is that correct?
    Ms. Manning. That is correct.
    Senator Merkley. And then were reviewed again when there 
was an IPO in 2009, as you put it, a major transition?
    Ms. Manning. Right.
    Senator Merkley. OK. So, in between that time period, if we 
look at what happened with this college on the amount of 
instructional funds spent per student, it went from $5,000 in 
2004 to $700 in 2009. Did that trigger any concerns on behalf 
of the accreditation team?
    Ms. Manning. The larger concerns that you would come to 
were the concerns that we had about the growth. Now, on the one 
hand, of course, higher education is under tremendous pressure 
to become more cost-efficient. Because until higher education 
can become more cost-efficient, we are going to have this 
problem of cost that we have, where costs have become 
prohibitive for too many families and are costing too much, I 
believe, to the taxpayer in Federal funding that goes to assist 
those families.
    And so, there is pressure to reduce costs. The problem, of 
course, is where the reduction of cost comes at the expense of 
quality. I believe what we are challenged now is to find the 
right path, to find out what is the right amount per student 
and to figure that out in a way where we could have a standard, 
where we would be able to say this amount is absolutely too 
little.
    On the other hand, throughout higher education--and I don't 
mean here to be particularly defensive of the for-profits. I 
will tell you that I share deeply the concerns about marketing 
that Senator Harkin expressed. I think the marketing is a huge 
problem. I think the description that Senator Harkin gave was 
not merely inappropriate, it was appalling, and we have to get 
a handle on that.
    But on the accreditation side and on the cost side, I think 
we have to find the space where we know that, yes, cost has 
been cut, and that is good. And then below that, cost cutting 
has gone too far.
    Senator Merkley. OK. So you are talking about the cost to 
the student, that it is important to have efficiency, reduce 
the cost of education. Did you see a similar reduction from the 
$5,000 per year per student in 2004 to $700, did you see a 
similar reduction in the cost to the student over that time 
period?
    Ms. Manning. No.
    Senator Merkley. I was thinking during that time period was 
a huge, huge increase in enrollment from less than 1,000 to 
53,000 in 2009, 77,000. Wouldn't that kind of massive increase 
trigger some sort of fundamental review because it has got to 
be a completely different institution when it has 50,000 to 
70,000 than when it has 300 students? Wouldn't that trigger on 
your part some kind of serious examination of an institution?
    Ms. Manning. Unfortunately, it wouldn't have a couple of 
years ago. With the new procedures that have just been put in 
place in the past year, they will. We collect annual data from 
institutions, and we collect annual data on distance education. 
And so, we now have new standards, so to speak, where we 
measure the growth of distance education.
    In other words, up until now, when we looked at distance 
education, we looked to see if the institution had the capacity 
to offer it. Because in distance education, there are a number 
of things you have to do differently than what you do on the 
ground, and the services have to be provided in a very 
different manner.
    And so, we wanted to be sure that the institutions were 
capable of doing that. We didn't take a growth factor in there. 
Now we do. We actually have sort of mezzanines or levels which 
institutions reach, which automatically will trigger a new 
review.
    We also have put in place a process that allows us to 
trigger sheer growth and, by the way, sheer decline in 
enrollment, too, which is in a very different world, but it 
happens.
    Senator Merkley. Do you have similar triggers for changes 
in the number of students who are withdrawn, if you will?
    Ms. Manning. No. That is part of--that tight following of 
persistence rates is something that is coming in with the new 
criteria.
    Senator Merkley. OK. So it is something you expect to do. 
If an institution goes from, say, 20 percent withdrawn to 80 
percent, that would trigger a major review?
    Ms. Manning. So would 20 to 25.
    Senator Merkley. OK. But it didn't.
    Ms. Manning. It didn't at the time.
    Senator Merkley. At the time. OK. When you, in 2006, 
accredited the institution, did you do programmatic 
accreditation?
    Ms. Manning. No. We do not do programmatic accreditation. 
We rely on the specialized and professional accreditors to do 
that so that----
    Senator Merkley. Let's say a college has 20 programs, and 2 
of them are of a real-high quality and they are doing their 
job, but 18 are not. You wouldn't necessarily pick up that sort 
of distinction that there are 18 programs that are basically 
not doing their job fairly by the student?
    Ms. Manning. Right. We would not certainly pick it up, for 
example, in the liberal arts fields. Although if 18 are poor 
and 2 are good, it would be more likely that the whole thing 
would look poor. And so, we would see them as poor, as 
opposed--do you know what I mean? But if they were 18 good and 
2 poor, we wouldn't.
    But in the specialized fields, particularly in fields where 
there is professional accreditation, where there is licensure, 
again, we would rely on those specialized accreditors. And 
just, I keep saying this, I know. But in the new standards that 
have just come out, one of the things that we are requiring is 
that if an institution offers programs in fields where there is 
licensure and where specialized accreditation is required, that 
students be informed if they have or have not got the 
specialized accreditation. And if they don't have it, students 
need to be informed as to what the consequences of that will 
be. And we are going to monitor that very tightly.
    Senator Merkley. So that would really address a situation 
we had presented to us previously where a young woman was 
enrolled in an ultrasound program. And after she couldn't get a 
job after an extended period of time, someone finally pulled 
her aside and said, ``You realize that the program you went to 
wasn't accredited, and no one will ever hire you, or anyone 
from that program.''
    And she was just absolutely shocked because she had spent 
her money. She had spent her time. She was a single mother. She 
was trying to survive after a divorce. So that would not happen 
in the process you are describing now?
    Ms. Manning. Yes. It is exactly those stories that moved us 
to create those requirements.
    Senator Merkley. Oregon encourages schools to obtain 
programmatic accreditation, essentially approval of their 
program by the appropriate State licensing board. I don't know 
if you have ever looked at the Oregon model, but it is designed 
to make sure that students don't get caught in that kind of a 
trap. So there is not a big loophole, if you will, in the 
accreditation system. Have you ever looked at the Oregon 
system?
    Ms. Manning. Oregon, I think, may have the best State 
oversight system in the country. You have a superb State higher 
education officer. Oregon is not in our district, but we are 
aware of that. And that kind of strict State oversight is 
something we are very happy to see, we hope, in every State in 
the union.
    Senator Merkley. Well, thank you. With that compliment, 
maybe I should just stop?
    [Laughter.]
    But I just do want to point out to the chair that that 
issue of programmatic accreditation may be a piece of the 
puzzle to make sure students paying tuition and taking out 
student loans are availing themselves of an opportunity that 
merits their money and their time.
    Would anybody else like to comment on the programmatic 
accreditation issue?
    Ms. Willems. As far as teacher preparation in Iowa, one of 
our requirements is that the institution is regionally 
accredited. And when we did the review of Ashford, we found out 
that they were accredited, but we knew that there was such a 
huge change coming.
    So we contacted the Higher Learning Commission, and I spoke 
with an individual who said they were going to be reviewing. We 
were doing 2005-6, and I think the HLC review was going to 
follow ours. But at the time, they expressed some concerns 
about what was happening in Ashford.
    Senator Merkley. Because a great number of the students in 
the teacher preparation program will be unable to be certified 
to teach in their State.
    Ms. Willems. Right.
    Senator Merkley. And they don't really know that when they 
are investing their time and energy, and cramming for their 
exams.
    Ms. Willems. Many of them don't. Our experience in the 
calls that we have received, we have no clue what percentage of 
the students were misinformed.
    Senator Merkley. Yes, yes.
    Ms. Willems. But we do know that there were great numbers.
    Senator Merkley. We have about 600 Oregonians who are part 
of the online program for Ashford. And so, I don't think they 
are covered by the programmatic accreditation standards that 
our State has. I am wondering if you all have brainstormed over 
that type of issue?
    Ms. Willems. Well, that is an issue because once Ashford 
lost its Iowa approval, that program was no longer in our 
jurisdiction. And so, actually, it is in nobody's jurisdiction. 
The people in Oregon who are taking that online program, there 
is really no oversight.
    Technically, if they complete the Ashford program, they 
cannot get a license. They have to complete the Rio Salado 
program and get an Arizona license. But most--a lot of the 
people don't understand that. It has not been explained to 
them. And it is very confusing for them, and that is the 
problem.
    But basically, what happened is we have lost any 
jurisdiction. There is no jurisdiction for your people in 
Oregon.
    Senator Merkley. Has the concept been brainstormed as to 
whether in an unaccredited program, the students should be able 
to access Pell grants?
    Ms. Willems. That is not something that we get into. We 
really look at the quality of the teacher preparation programs. 
And so, the people who, in Iowa, who would look at that are the 
people at the College Student Aid Commission. And we have had 
discussions with them. They are very much aware of the issues 
and the concerns.
    Senator Merkley. Wouldn't that kind of solve this 
overnight? Because every institution would be like, ``OK, we 
have got to get programmatic accreditation.''
    Ms. Willems. It would. Part of the problem, quite honestly, 
is--and this is a common growing problem. It is lack of 
personnel because, for instance, we have a rule in Iowa that 
requires that these institutions, if they have programs, those 
programs must be approved by the State of Iowa in order for 
them to be accepted.
    The problem is that there are not personnel to do that, and 
there are not personnel probably at the Iowa College Student 
Aid Commission to address all of that. And so, the oversight is 
not one--sometimes it is not even one of rule. Certainly, it is 
not one of intention. But oftentimes, it is a matter of lack of 
people.
    And so, the work has to be prioritized, and at this point 
in time, that has not been a priority.
    Senator Merkley. Well, I want to thank you all very much 
for coming before the committee to help us understand these 
issues better because it is certainly important that students 
have a clear understanding of what they are buying. They are 
putting their money on the line. We are putting Federal money 
on the line with grants and loans.
    Student loans are not inextinguishable by bankruptcy. So 
they travel with folks through their life. And of course, our 
collective goal is to equip people to have a better future, and 
we need to make sure that is happening when we are putting the 
resources in. Thank you very much.
    Thank you, Mr. Chair.
    The Chairman. Thank you, Senator Merkley. Thank you very 
much. Very pertinent questions and very pertinent, incisive 
questions on this.
    We have had so many complaints. I had a whole stack of them 
here, several hundred from this one university. And a lot of 
them have to do with--they were basically told that they could 
take a course and they would be qualified to do something, and 
then only later to find out that they weren't.
    Just one here was a student who signed up to be a dental 
assistant. He took classes for 1 year, and he became suspicious 
because none of them had anything to do with being a dental 
assistant. He inquired about it with his academic adviser, told 
him that Ashford would not lead to a dental assistant license, 
and she didn't really have anything to say. He was distraught.
    He said, ``I felt I was completely, utterly lied to.'' He 
left with $9,0000 in loans and $3,000 owed to the school.
    Again, it seems to me that I think the Senator is onto 
something. If, in fact, they are going to hold themselves out 
that you can take this course and it leads to a job or a degree 
in something that you would be qualified to do in your State, 
that they have to show that before they can get Pell grants or 
student loans.
    It has to be something like I think a program approval, 
something along that line is something we ought to look at. I 
thank the Senator for bringing that up.
    And I just might state that--I have some more questions. 
But I might just state before the Senator leaves that all the 
hearings and investigations we have had for that last year, 
they are not just going to simply lead to nothing. This is 
crying out for something that we have to do legislatively and 
regulatory, and I will be discussing it with members of the 
committee and the Senator as we move ahead on that.
    Thank you, Senator.
    And I think when we get into the accreditation, and maybe 
if, Senator Merkley, just for this one little thing, if I could 
just ask your indulgence to stay? We think of accreditation 
agencies as accrediting colleges and universities that are 
basically campus based. That is how they grew up 100 years ago. 
That has been the evolution of accrediting agencies.
    With this whole new thing of these for-profit schools that 
have just burgeoned in the last 10 years and the amount of 
money they are making--as I said, what was it? How many billion 
dollars now, Federal money? Twenty-six billion dollars, Pell 
grants. That really, these are really multi-State corporations. 
That is really what they are. They are multi-State 
corporations.
    Their main focus is the bottom line, how much profit they 
make. And the question that I would say is for any accreditor, 
not just HLC, but for any accrediting agency, are they really 
equipped to oversee the quality of a billion-dollar, multi-
State corporation?
    I don't think so. And that is what you are dealing with. 
You are not dealing with a school. You are dealing with a 
multi-State, billion-dollar corporation whose bottom line is 
making more profit for their investors. And so, I don't think 
the accreditation agencies have the wherewithal to do that.
    I don't know, Ms. Manning, if you wanted to respond to 
that? I just think this is a whole different horse of a 
different color, and we either have to change the accrediting 
agencies, and what they do and how they do it, or set up some 
new kind of a regulatory framework to deal with these multi-
State corporations. Because they come under the radar screen of 
education, but that is not their primary business.
    When we talk about dropout rates and things, I understand 
that a lot of schools have dropout rates. I understand that. 
But their bottom line is not making a profit. It is education. 
You know, University of Oregon or your private schools are out 
there, Lewis and Clark and all the great schools you have out 
there, their bottom line is not making a profit. It is 
educating kids.
    So I just throw that out. I don't know, Dr. Manning, if you 
had any response to that or not?
    Ms. Manning. I would just like to take up the distinction 
you made between a multi-State, billion-dollar corporation and 
a school and to urge you, as you seek solutions, perhaps to 
think about distinguishing so that insofar as this is a multi-
State, billion-dollar corporation, you may well need to have a 
different regulatory scheme at the Federal level.
    The Chairman. Maybe.
    Ms. Manning. Insofar as it is a school, when you are 
talking about the quality of the education the students 
receive, the actual learning that takes place, I would urge you 
still to leave that to us.
    The Chairman. Well, I have my questions----
    Ms. Manning. I know.
    The Chairman [continuing]. About that, as I pointed out 
earlier. The Federal Government, as far as I know, has never 
really gotten into the accreditation. This is something that is 
private. They are nonprofit. You are out there.
    But to the extent that accreditation provides for 
accessibility to Pell grants and to guaranteed student loans, 
yes, now we have an interest in how accrediting agencies are 
structured and what they look at and how they provide this 
accreditation.
    So it may not just be a separate regulatory agency. It may 
be something that we need to say that if you are going to be an 
accrediting agency, you have to do these things, if you are 
going to be held out as an accrediting agency based upon which 
school has access to Federal student loans and grants. So I 
don't know.
    Ms. Manning. And the structure to do that is built into the 
requirement for recognition by the Department of Education.
    The Chairman. Well, obviously, it is not happening. It is 
just not happening. We know that from all the documents and 
everything. It is just not happening. So something has got to 
change.
    And again, I would say this not as any kind of a poke at 
the accrediting agencies. I think there is a role for 
accrediting agencies, but this whole new regime out there has 
thrown a monkey wrench into it.
    But it just seems to me to say that all we are going to do 
is rely upon the accrediting agencies to give us sort of the 
perimeter of the stamp of approval when the accrediting 
agencies are basically part and parcel of the higher education 
system, it has some of the echoes of the last 10 years and 
where we relied upon bond rating agencies to tell us that these 
subprime mortgages were just fine. And they said they were, and 
we found out, no, they weren't.
    Yes, Senator.
    Senator Merkley. Mr. Chair, I am thinking about several 
for-profit schools that I have visited that had done tremendous 
work in terms of innovation, utilizing building online 
textbooks that could be continuously upgraded and were very 
inexpensive, class scheduling designed to be very flexible for 
mothers and fathers and others getting after-work degrees and 
so forth. So I think that there is a powerful force for good in 
the for-profit education system.
    I think that those institutions that are truly in the 
education world to educate can help us figure out how we can 
design a system so that students will benefit from their 
experience in these programs while sorting out situations that 
have been set up primarily to fleece the Federal Government. 
And so, we have got to find a way to seize and promote the 
potential while sorting out the abuse.
    The Chairman. I appreciate that, and I have seen some for-
profits that have done a great job. But I think Mr. Cruz's 
point is well taken. It is a structural problem.
    When you have a business model that is set up so that you 
make the most profit by getting the lowest-income students, you 
have a problem right away.
    And then what is happening with the growth of these, the 
growth of the University of Phoenix and Bridgepoint and all the 
others, and the huge dropout rates, the amount of debt they are 
piling up, 10 percent of the students going to online for-
profit schools, but they are taking up 25 percent of the 
Government money. And they are contributing--they have 10 
percent of the students, and they are getting about 50 percent 
of the defaults just in that segment.
    I just think that there is a vortex that people are being 
sucked into here. And what you also see is some of the larger 
for-profits sucking up the smaller ones. They are buying them 
up. They probably pay pretty good money for them, and they suck 
those up.
    I think many well-meaning for-profit schools, in order to 
stay in the game, are looking at Bridgepoint and others and 
saying, ``We have got to do that, too. If we are going to be in 
this, we have got to get in this game, too.'' Or they are going 
to get pushed out by some of these larger ones.
    Now that, to me, is also a concern. How we have a decent 
for-profit system, I think, can be done. I have seen it happen. 
But I am afraid the business model and the structure that is 
set up now is not going to permit that to happen without some 
regulation from here, and maybe some new legislation and new 
regulation that might help do this. But that is for discussions 
later on.
    I had some follow-up questions I wanted to ask, and it had 
to do with something that was said about we have low-income 
students and minority students, and they do worse than their 
peers. That happens everywhere.
    I am just wondering if the implication is that we should 
have lower expectations for for-profit schools because they 
have more low-income and minority students? Mr. Cruz, did you 
hear that?
    Mr. Cruz. I heard that.
    The Chairman. What did you think about that?
    Mr. Cruz. Well, I think that low expectations are a 
problem, and the fact of the matter is that what institutions 
do matters. So, for example, when Ms. Manning commented on the 
situation regarding remedial coursework, that is one example of 
what institutions can do to provide their students with the 
tools they need to be able to be successful.
    So when you see for-profit college companies talk about 
their students, the students that they work so hard to recruit 
in the first place, and then say that the reason that they are 
not successful is because of the demography, then that tells 
you that really there is not a commitment to provide them the 
tools that they need to succeed.
    They know the background of those students. They know what 
those students need to succeed. And if they don't, there is 
plenty of literature that shows----
    The Chairman. So you are saying they know the students they 
are recruiting. They know what they need to be successful, but 
they are not providing that support.
    Mr. Cruz. And we have seen that they have sufficient 
revenue to invest in student success vehicles.
    The Chairman. In other words, yes, they have the sufficient 
revenue, but it is going to profits.
    Mr. Cruz. Right.
    The Chairman. If they took that and put that into support 
services, you might have a higher success rate.
    Mr. Cruz. That is right.
    The Chairman. Ms. Willems, I see you nodding your head.
    Mr. Cruz. The only other thing I would say, if I may, is 
that we have identified many institutions throughout the United 
States that have student bodies that are similar to those in 
the for-profit college sector but that do graduate their 
students at a higher rate and leave those students with a much 
lower debt burden. So demography is definitely not destiny.
    The Chairman. Ms. Willems, did you have any thoughts on 
that? I saw you nodding your head.
    Ms. Willems. Definitely. I mean, the fact that the support 
is not there and that they are intentionally recruiting 
students. They know their capabilities to a point. And I agree 
with Dr. Manning that, definitely, there should be something 
more in place.
    I mean, at a traditional school, you don't enter a college, 
you are not accepted unless you meet certain criteria. And I 
think that is an issue.
    I think, if I could?
    The Chairman. Sure.
    Ms. Willems. Two things. One is this whole issue of online. 
I think we have to be very careful to separate the idea of 
online education with for-profit because there is growing 
online education coming from non-for-profits. Probably it is 
not growing fast enough, and that is why the for-profits can 
get into this market.
    And if I may, just to play an Iowan for just a minute? Your 
comment about the horse of a different color, my concern is 
that that horse is already out of the barn. And by the time 
that we have developed some kind of oversight, when we look at 
the way that Ashford grew. Now, certainly, if we can develop an 
appropriate oversight, we could close a university, just like 
we could close a program with proper oversight.
    But it is more difficult once that university is in place 
and is so large and is so ingrained in an economic system and 
situation. So my concern is for the timeframe.
    The Chairman. It is what?
    Ms. Willems. Timeframe, of being able to develop an 
accountability system for them.
    The Chairman. Do you think it is too late?
    Ms. Willems. No. I mean, we have to do it. We have to do 
it. It is just that these corporations are much more nimble, 
and they can grow so much more quickly than any kind of 
Government entity or any kind of oversight entity. Those are 
just the facts of life.
    So I don't think it is--I mean, we have to continue the 
work. I think we just have to keep in mind that this has grown 
so quickly, and we just have not kept up. And so, perhaps that 
means that the efforts need to be a little bit more intentional 
or a little bit more fast-paced than we usually do things.
    The Chairman. Well, you know, we are trying. The Secretary 
of Education promulgated a proposed gainful employment rule. 
The comment period was open. I think it is closed now, isn't 
it? The comment period is closed now.
    And I am sure it comes as no shock to you that the lobbying 
effort in this city to water down that gainful employment rule 
is one of the most intense I have seen in my 30-some years 
here, which tells me there is a lot of money at stake. And they 
are doing, I will tell you, the lobbying is just incredibly 
intense on that.
    This committee would like to know how much money these for-
profit schools are spending. Now we do know that about 30 
percent of Federal money is being used for recruiting. I wonder 
how much of the taxpayers' dollars are being used for lobbying?
    Ms. Willems. Well, I can tell you that in the State of 
Iowa, there is a lot of lobbying being done in the statehouse 
by lobbyists for these folks. I know the lobbyists. I have met 
with the lobbyist from Ashford. They are currently no longer 
their lobbyist. They have hired different lobbyists since then. 
But it is very--it is intense.
    The Chairman. Do you mind me raising a point? It wasn't in 
your testimony, but it is my understanding that Bridgepoint 
offered you a job?
    Ms. Willems. Yes, yes.
    The Chairman. They did?
    Ms. Willems. They did. I had lunch with the chancellor and 
the chair after the morning meeting when we closed them 
officially. And it was interesting. I wondered myself what that 
was all about. And if she was serious, which, you know, is 
debatable, I think that probably they thought maybe I could be 
of assistance, especially if they decided to rebuild their 
program and seek Iowa approval.
    They made good market decisions as a business entity. Now 
some of the decisions they made in the program level were not 
wise decisions, and some of the hiring decisions were not wise. 
But as a business, they certainly know what they are doing.
    The Chairman. Well, that is what it is. It is a business.
    There is one other thing I want to cover before we bring 
this to a close. And there is just one more issue that I want 
to bring out in this hearing. And this has to do with how fast 
default rates are going up, 25 percent in the last year alone.
    And what is happening there with the internal documents 
that we have from the company shows that the company is 
managing the default rate by paying a subsidiary of Sallie Mae, 
called GRC, more than $1 million a year, $1.3 million a year. 
Bridgepoint turned over the names and contact information for 
37,000 students that could potentially default and, therefore, 
add to the company's default rate that they report to the 
Department of Education.
    Now why is that important? Well, because under Federal law, 
any institution that has a--is it 2 years or 3? Yes, 2 out of 3 
years, if they have a default rate of over 30 percent, they 
will be ineligible for Government programs.
    So if you are a school and you see your default rate going 
up and maybe getting near that 30 percent, what do you do? You 
don't want to be kicked out of the program. So you manage it.
    This chart, which I can hardly see myself here, this chart 
shows that most of the students that GRC has cured are actually 
in forbearance. Oh, here. Thank you. I can look at it now. What 
it shows is that they are either in forbearance or deferment.
    In 2009, it was 82.9 percent in 1 year, and then on 2010, 
84.7 percent. So they are either in forbearance or deferment.
    So what happens when deferment or forbearance runs out? 
What happens? Mr. Cruz, are you aware of what forbearance and 
deferment means?
    Mr. Cruz. Yes, sir.
    The Chairman. What does it mean when you are in 
forbearance?
    Mr. Cruz. Well, when you are in forbearance, you are 
allowed to stop making payments to your student loans for some 
life condition. The problem with forbearance is that interest 
keeps accumulating.
    The Chairman. So you don't have to make payments, but the 
interest accumulates?
    Mr. Cruz. Right.
    The Chairman. And how long can you be in forbearance?
    Mr. Cruz. I believe it is for a year.
    The Chairman. For a year? For 1 year?
    Mr. Cruz. I believe so.
    The Chairman. OK. Tell me about deferment then.
    Mr. Cruz. In deferment, you can also stop making payments. 
But in that case, I believe that interest does not accrue, and 
that is for cases where, for example, the student goes back to 
school and can then reinstate that deferment.
    The Chairman. And I am told that deferment can be for up to 
3 years.
    Mr. Cruz. For 3 years.
    The Chairman. So if you were approaching, if a school were 
approaching a 30 percent default rate over that 2 out of 3 
years and they hired this company, GRC, a subsidiary of Sallie 
Mae, and gave them all these students' names that were 
potentially going to be in default. And GRC called them up and 
said, ``Look, are you having trouble making your payments?'' 
Yes. ``Well, there is something called forbearance that you can 
go into, or we can put you in deferment.''
    And guess what, you don't have to make any payments, and 
you can be in deferment for up to 3 years. And you can go back 
to school when you are in deferment, and then you can come back 
out of school. Then you can go back into school and come back 
out. But you can be in deferment, if I am not mistaken. And 
therefore, it does not add up to that 30 percent.
    So what happens, it is a scheme. What a school can do, 
obviously, has a snowball effect. But they keep pushing the 
snowball into the fourth year. As long as it is in the fourth 
year, they are never over that 30 percent default rate. Does 
this comport with anything that you have known, Mr. Cruz?
    Mr. Cruz. Well, I have known that institutions try to 
manage their default rates. The way that you have presented 
Bridgepoint doing it in this case would worry me from the 
standpoint of whether or not the students are getting the best 
financial advice for them, right, because once the window of 
responsibility for Bridgepoint closes, the student still has 
that financial obligation.
    The Chairman. That is right.
    Mr. Cruz. The other thing that sort of pops out at me is 
this notion of the student as a cost unit. First, we provide 
bounties to recruit them. Then we provide bounties to third 
parties. We outsource the management of the default rates. And 
at no point there seems to be that same sort of investment or 
focus on the student success to begin with.
    The Chairman. In fact, our figures show that with 
Bridgepoint alone, just on this managing of the default and 
what they are paying GRC and the number of students, comes down 
to about $495 a student, if I am not mistaken. Yes, $495.
    So, recruiting, they spend $2,714 per student. For 
instruction, as we saw earlier, $700 per student. They make--
again, I can't see that chart over there. How much for profit 
is--$1,500 for profit, and then $495 for delinquent cure, as it 
is called.
    So that is $495 they are putting into that. But they are 
putting $2,714 to recruiting. Does that kind of, again, tell 
you something?
    Mr. Cruz. Well, I guess that is the cost of doing business 
in order to get access to the Federal revenue sources.
    The Chairman. Anybody else have any thoughts on this?
    Ms. Manning. I just want to comment that there are 
loopholes in this whole default rate that shouldn't be. And the 
consequence of the loopholes is that the institutions get away 
with it because the students after 3 years fall out of the 
picture. They are never counted.
    The Chairman. Gone.
    Ms. Manning. And yet the penalty for the student for 
default, as you, yourself, alluded to, is a lifetime penalty. I 
think that needs to be fixed, and I hope that you will find a 
way to fix that.
    The Chairman. Well, that is what this is all leading to. We 
have got to try to find some way to fix it, and you said it is 
a lifetime. It is around their neck in terms of their debt.
    I have often said at least in the subprime, you can walk 
away from a house. You can walk away from a car loan. You can 
give them your car back. But you can't walk away from this one.
    The other disturbing thing that we have brought up in past 
hearings is what is happening now with the military. And 
Bridgepoint, I didn't talk about that, but we have a lot of 
their documentation about how they are aggressively now going 
after the military. Again, for one reason, which the CEO of 
Bridgepoint quite openly said, it keeps them below their 90 
percent threshold because the military money doesn't count for 
the 90 percent.
    Well, while that may not be a debt on those service people, 
you only get it one time. The benefits that we give for 
military active duty and post military active duty, GI bill, is 
one time. If they use that money and go to one of these online 
schools like Bridgepoint and they don't get a good education, 
they don't get anything for it. They can't get it again. It is 
gone. It is one time.
    Bridgepoint, I will just say, has in the last year and a 
half, seen an enormous increase in the number of military 
students. Bridgepoint CEO Andrew Clark made clear at an 
investor conference in early 2010 that the school was going 
aggressively after military students.
    He said, ``We believe that when we are able to report our 
90/10 for 2009, that it should decrease due to our penetration 
in particular into the military market.'' He went on to rave 
that Ashford has been recognized by GI Times as ``military 
friendly.'' Again, this might come as a surprise to a number of 
the military students filing complaints.
    But Mr. Clark was clearly correct in his assessment. The 
school doubled its enrollment of military undergraduate 
students from 4,438 to nearly 9,000 in the course of 9 months. 
In 2010, Bridgepoint collected $60 million in military 
benefits, $60 million. 2009, it was $4 million. So they are 
going after the military, too.
    So we have a very deep problem here, and I know that some 
are trying to perhaps take our eye off the ball by claiming 
that GAO did something here and nothing there and all this kind 
of talk. Fine. As I said, GAO stands by its findings, and we 
have the tapes and everything. So we can't take our eye off of 
what the problem is here.
    I would like to thank each of our witnesses for being with 
us today. We will leave the record open for 10 days. The 
witnesses may submit statements for the record or supplemental 
statements.
    I would ask unanimous consent to include a statement by 
Senator Durbin in the record.
    [The prepared statement of Senator Durbin follows:]

                      Statement of Senator Durbin

    I would like to thank Senator Harkin for holding this 
hearing. The Chairman has held a series of hearings on for-
profit colleges, and I commend him for his continued commitment 
to tackling this important issue. The Chairman and I share many 
concerns about practices in the for-profit higher education 
sector, as well as a lack of proper oversight of these 
institutions. I commend this committee for its continued work 
in the area proprietary schools.
    As I have said before, there are many good for-profit 
colleges that provide a valuable education to students. There 
is much that traditional colleges could learn from the 
flexibility and innovations of for-profit colleges, but we know 
that some for-profit colleges are failing students.
    We know that 25 percent of for-profit college students will 
default on their Federal loans within 3 years of leaving 
school. We know that for-profit colleges account for nearly 
half of all total defaults on student loans. I have spoken with 
these students--young people whose lives may be ruined by 
student loan debt they will never pay off.
    There are bad actors in this industry, despite the claims 
of every lobbyist that their client is one of the good ones. 
Today, Chairman Harkin is profiling Bridgepoint Education. He 
will highlight practices taking place at this school that 
should make everyone question the investment of Federal dollars 
there, as well as the efficacy of the current regulatory 
system.
    Bridgepoint Education was founded in 1999. It purchased a 
small school in Iowa in 2005 and changed its name to Ashford 
University. The small campus quickly became a large online 
operation, still carrying the original school's valuable 
regional accreditation with the Higher Learning Commission. 
Enrollment jumped from 332 students in 2005 to over 77,000 in 
2010.
    Profits have also skyrocketed. In 2010, Bridgepoint earned 
$216 million in profits while taking in over 85 percent of 
revenues from Federal taxpayers. Very little of that money is 
being invested in student success. Bridgepoint only spends 40 
percent of revenues on instruction, faculty, and student 
services. The rest goes to profits and marketing. Only one 
career counselor is on hand to assist students with career 
placement: one counselor for 77,000 students.
    Congress needs to take a serious look at whether Federal 
financial aid dollars that are meant to provide students a 
chance at a higher education should be spent on billboards, 
television commercials, advertisements on the sides of buses, 
heavy-handed recruiting, and lining the pockets of investors.
    Colleges that focus more on shareholders than students do 
not produce good outcomes. Ashford University, owned by 
Bridgepoint, has a 3-year student loan default rate of nearly 
20 percent. When the promises made to students are not 
fulfilled, they find themselves left with tens of thousands of 
dollars in student loan debt and a worthless degree. If that 
student defaults on that loan, the taxpayers are left holding 
the bag.
    Despite all the evident problems at Bridgepoint, Ashford 
University retains its regional accreditation, awarded before 
the school was purchased and transformed.
    Accreditation agencies serve as the gateway to Federal 
funding. The Federal Government, taxpayers, and students depend 
on their judgment and deserve assurances that accreditors are 
weeding out low performing institutions. Looking at the current 
state of higher education, it is reasonable to question whether 
accreditation agencies have been living up to their 
responsibility. Examples such as the one highlighted today 
raise serious questions about the rigor of the accreditation 
process.
    As Congress works to reduce the Federal deficit, we are 
appropriately scrutinizing Federal spending. We must do more to 
provide assurance to taxpayers about the value of their 
investment in higher education. Accrediting agencies also must 
provide assurance to taxpayers and students that Federal 
financial aid funding is only going to institutions of quality 
and rigor that produce good outcomes for students. Students 
deserve more than what some of these colleges are currently 
providing
    Again, I thank the Chairman for holding this hearing and I 
look forward to continuing to work with him to address this 
important issue.

    The Chairman. I believe that today's case study of 
Bridgepoint has revealed compelling evidence about how this one 
company has put profits over students. Students and taxpayers 
rely on the States, accreditors, and the Federal Government to 
ensure that the college or university, online or campus-based, 
that they are providing a quality education.
    And I don't believe these institutions, all of them--I am 
not just singling out the accreditors. I don't think the 
Federal Government has done its job. I don't think the State 
governments have done their job either, when it comes to 
Bridgepoint especially and others that are in the same mold.
    There are very serious gaps in our rules and regulations. 
These institutions that get most of their money, 85 to 90 
percent of their money, from the taxpayers of this country and 
use as a recruiting model to go after the most vulnerable, 
lowest-income people in our country.
    As Mr. Cruz correctly stated, the problem is structural. It 
is not just one or two bad actors. Does that mean that 
everybody is bad? No, that is not what I am saying. I am just 
saying the structure is such that even if you are a good actor, 
you are pretty soon probably going to be a bad actor if you are 
still trying to meet the bottom line.
    So it is a structural problem, and it is something that if 
we don't--what did you say, Ms. Willems--close the barn door? 
If we don't close that barn door pretty soon, it is just going 
to get worse and worse and worse. And you are going to have a 
whole generation almost of people in this country who have 
tremendous debts, tremendous debts, and haven't gotten an 
adequate education.
    They have been held out, this is the dream, the American 
dream. Get a good education. And they are up to their eyeballs 
in debt, and they will never get out of it. And yet a number of 
people will walk away with millions, hundreds of millions of 
dollars in profit.
    I don't even like to use the word ``profit.'' It is not a 
profit. When you are taking that much money from the taxpayers, 
that is not a profit. That is not a profit. That is something 
else. And so, they are walking away with all of this taxpayer 
money in their pockets, mega millions of dollars. They are set 
for life. They are set for life. Mr. Clark is set for life.
    How many millions is he worth? Twenty million. Now they 
went public. I don't know how much stock he has. He is probably 
worth, I don't know, hundreds of millions of dollars, just in 5 
years.
    But what about some of these students who signed up and 
went into debt? What about them? What about their lives? Well, 
they are counting on us. They are counting on us to protect 
them and to make sure that we have a structure in which they 
can rely upon the assurances that they were given by whatever 
college they go to that they are going to get a quality 
education.
    With that, the HELP Committee is adjourned.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

  Prepared Statement of Gregory D. Kutz, Managing Director Forensics 
                   Audits and Special Investigations*
                               Highlights
                         why gao did this study
    Enrollment in for-profit colleges has grown from about 365,000 
students to almost 1.8 million in the last several years. These 
colleges offer degrees and certifications in programs ranging from 
business administration to cosmetology. In 2009, students at for-profit 
colleges received more than $4 billion in Pell Grants and more than $20 
billion in Federal loans provided by the Department of Education 
(Education). GAO was asked to (1) conduct undercover testing to 
determine if for-profit colleges representatives engaged in fraudulent, 
deceptive, or otherwise questionable marketing practices, and (2) 
compare the tuitions of the for-profit colleges tested with those of 
other colleges in the same geographic region.
---------------------------------------------------------------------------
    * On November 30, 2010. GAO reissued this testimony to clarify and 
add more precise wording to the original testimony.
---------------------------------------------------------------------------
    To conduct this investigation, GAO investigators posing as 
prospective students applied for admissions at 15 for-profit colleges 
in six States and Washington, DC. The colleges were selected based on 
several factors, including those that the Department of Education 
reported received 89 percent or more of their revenue from Federal 
student aid. GAO also entered information on four fictitious 
prospective students into education search. Web sites to determine what 
type of follow-up contact resulted from an inquiry. GAO compared 
tuition for the 15 for-profit colleges tested with tuition for the same 
programs at other colleges located in the same geographic areas. 
Results of the undercover tests and tuition comparisons cannot be 
projected to all for-profit colleges.
For-Profit Colleges--Undercover Testing Finds Colleges Encouraged Fraud 
     and Engaged in Deceptive and Questionable Marketing Practices
                             What GAO Found
    Undercover tests at 15 for-profit colleges found that 4 colleges 
encouraged fraudulent practices and that all 15 made deceptive or 
otherwise questionable statements to GAO's undercover applicants. Four 
undercover applicants were encouraged by college personnel to falsify 
their financial aid forms to qualify for Federal aid--for example, one 
admissions representative told an applicant to fraudulently remove 
$250,000 in savings. Other college representatives exaggerated 
undercover applicants' potential salary after graduation and failed to 
provide clear information about the college's program duration, costs, 
or graduation rate despite Federal regulations requiring them to do so. 
For example, staff commonly told GAO's applicants they would attend 
classes for 12 months a year, but stated the annual cost of attendance 
for 9 months of classes, misleading applicants about the total cost of 
tuition. Admissions staff used other deceptive practices, such as 
pressuring applicants to sign a contract for enrollment before allowing 
them to speak to a financial advisor about program cost and financing 
options. However, in some instances, undercover applicants were 
provided accurate and helpful information by college personnel, such as 
not to borrow more money than necessary.


------------------------------------------------------------------------
       Fraudulent, Deceptive, and Otherwise Questionable Practices
-------------------------------------------------------------------------
       Degree/certificate, location         Sales and Marketing Practice
------------------------------------------------------------------------
Certificate Program--California...........  Undercover applicant was
                                             encouraged by a college
                                             representative to change
                                             Federal aid forms to
                                             falsely increase the number
                                             of dependents in the
                                             household in order to
                                             qualify for grants.
Associate's Degree--Florida...............  Undercover applicant was
                                             falsely told that the
                                             college was accredited by
                                             the same organization that
                                             accredits Harvard and the
                                             University of  Florida.
Certificate Program--Washington, DC.......  Admissions representative
                                             said that barbers can earn
                                             up to $150,000 to $250,000
                                             a year, an exceptional
                                             figure for the industry.
                                             The Bureau of Labor
                                             Statistics reports that 90
                                             percent of barbers make
                                             less than $43,000 a year.
Certificate Program--Florida..............  Admission representative
                                             told an undercover
                                             applicant that student
                                             loans were not like a car
                                             payment and that no one
                                             would ``come after'' the
                                             applicant if she did not
                                             pay back her loans.
------------------------------------------------------------------------
Source: GAO


    In addition, GAO's four fictitious prospective students received 
numerous, repetitive calls from for-profit colleges attempting to 
recruit the students when they registered with Web sites designed to 
link for-profit colleges with prospective students. Once registered, 
GAO's prospective students began receiving calls within 5 minutes. One 
fictitious prospective student received more than 180 phone calls in a 
month. Calls were received at all hours of the day, as late as 11 p.m. 
To see video clips of undercover applications and to hear voicemail 
messages from for-profit college recruiters, see http://www.gao.gov/
products/GAO-10-948T.
    Programs at the for-profit colleges GAO tested cost substantially 
more for associate's degrees and certificates than comparable degrees 
and certificates at public colleges nearby. A student interested in a 
massage therapy certificate costing $14,000 at a for-profit college was 
told that the program was a good value. However the same certificate 
from a local community college cost $520. Costs at private nonprofit 
colleges were more comparable when similar degrees were offered.
                                 ______
                                 
    Mr. Chairman and members of the committee, thank you for the 
opportunity to discuss our investigation into fraudulent, deceptive, or 
otherwise questionable sales and marketing practices in the for-profit 
college industry.\1\ Across the Nation, about 2,000 for-profit colleges 
eligible to receive Federal student aid offer certifications and 
degrees in subjects such as business administration, medical billing, 
psychology, and cosmetology. Enrollment in such colleges has grown far 
faster than traditional
higher-education institutions. The for-profit colleges range from 
small, privately owned colleges to colleges owned and operated by 
publicly traded corporations. Fourteen such corporations, worth more 
than $26 billion as of July 2010,\2\ have a total enrollment of 1.4 
million students. With 443,000 students, one for-profit college is one 
of the largest higher-education systems in the country--enrolling only 
20,000 students fewer than the State University of New York.
---------------------------------------------------------------------------
    \1\ For-profit colleges are institutions of post-secondary 
education that are privately owned or owned by a publicly traded 
company and whose net earnings can benefit a shareholder or individual. 
In this report, we use the term ``college'' to refer to all of those 
institutions of post-secondary education that are eligible for funds 
under Title IV of the Higher Education Act of 1965, as amended. This 
term thus includes public and private nonprofit institutions, 
proprietary or for-profit institutions, and post-secondary vocational 
institutions.
    \2\ $26 billion is the aggregate market capitalization of the 14 
publicly traded corporations on July 14, 2010. In addition, there is a 
15th company that operates for-profit colleges; however, the parent 
company is involved in other industries; therefore, we are unable to 
separate its market capitalization for only the for-profit college line 
of business, and its value is not included in this calculation.
---------------------------------------------------------------------------
    The Department of Education's Office of Federal Student Aid manages 
and administers billions of dollars in student financial assistance 
programs under Title IV of the Higher Education Act of 1965, as 
amended. These programs include, among others, the William D. Ford 
Federal Direct Loan Program (Direct Loans), the Federal Pell Grant 
Program, and campus-based aid programs.\3\ Grants do not have to be 
repaid by students, while loans must be repaid whether or not a student 
completes a degree program. Students may be eligible for ``subsidized'' 
loans or ``unsubsidized'' loans. For unsubsidized loans, interest 
begins to accrue on the loan as soon as the loan is taken out by the 
student (i.e. while attending classes).
---------------------------------------------------------------------------
    \3\ The Federal Supplemental Educational Opportunity Grant (FSEOG), 
Federal Work-Study (FWS), and Federal Perkins Loan programs are called 
campus-based programs and are administered directly by the financial 
aid office at each participating college. As of July 1, 2010 new 
Federal student loans that are not part of the campus-based programs 
will come directly from the Department of Education under the Direct 
Loan program.
---------------------------------------------------------------------------
    For subsidized loans, interest does not accrue while a student is 
in college. Colleges received $105 billion in title IV funding for the 
2008-9 school year--of which approximately 23 percent or $24 billion 
went to for-profit colleges. Because of the billions of dollars in 
Federal grants and loans utilized by students attending for-profit 
colleges, you asked us to (1) conduct undercover testing to determine 
if for-profit college representatives engaged in fraudulent, deceptive, 
or otherwise questionable marketing practices, and (2) compare the cost 
of attending for-profit colleges tested with the cost of attending 
nonprofit colleges in the same geographic region.
    To determine whether for-profit college representatives engaged in 
fraudulent, deceptive, or otherwise questionable sales and marketing 
practices, we investigated a nonrepresentative selection of 15 for-
profit colleges located in Arizona, California, Florida, Illinois, 
Pennsylvania, Texas, and Washington, DC. We chose colleges based on 
several factors in order to test for-profit colleges offering a variety 
of educational services with varying corporate sizes and structures 
located across the country. Factors included whether a college received 
89 percent or more of total revenue from Federal student aid according 
to Department of Education (Education) data or was located in a State 
that was among the top 10 recipients of title IV funding. We also chose 
a mix of privately held or publicly traded for-profit colleges. We 
reviewed Federal Trade Commission (FTC) statutes and regulations 
regarding unfair and deceptive marketing practices and Education 
statutes and regulations regarding what information postsecondary 
colleges are required to provide to students upon request and what 
constitutes substantial misrepresentation of services. During our 
undercover tests we attempted to identify whether colleges met these 
regulatory requirements, but we were not able to test all regulatory 
requirements in all tests.
    Using fictitious identities, we posed as potential students to meet 
with the colleges' admissions and financial aid representatives and 
inquire about certificate programs, associate's degrees, and bachelor's 
degrees.\4\ We inquired about one degree type and one major--such as 
cosmetology, massage therapy, construction management, or elementary 
education--at each college. We tested each college twice--once posing 
as a prospective student with an income low enough to qualify for 
Federal grants and subsidized student loans, and once as a prospective 
student with higher income and assets to qualify the student only for 
certain unsubsidized loans.\5\ Our undercover applicants were 
ineligible for other types of Federal postsecondary education 
assistance programs such as benefits available under the Post-9/11 
Veterans Educational Assistance Act of 2008 (commonly referred to as 
``the Post-9/11 G.I. bill''). We used fabricated documentation, such as 
tax returns, created with publicly available hardware, software and 
materials, and the Free Application for Federal Student Aid (FAFSA)--
the form used by virtually all 2- and 4-year colleges, universities, 
and career colleges for awarding Federal student aid--during our in-
person meetings. In addition, using additional bogus identities, 
investigators posing as four prospective students filled out forms on 
two Web sites that ask questions about students' academic interests, 
match them to colleges with relevant programs, and provide the 
students' information to colleges or the colleges' out-sourced calling 
center for follow-up about enrollment. Two students expressed interest 
in a culinary arts degree, and two other students expressed interest in 
a business administration degree. We filled out information on two Web 
sites with these fictitious prospective students' contact information 
and educational interests in order to document the type and frequency 
of contact the fictitious prospective students would receive. We then 
monitored the phone calls and voice mails received.
---------------------------------------------------------------------------
    \4\ A certificate program allows a student to earn a college level 
credential in a particular field without earning a degree.
    \5\ Regardless of income and assets, all eligible students 
attending a title IV college are eligible to receive unsubsidized 
Federal loans. The maximum amount of the unsubsidized loan ranges from 
$2,000 to $12,000 per year, depending on the student's grade level and 
on whether the student is considered ``dependent'' or ``independent'' 
from his or her parents or guardians.
---------------------------------------------------------------------------
    To compare the cost of attending for-profit colleges with that of 
nonprofit colleges, we used Education information to select public and 
private nonprofit colleges located in the same geographic areas as the 
15 for-profit colleges we visited. We compared tuition rates for the 
same type of degree or certificate between the for-profit and nonprofit 
colleges. For the 15 for-profit colleges we visited, we used 
information obtained from campus representatives to determine tuition 
at these programs. For the nonprofit colleges, we obtained information 
from their Web sites or, when not available publicly, from campus 
representatives. Not all nonprofit colleges offered similar degrees, 
specifically when comparing associate's degrees and certificate 
programs. We cannot project the results of our undercover tests or cost 
comparisons to other for-profit colleges.
    We plan to refer cases of school officials encouraging fraud and 
engaging in deceptive practices to Education's Office of Inspector 
General, where appropriate. Our investigative work, conducted from May 
2010 through July 2010, was performed in accordance with standards 
prescribed by the Council of the Inspectors General on Integrity and 
Efficiency.
                               Background
    In recent years, the scale and scope of for-profit colleges have 
changed considerably. Traditionally focused on certificate and programs 
ranging from cosmetology to medical assistance and business 
administration, for-profit institutions have expanded their offerings 
to include bachelor's, master's, and doctoral level programs. Both the 
certificate and degree programs provide students with training for 
careers in a variety of fields. Proponents of for-profit colleges argue 
that they offer certain flexibilities that traditional universities 
cannot, such as, online courses, flexible meeting times, and year-round 
courses. Moreover, for-profit colleges often have open admissions 
policies to accept any student who applies.
    Currently, according to Education about 2,000 for-profit colleges 
participate in title IV programs and in the 2008-9 school year, for-
profit colleges received approximately $24 billion in title IV funds. 
Students can only receive title IV funds when they attend colleges 
approved by Education to participate in the title IV program.
                 title iv program eligibility criteria
    The Higher Education Act of 1965, as amended, provides that a 
variety of institutions of higher education are eligible to participate 
in title IV programs, including:

     Public institutions--Institutions operated and funded by 
State or local governments, which include State universities and 
community colleges.
     Private nonprofit institutions--Institutions owned and 
operated by nonprofit organizations whose net earnings do not benefit 
any shareholder or individual. These institutions are eligible for tax-
deductible contributions in accordance with the Internal Revenue code 
(26 U.S.C. Sec. 501(c)(3)).
     For-profit institutions--Institutions that are privately 
owned or owned by a publicly traded company and whose net earnings can 
benefit a shareholder or individual.

    Colleges must meet certain requirements to receive title IV funds. 
While full requirements differ depending on the type of college, most 
colleges are required to: be authorized or licensed by the State in 
which it is located to provide higher education; provide at least one 
eligible program that provides an associate's degree or higher, or 
provides training to students for employment in a recognized 
occupation; and be accredited by an accrediting agency recognized by 
the Secretary of Education. Moreover, for-profit colleges must enter a 
``program participation agreement'' with Education that requires the 
school to derive not less than 10 percent of revenues from sources 
other than title IV funds and certain other Federal programs (known as 
the ``90/10 Rule''). Student eligibility for grants and subsidized 
student loans is based on student financial need. In addition, in order 
for a student to be eligible for title IV funds, the college must 
ensure that the student meets the following requirements, among others: 
has a high school diploma, a General Education Development 
certification, or passes an ability-to-benefit test approved by 
Education, or completes a secondary school education in a home school 
setting recognized as such under State law; is working toward a degree 
or certificate in an eligible program; and is maintaining satisfactory 
academic progress once in college.\6\
---------------------------------------------------------------------------
    \6\ GAO previously investigated certain schools' use of ability-to-
benefit tests. For more information, see GAO, PROPRIETARY SCHOOLS: 
Stronger Department of Education Oversight Needed to Help Ensure Only 
Eligible Students Receive Federal Student Aid, GAO-09-600 (Washington, 
DC: August 17, 2009).
---------------------------------------------------------------------------
                       defaults on student loans
    In August 2009, GAO reported that in the repayment period, students 
who attended for-profit colleges were more likely to default on Federal 
student loans than were students from other colleges.\7\ When students 
do not make payments on their Federal loans and the loans are in 
default, the Federal Government and taxpayers assume nearly all the 
risk and are left with the costs. For example, in the Direct Loan 
program, the Federal Government and taxpayers pick up 100 percent of 
the unpaid principal on defaulted loans. In addition, students who 
default are also at risk of facing a number of personal and financial 
burdens. For example, defaulted loans will appear on the student's 
credit record, which may make it more difficult to obtain an auto loan, 
mortgage, or credit card. Students will also be ineligible for 
assistance under most Federal loan programs and may not receive any 
additional title IV Federal student aid until the loan is repaid in 
full. Furthermore, Education can refer defaulted student loan debts to 
the Department of Treasury to offset any Federal or State income tax 
refunds due to the borrower to repay the defaulted loan. In addition, 
Education may require employers who employ individuals who have 
defaulted on a student loan to deduct 15 percent of the borrower's 
disposable pay toward repayment of the debt. Garnishment may continue 
until the entire balance of the outstanding loan is paid.
---------------------------------------------------------------------------
    \7\ GAO-09-600.
---------------------------------------------------------------------------
                    college disclosure requirements
    In order to be an educational institution that is eligible to 
receive title IV funds, Education statutes and regulations require that 
each institution make certain information readily available upon 
request to enrolled and prospective students.\8\ Institutions may 
satisfy their disclosure requirements by posting the information on 
their Internet Web sites. Information to be provided includes: tuition, 
fees, and other estimated costs; the institution's refund policy; the 
requirements and procedures for withdrawing from the institution; a 
summary of the requirements for the return of title IV grant or loan 
assistance funds; the institution's accreditation information; and the 
institution's completion or graduation rate. If a college substantially 
misrepresents information to students, a fine of no more than $25,000 
may be imposed for each violation or misrepresentation and their title 
IV eligibility status may be suspended or terminated.\9\ In addition, 
the FTC prohibits ``unfair methods of competition'' and ``unfair or 
deceptive acts or practices'' that affect interstate commerce.
---------------------------------------------------------------------------
    \8\ 20 U.S.C. Sec. 1092 and 34 CFR Sec. Sec. 668.41-.49.
    \9\ U.S.C. Sec. 1094 (c) (3) and 34 CFR Sec. Sec. 668.71-.75. 
Additionally, Education has recently proposed new regulations that 
would enhance its oversight of title IV eligible institutions, 
including provisions related to misrepresentation and aggressive 
recruiting practices. See 75 Fed. Reg. 34,806 (June 18, 2010).
---------------------------------------------------------------------------
   For-Profit Colleges Encouraged Fraud and Engaged in Deceptive and 
          Otherwise Questionable Sales and Marketing Practices
    Our covert testing at 15 for-profit colleges found that four 
colleges encouraged fraudulent practices, such as encouraging students 
to submit false information about their financial status. In addition 
all 15 colleges made some type of deceptive or otherwise questionable 
statement to undercover applicants, such as misrepresenting the 
applicant's likely salary after graduation and not providing clear 
information about the college's graduation rate. Other times our 
undercover applicants were provided accurate or helpful information by 
campus admissions and financial aid representatives. Selected video 
clips of our undercover tests can be seen at http://www.gao.gov/
products/GAO-10-948T.
         fraudulent practices encouraged by for-profit colleges
    Four of the 15 colleges we visited encouraged our undercover 
applicants to falsify their FAFSA in order to qualify for financial 
aid. A financial aid officer at a privately owned college in Texas told 
our undercover applicant not to report $250,000 in savings, stating 
that it was not the government's business how much money the undercover 
applicant had in a bank account. However, Education requires students 
to report such assets, which along with income, are used to determine 
how much and what type of financial aid for which a student is 
eligible. The admissions representative at this same school encouraged 
the undercover applicant to change the FAFSA to falsely add dependents 
in order to qualify for grants. The admissions representative attempted 
to ease the undercover applicant's concerns about committing fraud by 
stating that information about the reported dependents, such as Social 
Security numbers, was not required. An admissions representative at 
another college told our undercover applicant that changing the FAFSA 
to indicate that he supported three dependents instead of being a 
single-person household might drop his income enough to qualify for a 
Pell Grant. In all four situations when college representatives 
encouraged our undercover applicants to commit fraud, the applicants 
indicated on their FAFSA, as well as to the for-profit college staff, 
that they had just come into an inheritance worth approximately 
$250,000. This inheritance was sufficient to pay for the entire cost of 
the undercover applicant's tuition. However, in all four cases, campus 
representatives encouraged the undercover applicants to take out loans 
and assisted them in becoming eligible either for grants or subsidized 
loans. It was unclear what incentive these colleges had to encourage 
our undercover applicants to fraudulently fill out financial aid forms 
given the applicants' ability to pay for college. The following table 
provides more details on the four colleges involved in encouraging 
fraudulent activity.

                          Table 1: Fraudulent Actions Encouraged by For-Profit Colleges
----------------------------------------------------------------------------------------------------------------
                                         Certification Sought                              Fraudulent Behavior
               Location                  and Course of Study        Type of College             Encouraged
----------------------------------------------------------------------------------------------------------------
CA...................................  Certificate--Computer    Less than 2-year,         Undercover
                                        Aided Drafting.          privately owned.         applicant was
                                                                                          encouraged by a
                                                                                          financial aid
                                                                                          representative to
                                                                                          change the FAFSA to
                                                                                          falsely increase the
                                                                                          number of dependents
                                                                                          in the household in
                                                                                          order to qualify for
                                                                                          Pell Grants.
                                                                                          The undercover
                                                                                          applicant suggested to
                                                                                          the representative
                                                                                          that by the time the
                                                                                          college would be
                                                                                          required by Education
                                                                                          to verify any
                                                                                          information about the
                                                                                          applicant, the
                                                                                          applicant would have
                                                                                          already graduated from
                                                                                          the 7-month program.
                                                                                          The representative
                                                                                          acknowledged this was
                                                                                          true.
                                                                                          This
                                                                                          undercover applicant
                                                                                          indicated to the
                                                                                          financial aid
                                                                                          representative that he
                                                                                          had $250,000 in the
                                                                                          bank, and was
                                                                                          therefore capable of
                                                                                          paying the program's
                                                                                          $15,000 cost. The
                                                                                          fraud would have made
                                                                                          the applicant eligible
                                                                                          for grants and
                                                                                          subsidized loans.
FL...................................  Associate's Degree--     2-year, privately owned   Admissions
                                        Radiologic Technology.                            representative
                                                                                          suggested to the
                                                                                          undercover applicant
                                                                                          that he not report
                                                                                          $250,000 in savings
                                                                                          reported on the FAFSA.
                                                                                          The representative
                                                                                          told the applicant to
                                                                                          come back once the
                                                                                          fraudulent financial
                                                                                          information changes
                                                                                          had been processed.
                                                                                          This change
                                                                                          would not have made
                                                                                          the applicant eligible
                                                                                          for grants because his
                                                                                          income would have been
                                                                                          too high, but it would
                                                                                          have made him eligible
                                                                                          for loans subsidized
                                                                                          by the government.
                                                                                          However, this
                                                                                          undercover applicant
                                                                                          indicated that he had
                                                                                          $250,000 in savings--
                                                                                          more than enough to
                                                                                          pay for the program's
                                                                                          $39,000 costs.
PA...................................  Certificate--Web Page    Less than 2-year,        Financial aid
                                        Design.                  privately owned.         representative told
                                                                                          the undercover
                                                                                          applicant that he
                                                                                          should have answered
                                                                                          ``zero'' when asked
                                                                                          about money he had in
                                                                                          savings--the applicant
                                                                                          had reported a
                                                                                          $250,000 inheritance.
                                                                                          The financial
                                                                                          aid representative
                                                                                          told the undercover
                                                                                          applicant that she
                                                                                          would ``correct'' his
                                                                                          FAFSA form by reducing
                                                                                          the reported assets to
                                                                                          zero. She later
                                                                                          confirmed by email and
                                                                                          voicemail that she had
                                                                                          made the change.
                                                                                          This change
                                                                                          would not have made
                                                                                          the applicant eligible
                                                                                          for grants, but it
                                                                                          would have made him
                                                                                          eligible for loans
                                                                                          subsidized by the
                                                                                          government. However,
                                                                                          this applicant
                                                                                          indicated that he had
                                                                                          about $250,000 in
                                                                                          savings--more than
                                                                                          enough to pay for the
                                                                                          program's $21,000
                                                                                          costs.
TX...................................  Bachelor's Degree--      4-year, privately owned   Admissions
                                        Construction                                      representative
                                        Management.                                       encouraged applicant
                                                                                          to change the FAFSA to
                                                                                          falsely add dependents
                                                                                          in order to qualify
                                                                                          for Pell Grants.
                                                                                          Admissions
                                                                                          representative assured
                                                                                          the undercover
                                                                                          applicant that he did
                                                                                          not have to identify
                                                                                          anything about the
                                                                                          dependents, such as
                                                                                          their Social Security
                                                                                          numbers, nor did he
                                                                                          have to prove to the
                                                                                          college with a tax
                                                                                          return that he had
                                                                                          previously claimed
                                                                                          them as dependents.
                                                                                          Financial aid
                                                                                          representative told
                                                                                          the undercover
                                                                                          applicant that he
                                                                                          should not report the
                                                                                          $250,000 in cash he
                                                                                          had in savings.
                                                                                          This applicant
                                                                                          indicated to the
                                                                                          financial aid
                                                                                          representative that he
                                                                                          had $250,000 in the
                                                                                          bank, and was
                                                                                          therefore capable of
                                                                                          paying the program's
                                                                                          $68,000 cost. The
                                                                                          fraud would have made
                                                                                          the undercover
                                                                                          applicant eligible for
                                                                                          more than $2,000 in
                                                                                          grants per year.
----------------------------------------------------------------------------------------------------------------
Source: GAO.

                  deceptive or questionable statements
    Admissions or financial aid representatives at all 15 for-profit 
colleges provided our undercover applicants with deceptive or otherwise 
questionable statements. These deceptive and questionable statements 
included information about the college's accreditation, graduation 
rates and its student's prospective employment and salary 
qualifications, duration and cost of the program, or financial aid. 
Representatives at schools also employed hard-sell sales and marketing 
techniques to encourage students to enroll.
Accreditation Information
    Admissions representatives at four colleges either misidentified or 
failed to identify their colleges' accrediting organizations. While all 
the for-profit colleges we visited were accredited according to 
information available from Education, Federal regulations state that 
institutions may not provide students with false, erroneous, or 
misleading statements concerning the particular type, specific source, 
or the nature and extent of its accreditation. Examples include:

     A representative at a college in Florida owned by a 
publicly traded company told an undercover applicant that the college 
was accredited by the same organization that accredits Harvard and the 
University of Florida when in fact it was not. The representative told 
the undercover applicant: ``It's the top accrediting agency--Harvard, 
University of Florida--they all use that accrediting agency. . . . All 
schools are the same; you never read the papers from the schools.''
     A representative of a small beauty college in Washington, 
DC told an undercover applicant that the college was accredited by ``an 
agency affiliated with the government,'' but did not specifically name 
the accrediting body. Federal and State government agencies do not 
accredit educational institutions.
     A representative of a college in California owned by a 
private corporation told an undercover applicant that this college was 
the only one to receive its accrediting organization's ``School of 
Excellence'' award. The accrediting organization's Web site listed 35 
colleges as having received that award.
Graduation Rate, Employment and Expected Salaries
    Representatives from 13 colleges gave our applicants deceptive or 
otherwise questionable information about graduation rates, guaranteed 
applicants jobs upon graduation, or exaggerated likely earnings. 
Federal statutes and regulations require that colleges disclose the 
graduation rate to applicants upon request, although this requirement 
can be satisfied by posting the information on their Web site. Thirteen 
colleges did not provide applicants with accurate or complete 
information about graduation rates. Of these 13, 4 provided graduation 
rate information in some form on their Web site, although it required a 
considerable amount of searching to locate the information. Nine 
schools did not provide graduation rates either during our in-person 
visit or on their Web sites. For example, when asked for the graduation 
rate, a representative at a college in Arizona owned by a publicly 
traded company said that last year 90 students graduated, but did not 
disclose the actual graduation rate. When our undercover applicant 
asked about graduation rates at a college in Pennsylvania owned by a 
publicly traded company, he was told that if all work was completed, 
then the applicant should successfully complete the program--again the 
representative failed to disclose the college's graduation rate when 
asked. However, because graduation rate information was available at 
both these colleges' Web sites, the colleges were in compliance with 
Education regulations.
    In addition, according to Federal regulations, a college may not 
misrepresent the employability of its graduates, including the 
college's ability to secure its graduates employment. However, 
representatives at two colleges told our undercover applicants that 
they were guaranteed or virtually guaranteed employment upon completion 
of the program. At five colleges, our undercover applicants were given 
potentially deceptive information about prospective salaries. Examples 
of deceptive or otherwise questionable information told to our 
undercover applicants included:

     A college owned by a publicly traded company told our 
applicant that, after completing an associate's degree in criminal 
justice, he could try to go work for the Federal Bureau of 
Investigation or the Central Intelligence Agency. While other careers 
within those agencies may be possible, positions as a FBI Special Agent 
or CIA Clandestine Officer, require a bachelor's degree at a minimum.
     A small beauty college told our applicant that barbers can 
earn $150,000 to $250,000 a year. While this may be true in exceptional 
circumstances, the Bureau of Labor Statistics (BLS) reports that 90 
percent of barbers make less than $43,000 a year.
     A college owned by a publicly traded company told our 
applicant that instead of obtaining a criminal justice associate's 
degree, she should consider a medical assisting certificate and that 
after only 9 months of college, she could earn up to $68,000 a year. A 
salary this high would be extremely unusual; 90 percent of all people 
working in this field make less than $40,000 a year, according to the 
BLS.
Program Duration and Cost
    Representatives from nine colleges gave our undercover applicants 
deceptive or otherwise questionable information about the duration or 
cost of their colleges' programs. According to Federal regulations, a 
college may not substantially misrepresent the total cost of an 
academic program. Representatives at these colleges used two different 
methods to calculate program duration and cost of attendance. Colleges 
described the duration of the program as if students would attend 
classes for 12 months per year, but reported the annual cost of 
attendance for only 9 months of classes per year. This disguises the 
program's total cost. Examples include:

     A representative at one college said it would take 3.5-4 
years to obtain a bachelor's degree by taking classes year round, but 
quoted the applicant an annual cost for attending classes for 9 months 
of the year. She did not explain that attending classes for only 9 
months out of the year would require an additional year to complete the 
program. If the applicant did complete the degree in 4 years, the 
annual cost would be higher than quoted to reflect the extra class time 
required per year.
     At another college, the representative quoted our 
undercover applicant an annual cost of around $12,000 per year and said 
it would take 2 years to graduate without breaks, but when asked about 
the total cost, the representative told our undercover applicant it 
would cost $30,000 to complete the program--equivalent to more than 
2\1/2\ years of the previously quoted amount. If the undercover 
applicant had not inquired about the total cost of the program, she 
would have been led to believe that the total cost to obtain the 
associate's degree would have been $24,000.
Financial Aid
    Eleven colleges denied undercover applicants access to their 
financial aid eligibility or provided questionable financial advice. 
According to Federal statutes and regulations, colleges must make 
information on financial assistance programs available to all current 
and prospective students.

     Six colleges in four States told our undercover applicants 
that they could not speak with financial aid representatives or find 
out what grants and loans they were eligible to receive until they 
completed the college's enrollment forms agreeing to become a student 
and paid a small application fee to enroll.
     A representative at one college in Florida owned by a 
publicly traded company advised our undercover applicant not to concern 
himself with loan repayment because his future salary--he was assured--
would be sufficient to repay loans.
     A representative at one college in Florida owned by a 
private company told our undercover applicant that student loans were 
not like car loans because ``no one will come after you if you don't 
pay.'' In reality, students who cannot pay their loans face fees, may 
damage their credit, have difficulty taking out future loans, and in 
most cases, bankruptcy law prohibits a student borrower from 
discharging a student loan.
     A representative at a college owned by a publicly traded 
corporation told our undercover applicant that she could take out the 
maximum amount of Federal loans, even if she did not need all the 
money. She told the applicant she could put the extra money in a high-
interest savings account. While subsidized loans do not accrue interest 
while a student is in college, unsubsidized loans do accrue interest. 
The representative did not disclose this distinction to the applicant 
when explaining that she could put the money in a savings account.
                   other sales and marketing tactics
    Six colleges engaged in other questionable sales and marketing 
tactics such as employing hard-sell sales and marketing techniques and 
requiring enrolled students to pay monthly installments to the college 
during their education.
     At one Florida college owned by a publicly traded company, 
a representative told our undercover applicant she needed to answer 18 
questions correctly on a 50 question test to be accepted to the 
college. The test proctor sat with her in the room and coached her 
during the test.
     At two other colleges, our undercover applicants were 
allowed 20 minutes to complete a 12-minute test or took the test twice 
to get a higher score.
     At the same Florida college, multiple representatives used 
high pressure marketing techniques, becoming argumentative, and 
scolding our undercover applicants for refusing to enroll before 
speaking with financial aid.
     A representative at this Florida college encouraged our 
undercover applicant to sign an enrollment agreement while assuring her 
that the contract was not legally binding.
     A representative at another college in Florida owned by a 
publicly traded company said that he personally had taken out over 
$85,000 in loans to pay for his degree, but he told our undercover 
applicant that he probably would not pay it back because he had a 
``tomorrow's never promised'' philosophy.
     Three colleges required undercover applicants to make $20-
$150 monthly payments once enrolled, despite the fact that students are 
typically not required to repay loans until after the student finishes 
or drops out of the program. These colleges gave different reasons for 
why students were required to make these payments and were sometimes 
unclear exactly what these payments were for. At one college, the 
applicant would have been eligible for enough grants and loans to cover 
the annual cost of tuition, but was told that she needed to make 
progress payments toward the cost of the degree separate from the money 
she would receive from loans and grants. A representative from this 
college told the undercover applicant that the Federal Government's 
``90/10 Rule'' required the applicant to make these payments. However, 
the ``90/10 Rule'' does not place any requirements on students, only on 
the college.
     At two colleges, our undercover applicants were told that 
if they recruited other students, they could earn rewards, such as an 
MP3 player or a gift card to a local store.\10\
---------------------------------------------------------------------------
    \10\ Depending on the value of the gift, such a transaction may be 
allowed under current law. Federal statute requires that a college's 
program participation agreement with Education include a provision that 
the college will not provide any commission, bonus, or other incentive 
payment based directly or indirectly on success in securing enrollments 
or financial aid to any persons or entities engaged in any student 
recruiting or admission activities. However, Education's regulations 
have identified 12 types of payment and compensation plans that do not 
violate this statutory prohibition, referred to as ``safe harbors.'' 
Under one of these exceptions, schools are allowed to provide ``token 
gifts'' valued under $100 to a student provided the gift is not in the 
form of money and no more than one gift is provided annually to an 
individual. However, on June 18, 2010 the Department of Education 
issued a notice of proposed rulemaking that would, among other things, 
eliminate these 12 safe harbors and restore the full prohibition.
---------------------------------------------------------------------------
               accurate and helpful information provided
    In some instances our undercover applicants were provided accurate 
or helpful information by campus admissions and financial aid 
representatives. In line with Federal regulations, undercover 
applicants at several colleges were provided accurate information about 
the transferability of credits to other postsecondary institutions, for 
example:

     A representative at a college owned by a publicly traded 
company in Pennsylvania told our applicant that with regard to the 
transfer of credits, ``different schools treat it differently; you have 
to roll the dice and hope it transfers.''
     A representative at a privately owned for-profit college 
in Washington, DC told our undercover applicant that the transfer of 
credits depends on the college the applicant wanted to transfer to.

    Some financial aid counselors cautioned undercover applicants not 
to take out more loans than necessary or provided accurate information 
about what the applicant was required to report on his FAFSA, for 
example:

     One financial aid counselor at a privately owned college 
in Washington, DC told an applicant that because the money had to be 
paid back, the applicant should be cautious about taking out more debt 
than necessary.
     A financial aid counselor at a college in Arizona owned by 
a publicly traded company had the undercover applicant call the FAFSA 
help line to have him ask whether he was required to report his 
$250,000 inheritance. When the FAFSA help line representative told the 
undercover applicant that it had to be reported, the college financial 
aid representative did not encourage the applicant not to report the 
money.

    In addition, some admissions or career placement staff gave 
undercover applicants reasonable information about prospective salaries 
and potential for employment, for example:

     Several undercover applicants were provided salary 
information obtained from the BLS or were encouraged to research 
salaries in their prospective fields using the BLS Web site.
     A career services representative at a privately owned for-
profit college in Pennsylvania told an applicant that as an entry level 
graphic designer, he could expect to earn $10-$15 per hour. According 
to the BLS only 25 percent of graphic designers earn less than $15 per 
hour in Pennsylvania.
             Web Site Inquiries Result in Hundreds of Calls
    Some Web sites that claim to match students with colleges are in 
reality lead generators used by many for-profit colleges to market to 
prospective students. Though such Web sites may be useful for students 
searching for schools in some cases, our undercover tests involving 
four fictitious prospective students led to a flood of calls--about 
five a day. Four of our prospective students filled out forms on two 
Web sites, which ask questions about students' interests, match them to 
for-profit colleges with relevant programs, and provide the students' 
information to the appropriate college or the college's out-sourced 
calling center for follow-up about enrollment. Two fictitious 
prospective students expressed interest in a culinary arts certificate, 
one on Web site A and one on Web site B. Two other prospective students 
expressed interest in a bachelor's in business administration degree, 
one on each Web site.
    Within minutes of filling out forms, three prospective students 
received numerous phone calls from colleges. One fictitious prospective 
student received a phone call about enrollment within 5 minutes of 
registering and another five phone calls within the hour. Another 
prospective student received two phone calls separated only by seconds 
within the first 5 minutes of registering and another three phone calls 
within the hour. Within a month of using the Web sites, one student 
interested in business management received 182 phone calls and another 
student also interested in business management received 179 phone 
calls. The two students interested in culinary arts programs received 
fewer calls--one student received only a handful, while the other 
received 72. In total, the four students received 436 phone calls in 
the first 30 days after using the Web sites. Of these, only six calls--
all from the same college--came from a public college.\11\ The table 
below provides information about the calls these students received 
within the first 30 days of registering at the Web site.
---------------------------------------------------------------------------
    \11\ Of the 436 calls, not all resulted in a voice message in which 
a representative identified the school he or she was calling from. For 
those callers who did not leave a message, GAO attempted to trace the 
destination of the caller. In some cases GAO was not able to identify 
who placed the call to the student.

                                           Table 2: Telephone Calls Received as a Result of Web site Inquiries
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        No. of
                                                                                                                        Calls        Most        Total
                                                                                                                       Received      Calls     Number of
               Student                    Student's Location       Web Site Student Used            Degree            Within 24    Received      Calls
                                                                                                                       Hours of     in One     Received
                                                                                                                     Registering    Day\1\    in a Month
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................  GA......................  A.......................  Business Administration.           21          19         179
                  2..................  CA......................  B.......................  Business Administration.           24          18         182
3....................................  MD......................  A.......................  Culinary Arts...........            5           8          72
4....................................  NV......................  B.......................  Culinary Arts...........            2           1           3
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: GAO
\1\ This number is based on the number of calls received within the first month of registering but does not include the first 24 hours.

  Tuition at For-Profit Colleges Is Sometimes Higher Than Tuition at 
              Nearby Public and Private Nonprofit Colleges
    During the course of our undercover applications, some college 
representatives told our applicants that their programs were a good 
value. For example, a representative of a privately owned for-profit 
college in California told our undercover applicant that the $14,495 
cost of tuition for a computer-aided drafting certificate was ``really 
low.'' A representative at a for-profit college in Florida owned by a 
publicly traded company told our undercover applicant that the cost of 
their associate's degree in criminal justice was definitely ``worth the 
investment.'' However, based on information we obtained from for-profit 
colleges we tested, and public and private nonprofit colleges in the 
same geographic region, we found that most certificate or associate's 
degree programs at the for-profit colleges we tested cost more than 
similar degrees at public or private nonprofit colleges. We found that 
bachelor's degrees obtained at the for-profit colleges we tested 
frequently cost more than similar degrees at public colleges in the 
area; however, bachelor's degrees obtained at private nonprofit 
colleges nearby are often more expensive than at the for-profit 
colleges.
    We compared the cost of tuition at the 15 for-profit colleges we 
visited, with public and private non-profit colleges located in the 
same geographic area as the for-profit college. We found that tuition 
in 14 out of 15 cases, regardless of degree, was more expensive at the 
for-profit college than at the closest public colleges. For 6 of the 15 
for-profit colleges tested, we could not find a private nonprofit 
college located within 250 miles that offered a similar degree. For 1 
of the 15, representatives from the private nonprofit college were 
unwilling to disclose their tuition rates when we inquired. At eight of 
the private nonprofit colleges for which we were able to obtain tuition 
information on a comparable degree, four of the for-profit colleges 
were more expensive than the private nonprofit college. In the other 
four cases, the private nonprofit college was more expensive than the 
for-profit college.
    We found that tuition for certificates at for-profit colleges were 
often significantly more expensive than at a nearby public college. For 
example, our undercover applicant would have paid $13,945 for a 
certificate in computer-aided drafting program--a certification for a 
7-month program obtained by those interested in computer-aided 
drafting, architecture, and engineering--at the for-profit college we 
visited. To obtain a certificate in computed-aided drafting at a nearby 
public college would have cost a student $520. However, for two of the 
five colleges we visited with certificate programs, we could not locate 
a private nonprofit college within a 250-mile radius and another one of 
them would not disclose its tuition rate to us. We were able to 
determine that in Illinois, a student would spend $11,995 on a medical 
assisting certificate at a for-profit college, $9,307 on the same 
certificate at the closest private nonprofit college, and $3,990 at the 
closest public college. We were also able to determine that in 
Pennsylvania, a student would spend $21,250 on a certificate in Web 
page design at a for-profit college, $4,750 on the same certificate at 
the closest private nonprofit college, and $2,037 at the closest public 
college.
    We also found that for the five associate's degrees we were 
interested in, tuition at a for-profit college was significantly more 
than tuition at the closest public college. On average, for the five 
colleges we visited, it cost between 6 and 13 times more to attend the 
for-profit college to obtain an associate's degree than a public 
college. For example, in Texas, our undercover applicant was interested 
in an associate's degree in respiratory therapy which would have cost 
$38,995 in tuition at the for-profit college and $2,952 at the closest 
public college. For three of the associate's degrees we were interested 
in, there was not a private nonprofit college located within 250 miles 
of the for-profit we visited. We found that in Florida the associate's 
degree in Criminal Justice that would have cost a student $4,448 at a 
public college, would have cost the student $26,936 at a for-profit 
college or $27,600 at a private nonprofit college--roughly the same 
amount. In Texas, the associate's degree in business administration 
would have cost a student $2,870 at a public college, $32,665 at the 
for-profit college we visited, and $28,830 at the closest private 
nonprofit college.
    We found that with respect to the bachelor's degrees we were 
interested in, four out of five times, the degree was more expensive to 
obtain at the for-profit college than the public college. For example 
in Washington, DC, the bachelor's degree in Management Information 
Systems would have cost $53,400 at the for-profit college, and $51,544 
at the closest public college. The same bachelor's degree would have 
cost $144,720 at the closest private nonprofit college. For one 
bachelor's degree, there was no private nonprofit college offering the 
degree within a 250 mile radius. Three of the four private nonprofit 
colleges were more expensive than their for-profit counterparts.

                                      Table 3: Program Total Tuition Rates
----------------------------------------------------------------------------------------------------------------
                                                                     For-
                                                                    Profit     Public       Private Nonprofit
                Degree                          Location           College    College        College Tuition
                                                                   Tuition    Tuition
----------------------------------------------------------------------------------------------------------------
Certificate--Computer-aided drafting..  CA......................    $13,945       $520  College would not
                                                                                         disclose
Certificate--Massage Therapy            CA......................    $14,487       $520  No college within 250
                                                                                         miles
Certificate--Cosmetology..............  DC......................    $11,500     $9,375  No college within 250
                                                                                         miles
Certificate--Medical Assistant........  IL......................    $11,995     $3,990  $9,307
Certificate--Web Page Design..........  PA......................    $21,250     $2,037  $4,750
Associate's--Paralegal................  AZ......................    $30,048     $4,544  No college within 250
                                                                                         miles
Associate's--Radiation Therapy........  FL......................    $38,690     $5,621  No college within 250
                                                                                         miles
Associate's--Criminal Justice.........  FL......................    $26,936     $4,448  $27,600
Associate's--Business Administration..  TX......................    $32,665     $2,870  $28,830
Associate's--Respiratory Therapist....  TX......................    $38,995     $2,952  No college within 250
                                                                                         miles
Bachelor's--Management Information      DC......................    $53,400    $51,544  $144,720
 Systems.
Bachelor's--Elementary Education......  AZ......................    $46,200    $31,176  $28,160
Bachelor's--Psychology................  IL......................    $61,200    $36,536  $66,960
Bachelor's--Business Administration...  PA......................    $49,200    $49,292  $124,696
Bachelor's--Construction Management...  TX......................    $65,338    $25,288  No college within 250
                                                                                         miles
----------------------------------------------------------------------------------------------------------------
Source: Information obtained from for-profit colleges admissions employees and nonprofit college Web sites or
  employees.
Note: These costs do not include books or supplies, unless the college gave the undercover applicant a flat rate
  to attend the for-profit college, which was inclusive of books, in which case we were not able to separate the
  cost of books and supplies.

    Mr. Chairman, this concludes my statement. I would be pleased to 
answer any questions that you or other members of the committee may 
have at this time.
                                 ______
                                 
            Appendix I: Detailed Results of Undercover Tests
    The following table provides details on each of the 15 for-profit 
colleges visited by undercover applicants. We visited each school 
twice, posing once as an applicant who was eligible to receive both 
grants and loans (Scenario 1), and once as an applicant with a salary 
and savings that would qualify the undercover applicant only for 
unsubsidized loans (Scenario 2).


----------------------------------------------------------------------------------------------------------------
                                                                                               Encouragement of
                                                                                                  fraud, and
                                  Students receiving  Students receiving    Graduation rate      engagement in
 College Information  and degree    Pell Grants \1\    Federal loans \1\   \1\ [In percent]      deceptive, or
             sought                  [In percent]        [In percent]                              otherwise
                                                                                                 questionable
                                                                                                   behavior
----------------------------------------------------------------------------------------------------------------
1...............................  27................  39................  15................  Scenario 1
  AZ--4-year, owned by publicly     ................    ................    ................   Admission
   traded company.                                                                             s representative
                                                                                               compares the
                                                                                               college to the
                                                                                               University of
                                                                                               Arizona and
                                                                                               Arizona State
                                                                                               University.
                                                                                               Admission
                                                                                               s representative
                                                                                               did not disclose
                                                                                               the graduation
                                                                                               rate after being
                                                                                               directly asked.
                                                                                               He provided
                                                                                               information on
                                                                                               how many students
                                                                                               graduated. This
                                                                                               information was
                                                                                               available on the
                                                                                               college's Web
                                                                                               site; however, it
                                                                                               required
                                                                                               significant
                                                                                               effort to find
                                                                                               the college's
                                                                                               graduation rate,
                                                                                               and the college
                                                                                               did not provide
                                                                                               separate
                                                                                               graduation rates
                                                                                               for its multiple
                                                                                               campuses
                                                                                               nationwide.
  Bachelor's--Education.........    ................    ................    ................   Admission
                                                                                               s representative
                                                                                               says that he does
                                                                                               not know the job
                                                                                               placement rate
                                                                                               because a lot of
                                                                                               students moved
                                                                                               out of the area.
                                                                                               Admission
                                                                                               s representative
                                                                                               encourages
                                                                                               undercover
                                                                                               applicant to
                                                                                               continue on with
                                                                                               a master's degree
                                                                                               after finishing
                                                                                               with the
                                                                                               bachelor's. He
                                                                                               stated that some
                                                                                               countries pay
                                                                                               teachers more
                                                                                               than they do
                                                                                               doctors and
                                                                                               lawyers.
                                                                                              Scenario 2
                                                                                               Admission
                                                                                               s representative
                                                                                               said the
                                                                                               bachelor's degree
                                                                                               would take a
                                                                                               maximum of 4
                                                                                               years to
                                                                                               complete, but she
                                                                                               provided a 1-year
                                                                                               cost estimate
                                                                                               equal to \1/5\ of
                                                                                               the required
                                                                                               credit hours.
                                                                                               According
                                                                                               to the admissions
                                                                                               representative
                                                                                               the undercover
                                                                                               applicant was
                                                                                               qualified for
                                                                                               $9,500 in student
                                                                                               loans, and the
                                                                                               representative
                                                                                               indicated that
                                                                                               the applicant
                                                                                               could take out
                                                                                               the full amount
                                                                                               even though the
                                                                                               applicant
                                                                                               indicated that he
                                                                                               had $250,000 in
                                                                                               savings.
                                                                                               Admission
                                                                                               s representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that
                                                                                               the graduation
                                                                                               rate is 20
                                                                                               percent.
                                                                                               Education reports
                                                                                               that it is 15
                                                                                               percent.
2...............................  57................  83................  Not reported......  Scenario 2
  AZ--4-year, owned by publicly     ................    ................    ................   Upon
   traded company.                                                                             request by
                                                                                               applicant, the
                                                                                               financial aid
                                                                                               representative
                                                                                               estimated Federal
                                                                                               aid eligibility
                                                                                               without the
                                                                                               undercover
                                                                                               applicant's
                                                                                               reported $250,000
                                                                                               in savings to see
                                                                                               if applicant
                                                                                               qualified for
                                                                                               more financial
                                                                                               aid. The
                                                                                               representative
                                                                                               informed the
                                                                                               applicant he was
                                                                                               ineligible for
                                                                                               any grants.
  Associate's Degree--Paralegal.    ................    ................    ................   Admission
                                                                                               s representative
                                                                                               misrepresented
                                                                                               the length of the
                                                                                               program by
                                                                                               telling the
                                                                                               undercover
                                                                                               applicant that
                                                                                               the 96-credit
                                                                                               hour program
                                                                                               would take 2
                                                                                               years to
                                                                                               complete.
                                                                                               However, she only
                                                                                               provided the
                                                                                               applicant a first
                                                                                               year cost
                                                                                               estimate for 36
                                                                                               credit hours. At
                                                                                               this rate it
                                                                                               would take more
                                                                                               than 2.5 years to
                                                                                               complete.
3...............................  94................  96................  84................  Scenario 1
  CA--less than 2-year,             ................    ................    ................   College
   privately owned.                                                                            representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that if
                                                                                               she failed to
                                                                                               pass the
                                                                                               college's
                                                                                               required
                                                                                               assessment test,
                                                                                               she can continue
                                                                                               to take different
                                                                                               tests until she
                                                                                               passes.
                                                                                               The
                                                                                               college
                                                                                               representative
                                                                                               did not tell the
                                                                                               graduation rate
                                                                                               when asked
                                                                                               directly. The
                                                                                               representative
                                                                                               replied, ``I
                                                                                               think, pretty
                                                                                               much, if you try
                                                                                               and show up and,
                                                                                               you know, do the
                                                                                               work, you're
                                                                                               going to
                                                                                               graduate. You're
                                                                                               going to pass
                                                                                               guaranteed.'' The
                                                                                               college's Web
                                                                                               site also did not
                                                                                               provide the
                                                                                               graduation rate.
                                                                                               Undercove
                                                                                               r applicant was
                                                                                               required to take
                                                                                               a 12-minute
                                                                                               admittance test
                                                                                               but was given
                                                                                               over 20 minutes
                                                                                               because the test
                                                                                               proctor was not
                                                                                               monitoring the
                                                                                               student.
  Certificate--Computer Aided       ................    ................    ................   Scenario
   Drafting.                                                                                   2
                                                                                               Undercove
                                                                                               r applicant was
                                                                                               encouraged by a
                                                                                               financial aid
                                                                                               representative to
                                                                                               change the FAFSA
                                                                                               to falsely
                                                                                               increase the
                                                                                               number of
                                                                                               dependents in the
                                                                                               household in
                                                                                               order to qualify
                                                                                               for a Pell Grant.
                                                                                               The
                                                                                               financial aid
                                                                                               representative
                                                                                               was aware of the
                                                                                               undercover
                                                                                               applicant's
                                                                                               inheritance and,
                                                                                               addressing the
                                                                                               applicant's
                                                                                               expressed
                                                                                               interest in
                                                                                               loans, confirmed
                                                                                               that he could
                                                                                               take out the
                                                                                               maximum in
                                                                                               student loans.
                                                                                               The
                                                                                               career
                                                                                               representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that
                                                                                               getting a job is
                                                                                               a ``piece of
                                                                                               cake'' and then
                                                                                               told the
                                                                                               applicant that
                                                                                               she has graduates
                                                                                               making $120,000-
                                                                                               $130,000 a year.
                                                                                               This is likely
                                                                                               the exception;
                                                                                               according to the
                                                                                               BLS 90 percent of
                                                                                               architectural and
                                                                                               civil drafters
                                                                                               make less than
                                                                                               $70,000 per year.
                                                                                               She also stated
                                                                                               that in the
                                                                                               current economic
                                                                                               environment, the
                                                                                               applicant could
                                                                                               expect a job with
                                                                                               a likely starting
                                                                                               salary of $13-$14
                                                                                               per hour or $15
                                                                                               if the applicant
                                                                                               was lucky.
4...............................  73................  83................  66................  Scenario 1
  CA--2-year, owned by publicly     ................    ................    ................   The
   traded company.                                                                             financial aid
                                                                                               representative
                                                                                               would not discuss
                                                                                               the under cover
                                                                                               applicant's
                                                                                               eligibility for
                                                                                               grants and loans
                                                                                               and required the
                                                                                               applicant to
                                                                                               return on another
                                                                                               day.
  Certificate--Massage Therapy..    ................    ................    ................  Scenario 2
                                                                                               While one
                                                                                               school
                                                                                               representative
                                                                                               indicated to the
                                                                                               undercover
                                                                                               applicant that he
                                                                                               could earn up to
                                                                                               $30 an hour as a
                                                                                               massage
                                                                                               therapist,
                                                                                               another
                                                                                               representative
                                                                                               told the
                                                                                               applicant that
                                                                                               the school's
                                                                                               massage
                                                                                               instructors and
                                                                                               directors can
                                                                                               earn $150-$200 an
                                                                                               hour. While this
                                                                                               may be possible,
                                                                                               according to the
                                                                                               BLS, 90 percent
                                                                                               of all massage
                                                                                               therapists in
                                                                                               California make
                                                                                               less than $34 per
                                                                                               hour.
5...............................  34................  66................  71................  Scenario 1
  DC-4-year, privately owned....    ................    ................    ................   Admission
                                                                                               s representative
                                                                                               explains to the
                                                                                               undercover
                                                                                               applicant that
                                                                                               although
                                                                                               community college
                                                                                               might be a less
                                                                                               expensive place
                                                                                               to get a degree,
                                                                                               community
                                                                                               colleges make
                                                                                               students spend
                                                                                               money on classes
                                                                                               that they do not
                                                                                               need for their
                                                                                               career. However,
                                                                                               this school also
                                                                                               requires students
                                                                                               to take at least
                                                                                               36 credit hours
                                                                                               of non-business
                                                                                               general education
                                                                                               courses.
                                                                                               Admission
                                                                                               s representative
                                                                                               did not disclose
                                                                                               the graduation
                                                                                               rate after being
                                                                                               directly asked.
                                                                                               He told the
                                                                                               undercover
                                                                                               applicant that it
                                                                                               is a ``good''
                                                                                               graduation rate.
                                                                                               The college's Web
                                                                                               site also did not
                                                                                               provide the
                                                                                               graduation rate.
                                                                                               Admission
                                                                                               s representative
                                                                                               encouraged the
                                                                                               undercover
                                                                                               applicant to
                                                                                               enroll by asking
                                                                                               her to envision
                                                                                               graduation day.
                                                                                               He stated, ``Let
                                                                                               me ask you this,
                                                                                               if you could walk
                                                                                               across the stage
                                                                                               in a black cap
                                                                                               and gown. And
                                                                                               walk with the
                                                                                               rest of the
                                                                                               graduating class
                                                                                               and take a degree
                                                                                               from the
                                                                                               president's hand,
                                                                                               how would that
                                                                                               make you feel?''
  Bachelor's Degree--Business       ................    ................    ................  Scenario 2
   Information Systems.                                                                        Admission
                                                                                               s representative
                                                                                               said the
                                                                                               bachelor's degree
                                                                                               would take 3.5 to
                                                                                               4 years to
                                                                                               complete. He gave
                                                                                               the applicant the
                                                                                               cost per 12 hour
                                                                                               semester, the
                                                                                               amount per
                                                                                               credit, the total
                                                                                               number of credits
                                                                                               required for
                                                                                               graduation, and
                                                                                               the number of
                                                                                               credits for the
                                                                                               first year. When
                                                                                               asked if the
                                                                                               figure he gave
                                                                                               multiplied by
                                                                                               four would be the
                                                                                               cost of the
                                                                                               program, the
                                                                                               representative
                                                                                               said yes,
                                                                                               although the
                                                                                               actual tuition
                                                                                               would have
                                                                                               amounted to some
                                                                                               $12,000 more.
                                                                                               Admission
                                                                                               s representative
                                                                                               required the
                                                                                               undercover
                                                                                               applicant to
                                                                                               apply to the
                                                                                               college before he
                                                                                               could talk to
                                                                                               someone in
                                                                                               financial aid.
                                                                                               Admission
                                                                                               s representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that
                                                                                               almost all of the
                                                                                               graduates get
                                                                                               jobs.
                                                                                               Flyer
                                                                                               provided to
                                                                                               undercover
                                                                                               applicant stated
                                                                                               that the average
                                                                                               income for
                                                                                               business
                                                                                               management
                                                                                               professionals in
                                                                                               2004 was $77,000-
                                                                                               $118,000. When
                                                                                               asked more
                                                                                               directly about
                                                                                               likely starting
                                                                                               salaries, the
                                                                                               admissions
                                                                                               representative
                                                                                               said that it was
                                                                                               between $40,000
                                                                                               and $50,000.
6...............................    74..............    74..............    Not reported....  Scenario 1
  DC--less than 2-year,             ................    ................    ................   Admission
   Privately owned.                                                                            s representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that
                                                                                               the college was
                                                                                               accredited by
                                                                                               ``an agency
                                                                                               affiliated with
                                                                                               the government,''
                                                                                               but did not
                                                                                               specifically name
                                                                                               the accrediting
                                                                                               body.
                                                                                               Admission
                                                                                               s representative
                                                                                               suggested to the
                                                                                               undercover
                                                                                               applicant that
                                                                                               all graduates get
                                                                                               jobs.
                                                                                               Specifically he
                                                                                               told the
                                                                                               applicant that if
                                                                                               he had not found
                                                                                               a job by the time
                                                                                               he graduated from
                                                                                               the school, the
                                                                                               owner of the
                                                                                               school would
                                                                                               personally find
                                                                                               the applicant a
                                                                                               job himself.
  Certificate--Cosmetology,         ................    ................    ................  Scenario 2
   Barber.                                                                                     Admission
                                                                                               s representative
                                                                                               told our
                                                                                               undercover
                                                                                               applicant that
                                                                                               barbers can earn
                                                                                               $150,000 to
                                                                                               $250,000 a year,
                                                                                               though that would
                                                                                               be extremely
                                                                                               unusual. The BLS
                                                                                               reports that 90
                                                                                               percent of
                                                                                               barbers make less
                                                                                               than $43,000 a
                                                                                               year. In
                                                                                               Washington, DC,
                                                                                               90 percent of
                                                                                               barbers make less
                                                                                               than $17,000 per
                                                                                               year. He said,
                                                                                               ``The money you
                                                                                               can make, the
                                                                                               potential is
                                                                                               astronomical.''
7...............................  86................  92................  78................  Scenario 1
  FL--2-year, privately owned...    ................    ................    ................   When
                                                                                               asked by the
                                                                                               undercover
                                                                                               applicant for the
                                                                                               graduation rate
                                                                                               for two programs,
                                                                                               the admissions
                                                                                               representative
                                                                                               did not answer
                                                                                               directly. For
                                                                                               example the
                                                                                               representative
                                                                                               stated that
                                                                                               ``I've seen it's
                                                                                               an 80 to 90
                                                                                               graduation rate''
                                                                                               for one of the
                                                                                               programs but said
                                                                                               for that
                                                                                               information ``I
                                                                                               would have to
                                                                                               talk to career
                                                                                               services.'' She
                                                                                               also said 16 or
                                                                                               17 students
                                                                                               graduated from
                                                                                               one of the
                                                                                               programs, but
                                                                                               couldn't say how
                                                                                               many students had
                                                                                               started the
                                                                                               program. The
                                                                                               college's Web
                                                                                               site also did not
                                                                                               provide the
                                                                                               graduation rate.
  Associate's Degree--Radiologic    ................    ................    ................   Admission
   Therapy.                                                                                    s representative
                                                                                               told our
                                                                                               prospective
                                                                                               undercover
                                                                                               applicant that
                                                                                               student loans
                                                                                               were not like car
                                                                                               loans because
                                                                                               student loans
                                                                                               could be deferred
                                                                                               in cases of
                                                                                               economic
                                                                                               hardship, saying
                                                                                               ``It's not like a
                                                                                               car note where if
                                                                                               you don't pay
                                                                                               they're going to
                                                                                               come after you.
                                                                                               If you're in
                                                                                               hardship and
                                                                                               you're unable to
                                                                                               find a job, you
                                                                                               can defer it.''
                                                                                               The
                                                                                               representative
                                                                                               did not explain
                                                                                               the circumstances
                                                                                               under which
                                                                                               students might
                                                                                               qualify for
                                                                                               deferment.
                                                                                               Borrowers who do
                                                                                               not qualify for
                                                                                               deferment or
                                                                                               forbearance and
                                                                                               who cannot pay
                                                                                               their loans face
                                                                                               fees, may damage
                                                                                               their credit or
                                                                                               have difficulty
                                                                                               taking out future
                                                                                               loans. Moreover,
                                                                                               in most cases,
                                                                                               bankruptcy law
                                                                                               prohibits a
                                                                                               student borrower
                                                                                               from discharging
                                                                                               a student loan.
                                                                                              Scenario 2
                                                                                               Admission
                                                                                               s representative
                                                                                               suggested to the
                                                                                               undercover
                                                                                               applicant that he
                                                                                               not report
                                                                                               $250,000 in
                                                                                               savings reported
                                                                                               on the FAFSA. The
                                                                                               representative
                                                                                               told the
                                                                                               applicant to come
                                                                                               back once the
                                                                                               fraudulent
                                                                                               financial
                                                                                               information
                                                                                               changes had been
                                                                                               processed.
                                                                                               This
                                                                                               change would not
                                                                                               have made the
                                                                                               undercover
                                                                                               applicant
                                                                                               eligible for
                                                                                               grants because
                                                                                               his income would
                                                                                               have been too
                                                                                               high, but it
                                                                                               would have made
                                                                                               him eligible for
                                                                                               loans subsidized
                                                                                               by the
                                                                                               government.
8...............................  Not Reported......  Not Reported......  Not Reported......  Scenario 1
  FL--2-year, owned by publicly     ................    ................    ................   Admission
   traded company.                                                                             s representative
                                                                                               falsely stated
                                                                                               that the college
                                                                                               was accredited by
                                                                                               the same agency
                                                                                               that accredits
                                                                                               Harvard and the
                                                                                               University of
                                                                                               Florida.
                                                                                               A test
                                                                                               proctor sat in
                                                                                               the test taking
                                                                                               room with the
                                                                                               undercover
                                                                                               applicant and
                                                                                               coached her
                                                                                               during the test.
                                                                                               The
                                                                                               undercover
                                                                                               applicant was not
                                                                                               allowed to speak
                                                                                               to a financial
                                                                                               aid
                                                                                               representative
                                                                                               until she
                                                                                               enrolled in the
                                                                                               college.
  Associate's Degree--Criminal      ................    ................    ................   Applicant
   Justice.                                                                                    had to sign
                                                                                               agreement saying
                                                                                               she would pay $50
                                                                                               per month toward
                                                                                               her education
                                                                                               while enrolled in
                                                                                               college.
                                                                                               On paying
                                                                                               back loans, the
                                                                                               representative
                                                                                               said, ``You got
                                                                                               to look at it .
                                                                                               . . I owe $85,000
                                                                                               to the University
                                                                                               of Florida. Will
                                                                                               I pay it back?
                                                                                               Probably not . .
                                                                                               . I look at life
                                                                                               as tomorrow's
                                                                                               never promised. .
                                                                                               . . Education is
                                                                                               an investment,
                                                                                               you're going to
                                                                                               get paid back ten-
                                                                                               fold, no matter
                                                                                               what.''
                                                                                               Admission
                                                                                               s representative
                                                                                               suggested
                                                                                               undercover
                                                                                               applicant switch
                                                                                               from criminal
                                                                                               justice to the
                                                                                               medical assistant
                                                                                               certificate,
                                                                                               where she could
                                                                                               make up to
                                                                                               $68,000 per year.
                                                                                               While this may be
                                                                                               possible, BLS
                                                                                               reports 90
                                                                                               percent of
                                                                                               medical
                                                                                               assistants make
                                                                                               less than $40,000
                                                                                               per year.
                                                                                              Scenario 2
                                                                                               When the
                                                                                               applicant asked
                                                                                               about financial
                                                                                               aid, the 2
                                                                                               representatives
                                                                                               would not answer
                                                                                               but debated with
                                                                                               him about his
                                                                                               commitment level
                                                                                               for the next 30
                                                                                               minutes.
                                                                                               The
                                                                                               representative
                                                                                               said that student
                                                                                               loans would
                                                                                               absolutely cover
                                                                                               all costs in this
                                                                                               2-year program.
                                                                                               The
                                                                                               representative
                                                                                               did not specify
                                                                                               that Federal
                                                                                               student loans by
                                                                                               themselves would
                                                                                               not cover the
                                                                                               entire cost of
                                                                                               the program.
                                                                                               While there are
                                                                                               private loan
                                                                                               programs
                                                                                               available, they
                                                                                               are normally
                                                                                               based on an
                                                                                               applicant passing
                                                                                               a credit check,
                                                                                               and typically
                                                                                               carry higher
                                                                                               interest rates
                                                                                               than Federal
                                                                                               student loans.
                                                                                               The
                                                                                               representative
                                                                                               said paying back
                                                                                               loans should not
                                                                                               be a concern
                                                                                               because once he
                                                                                               had his new job,
                                                                                               repayment would
                                                                                               not be an issue.
                                                                                               The
                                                                                               representatives
                                                                                               used hard-sell
                                                                                               marketing
                                                                                               techniques; they
                                                                                               became
                                                                                               argumentative,
                                                                                               called applicant
                                                                                               afraid, and
                                                                                               scolded applicant
                                                                                               for not wanting
                                                                                               to take out
                                                                                               loans.
9...............................  83................  80................  70................  Scenario 2
  IL--2-year, privately owned...    ................    ................    ................
                                                                                               Admission
                                                                                               s representative
                                                                                               initially
                                                                                               provided
                                                                                               misleading
                                                                                               information to
                                                                                               the undercover
                                                                                               applicant about
                                                                                               the
                                                                                               transferability
                                                                                               of the credit.
                                                                                               First she told
                                                                                               the applicant
                                                                                               that the credits
                                                                                               will transfer.
                                                                                               Later, she
                                                                                               correctly told
                                                                                               the applicant
                                                                                               that it depends
                                                                                               on the college
                                                                                               and what classes
                                                                                               have been taken.
  Certificate--Medical Assistant    ................    ................    ................
10..............................  Not reported......  Not reported......  Not reported......  Scenario 1
  IL--4-year, owned by publicly     ................    ................    ................   Admission
   traded company.                                                                             s representative
                                                                                               said the
                                                                                               bachelor's degree
                                                                                               would take 3.5-4
                                                                                               years to
                                                                                               complete, but
                                                                                               only provided an
                                                                                               annual cost
                                                                                               estimate for \1/
                                                                                               5\ of the
                                                                                               program.
  Bachelor's Degree--Psychology.    ................    ................    ................  Scenario 2
                                                                                               Admission
                                                                                               s representative
                                                                                               did not provide
                                                                                               the graduation
                                                                                               rate when
                                                                                               directly asked.
                                                                                               Instead she
                                                                                               indicated that
                                                                                               not everyone
                                                                                               graduates.
11..............................  47................  58................  9.................  Scenario 1
  PA--4-year, owned by publicly     ................    ................    ................  Admissions
   traded company.                                                                             representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that
                                                                                               she could take
                                                                                               out the maximum
                                                                                               amount of Federal
                                                                                               loans, even if
                                                                                               she did not need
                                                                                               all the money.
                                                                                               She told the
                                                                                               applicant she
                                                                                               could put the
                                                                                               extra money in a
                                                                                               high-interest
                                                                                               savings account.
                                                                                               While subsidized
                                                                                               loans do not
                                                                                               accrue interest
                                                                                               while a student
                                                                                               is in college,
                                                                                               unsubsidized
                                                                                               loans do accrue
                                                                                               interest. The
                                                                                               representative
                                                                                               did not disclose
                                                                                               this distinction
                                                                                               to the applicant
                                                                                               when explaining
                                                                                               that she could
                                                                                               put the money in
                                                                                               a savings
                                                                                               account.
  Bachelor's Degree--Business       ................    ................    ................  Scenario 2
   Administration.                                                                             Admission
                                                                                               s representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that
                                                                                               the college is
                                                                                               regionally
                                                                                               accredited but
                                                                                               does not state
                                                                                               the name of the
                                                                                               accrediting
                                                                                               agency. The
                                                                                               college's Web
                                                                                               site did provide
                                                                                               specific
                                                                                               information about
                                                                                               the college's
                                                                                               accreditation,
                                                                                               however.
                                                                                               Admission
                                                                                               s representative
                                                                                               said financial
                                                                                               aid may be able
                                                                                               to use what they
                                                                                               call
                                                                                               ``professional
                                                                                               judgment'' to
                                                                                               determine that
                                                                                               the undercover
                                                                                               applicant does
                                                                                               not need to
                                                                                               report over
                                                                                               $250,000 in
                                                                                               savings on the
                                                                                               FAFSA.
                                                                                               Admission
                                                                                               s representative
                                                                                               did not disclose
                                                                                               the graduation
                                                                                               rate after being
                                                                                               directly asked.
                                                                                               He instead
                                                                                               explained that
                                                                                               all students that
                                                                                               do the work
                                                                                               graduate. This
                                                                                               information was
                                                                                               available on the
                                                                                               college's Web
                                                                                               site; however, it
                                                                                               required
                                                                                               significant
                                                                                               effort to find
                                                                                               the college's
                                                                                               graduation rate,
                                                                                               and the college
                                                                                               did not provide
                                                                                               separate
                                                                                               graduation rates
                                                                                               for its multiple
                                                                                               campuses
                                                                                               nationwide.
12..............................  52................  69................  56................  Scenario 1
  PA--less than 2-year,             ................    ................    ................    Admissions
   privately owned.                                                                            representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that
                                                                                               she has never
                                                                                               seen a student
                                                                                               decline to attend
                                                                                               after speaking
                                                                                               with financial
                                                                                               aid. The
                                                                                               admissions
                                                                                               representative
                                                                                               would not allow
                                                                                               the applicant to
                                                                                               speak with
                                                                                               financial aid
                                                                                               until she enroll
                                                                                               in the college.
                                                                                               If the
                                                                                               undercover
                                                                                               applicant was
                                                                                               able to get a
                                                                                               friend to enroll
                                                                                               in the college
                                                                                               she could get an
                                                                                               MP3 player and a
                                                                                               rolling backpack.
                                                                                               As noted in the
                                                                                               testimony,
                                                                                               although this is
                                                                                               not illegal, it
                                                                                               is a marketing
                                                                                               tactic.
  Certificate--Web Page Design..    ................    ................    ................  Scenario 2
                                                                                               Financial
                                                                                               aid
                                                                                               representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that he
                                                                                               should have
                                                                                               answered ``zero''
                                                                                               when asked about
                                                                                               money he had in
                                                                                               savings--the
                                                                                               applicant had
                                                                                               reported a
                                                                                               $250,000
                                                                                               inheritance.
                                                                                               The
                                                                                               financial aid
                                                                                               representative
                                                                                               told the
                                                                                               undercover
                                                                                               applicant that
                                                                                               she would change
                                                                                               his FAFSA form by
                                                                                               reducing the
                                                                                               reported assets
                                                                                               to zero. She
                                                                                               later confirmed
                                                                                               by e-mail and
                                                                                               voicemail that
                                                                                               she had made the
                                                                                               change.
                                                                                               This
                                                                                               change would not
                                                                                               have made the
                                                                                               undercover
                                                                                               applicant
                                                                                               eligible for
                                                                                               grants, but it
                                                                                               would have made
                                                                                               him eligible for
                                                                                               loans subsidized
                                                                                               by the
                                                                                               government.
13..............................  81................  99................  54................  Scenario 1
  TX--4-year, privately owned...    ................    ................    ................   Admission
                                                                                               s representative
                                                                                               said the program
                                                                                               would cost
                                                                                               between $50,000
                                                                                               and $75,000
                                                                                               instead of
                                                                                               providing a
                                                                                               specific number.
                                                                                               It was not until
                                                                                               the admissions
                                                                                               representative
                                                                                               later brought the
                                                                                               student to
                                                                                               financial aid
                                                                                               that specific
                                                                                               costs of
                                                                                               attendance were
                                                                                               provided.
  Bachelor's Degree--               ................    ................    ................  Scenario 2
   Construction Management;                                                                    Admission
   Visual Communications.                                                                      s representative
                                                                                               did not disclose
                                                                                               the graduation
                                                                                               rate after being
                                                                                               directly asked.
                                                                                               The college's Web
                                                                                               site also did not
                                                                                               provide the
                                                                                               graduation rate.
                                                                                               Admission
                                                                                               s representative
                                                                                               encouraged
                                                                                               undercover
                                                                                               applicant to
                                                                                               change the FAFSA
                                                                                               to falsely add
                                                                                               dependents in
                                                                                               order to qualify
                                                                                               for grants.
                                                                                               This
                                                                                               undercover
                                                                                               applicant
                                                                                               indicated to the
                                                                                               financial aid
                                                                                               representative
                                                                                               that he had
                                                                                               $250,000 in the
                                                                                               bank, and was
                                                                                               therefore capable
                                                                                               of paying the
                                                                                               program's $68,000
                                                                                               cost. The fraud
                                                                                               would have made
                                                                                               the applicant
                                                                                               eligible for
                                                                                               $2,000 in grants
                                                                                               per year.
14..............................  89................  92................  34................  Scenario 1
  TX--2-year, owned by publicly     ................    ................    ................   Admission
   traded company.                                                                             s representative
                                                                                               said the program
                                                                                               takes 18 to 24
                                                                                               months to
                                                                                               complete, but
                                                                                               provided a cost
                                                                                               estimate that
                                                                                               suggests the
                                                                                               program takes
                                                                                               more than 2.5
                                                                                               years to
                                                                                               complete.
                                                                                               The
                                                                                               college's Web
                                                                                               site did not
                                                                                               provide the
                                                                                               graduation rate.
  Associate's Degree--Business      ................    ................    ................  Scenario 2
   Administration.                                                                             Undercove
                                                                                               r applicant would
                                                                                               be required to
                                                                                               make a monthly
                                                                                               payment to the
                                                                                               college towards
                                                                                               student loans
                                                                                               while enrolled.
                                                                                               Admission
                                                                                               s representative
                                                                                               guaranteed the
                                                                                               undercover
                                                                                               applicant that
                                                                                               getting a degree
                                                                                               would increase
                                                                                               his salary.
15..............................  100...............  100...............  70................  Scenario 1
  TX--2-year, privately owned...    ................    ................    ................  The undercover
                                                                                               applicant was not
                                                                                               allowed to speak
                                                                                               to a financial
                                                                                               aid
                                                                                               representative
                                                                                               until he enrolled
                                                                                               in the college.
  Associate's Degree--              ................    ................    ................  Scenario 2
   Respiratory Therapy.                                                                        Admission
                                                                                               s representative
                                                                                               misrepresented
                                                                                               the length of
                                                                                               time it would
                                                                                               take to complete
                                                                                               the degree. He
                                                                                               said the degree
                                                                                               would take 2
                                                                                               years to complete
                                                                                               but provided a
                                                                                               cost worksheet
                                                                                               that spanned 3
                                                                                               years.
                                                                                               The
                                                                                               undercover
                                                                                               applicant was
                                                                                               told he was not
                                                                                               allowed to speak
                                                                                               to a financial
                                                                                               aid
                                                                                               representative
                                                                                               until he enrolled
                                                                                               in the college.
                                                                                               After refusing to
                                                                                               sign an
                                                                                               enrollment
                                                                                               agreement the
                                                                                               applicant was
                                                                                               allowed to speak
                                                                                               to someone in
                                                                                               financial aid.
                                                                                               Admission
                                                                                               s representative
                                                                                               told undercover
                                                                                               applicant that
                                                                                               monthly loan
                                                                                               repayment would
                                                                                               be lower than it
                                                                                               actually would.
----------------------------------------------------------------------------------------------------------------
Source: GAO undercover visits and Department of Education.
\1\ This information was obtained from the Department of Education National Center for Education Statistics.

                   GAO Redlined Summary of Revisions
























                               Memorandum
Date: March 1, 2011

To: GAO Employees

From: Comptroller General--Gene L. Dodaro

Subject: Executive Announcements

    Since the Forensic Audits and Special Investigations team was 
formed in 2005 the team's body of work has resulted in numerous 
accomplishments and benefits to the Congress and the public. To ensure 
good work continues and to bring greater management attention to the 
group and more seamlessly integrate its work with GAO's program teams 
as well as the audit and investigative sides of the unit, today I am 
announcing several changes. These enhancements will also ensure greater 
attention to the issues that led to the need to produce the errata to 
the for-profit schools report and by the subsequent inspection.
    The team will be restructured and renamed the Forensic Audits and 
Investigative Service (FAIS) team and I am pleased to announce that 
Rick Hillman, the current Managing Director of the Financial Markets 
and Community Investments team, has agreed to serve as the Managing 
Director of the new FAIS team. I am also pleased to announce that as 
part of this new FAIS team structure, Greg Kutz will serve as Director 
of Audit Services. Another executive will be brought in as Director of 
Investigative Services and a search is underway for that individual.
    This new structure will provide greater emphasis on both forensic 
audits and investigations. We also will enhance the matrixed efforts 
the team conducts working with other teams across the agency to focus 
on investigative results that demonstrate the impact of identified 
management control and other problems. We will also increase the focus 
on some of our high-risk work such as the detection, correction and 
prevention of improper payments. The new FAIS team will be subject to 
GAO's rigorous regular internal inspections and external peer reviews. 
The inspection report on the for-profit school work identified areas to 
improve quality control and we will also move expeditiously to 
implement each of those recommendations and any new recommendations 
that come from the ongoing inspections of FAIS' portfolio of work. We 
are looking at FAIS staffing, workload and enhanced training to ensure 
we are well-positioned to support the important work the team does both 
individually and with the support of other mission teams.
    These changes are effective immediately. I hope you will join me in 
wishing Rick and Greg much success in their new positions.
                           Richard J. Hillman
    Rick Hillman will bring strong leadership to manage this 
restructuring. As a career-long GAO employee, Mr. Hillman has served 
GAO in many capacities. Mr. Hillman is currently Managing Director in 
the Financial Markets and Community Investment team and has led that 
team since 2005. In 1997, Mr. Hillman was promoted into GAO's Senior 
Executive Service as an Associate Director in the General Government 
Division working in the financial institutions and markets issues area. 
Prior to that, he was a Band III analyst in the Office of Program 
Planning and the Office of the Assistant Comptroller General for 
Planning and Reporting. Mr. Hillman also served for over 6 years in 
senior and supervisory information systems analyst positions in GAO's 
Information Management and Technology Division.
    Mr. Hillman joined GAO's headquarters office entry-level program in 
1976. He subsequently worked in GAO's Washington Regional Office until 
his reassignment to work in the accounting and financial auditing group 
in the Accounting and Financial Management Division.
    Mr. Hillman graduated with honors with a B.S. degree in accounting 
from the University of Scranton. He also has completed additional 
course work in government management and in computer technology and 
information systems issues. He has earned numerous GAO honors 
throughout his career including GAO's Comptroller General's Award in 
2009, Distinguished Service Award in 2003, and Meritorious Service 
Awards in 1986 and 1996 and other individual performance and teamwork 
awards.
                               Greg Kutz
    These changes will allow us to take better advantage of Greg Kutz's 
wealth of experience in forensic and other audit services. Mr. Kutz has 
been Managing Director of the Forensic Audits and Special 
Investigations Unit (FSI) and has served in that capacity since 2005. 
In 1991, Mr. Kutz joined the Government Accountability Office after 8 
years at KPMG Peat Marwick. As a Senior Executive at GAO, Mr. Kutz has 
testified at congressional hearings over 80 times primarily on matters 
related to fraud, waste and abuse and other special investigations. Mr. 
Kutz has been responsible for reports issued by GAO and testimony 
relating to credit card and travel fraud and abuse, improper sales of 
sensitive military and dual use technology, tax fraud and abuse, wage 
theft, Hurricane Katrina and Rita fraud, and a variety of other high 
profile investigations. Mr. Kutz is a Certified Public Accountant 
(CPA), Certified Fraud Examiner (CFE), and Member of the Association of 
Certified Fraud Examiners Professional Standards and Practices 
Committee. He was also a 2010 Service to America Medals Finalist for 
Law Enforcement and Justice.
        Response to Questions of Senator Enzi by Kathleen Tighe
    Question 1. Oversight of institutions of higher education relies on 
the so-called ``triad,'' which consists of the U.S. Department of 
Education (Department), State regulation, and accreditation. Please 
explain your understanding of the responsibilities held by each in 
providing oversight of higher education. What weaknesses, if any, do 
you see in this system?
    Answer 1. The Higher Education Act of 1965, as amended (HEA), 
provides eligibility criteria that an institution must meet in order to 
participate in the Federal student aid programs. States, accrediting 
agencies, and the Department all have responsibility for program 
integrity to ensure that institutions meet, and continue to meet, 
requirements for participation in the Federal student aid programs. For 
example:

     States provide licensing or other authorization necessary 
for an institution of higher education to operate within a State;
     Accrediting agencies, recognized by the Secretary of 
Education (Secretary) as reliable authorities on the quality of 
education or training offered, must establish, consistently apply, and 
enforce standards for accrediting institutions; and
     The Department assesses and certifies that an institution 
meets the HEA's eligibility criteria for administrative and financial 
responsibility. It must also conduct program reviews, on a systematic 
basis, designed to include all institutions of higher education 
participating in the Federal student aid programs.

    The Department has the primary oversight responsibility for the HEA 
Title IV programs. The Department accomplishes this through program 
reviews of institutions and reviews of the annual financial statement 
and compliance audits. In the past, the Office of Inspector General 
(OIG) has identified weaknesses in the Department's program review 
function. We periodically evaluate the program review function and will 
be doing so this year. Our quality assurance reviews of non-Federal 
auditors hired by institutions to perform required annual, independent 
audits have shown significant weaknesses in the quality of compliance 
work performed by the auditors.
    Accrediting agencies recognized by the Secretary are supposed to 
ensure the quality of postsecondary education at the institutions they 
accredit through sufficiently rigorous standards. The Department cannot 
direct accrediting agencies to improve or raise its standards. Our 
recent work on accrediting agencies and the definition of a credit hour 
has shown that accrediting agencies may not be reliable authorities on 
the quality of education. None of the regional accrediting agencies we 
reviewed had a definition of credit hour or provided guidance to 
institutions or peer reviewers on the appropriate assignment of credit 
hours to the courses provided by the institutions. The meaning of a 
credit hour is of critical importance to the title IV programs because 
it is the primary basis of student funding by the Federal Government.
    One of the primary roles of the States is to provide assurance to 
the Department that the institutions participating in the Federal 
student aid programs are authorized to provide education beyond the 
secondary level within the State. Of the three members of the triad, 
States are the weakest link. Each State is different in its treatment 
of postsecondary schools, ranging from States with strong regulation 
and enforcement of high standards for postsecondary education to States 
that just provide a business license. States' oversight may also vary 
by type of school. For example, some States may scrutinize State 
schools more closely, because State tax funds and State grants support 
the school. States have less incentive to oversee proprietary schools, 
because generally no State funding is provided.

    Question 2. The inside cover of the Office of Inspector General 
Audit Reports contains the disclaimer that ``conclusions and 
recommendations in this report, represent the opinions of the Office of 
Inspector General. Determinations of corrective action to be taken will 
be made by the appropriate Department of Education officials.'' Does 
this mean it would be improper to conclude that the subject of a 
particular audit violated the law simply based on a report from your 
office? If not, why?
    Answer 2. No, it would not be improper to conclude the subject of 
an audit violated laws or regulations based simply on an OIG audit 
report. As an independent organization within the Department, our 
office makes its own assessment of violations of laws and or 
regulations, supported by facts, and we make our recommendations to 
Department management. Prior to the issuance of a final audit report, 
we have already provided a copy of the draft audit report to the 
Department and the auditee and received feedback on whether it believes 
we have correctly applied laws and regulations. OIG may make changes to 
the final audit report based on this feedback. OIG also has a vigorous 
internal quality control process to assure each report accurately 
reflects laws and regulations and that the findings are supported by 
appropriate evidence.
    We include this disclaimer in our final audit reports for the 
public to understand that it is Department management's responsibility 
for a final determination in the audit resolution process in accordance 
with Office of Management and Budget Circular A-50. As part of that 
process, management allows the subject of the audit an opportunity to 
provide any additional information they believe could have a bearing on 
the final determination that a violation occurred and the appropriate 
administrative actions are warranted.

    Question 3. In your testimony, you discussed fraud rings that sign 
up fake students to obtain Federal funds and noted that your office has 
66 currently open investigations. Of the 66, please break down the 
number of non-profit, for-profit and public schools where 
investigations are ongoing? What are the characteristics of the public 
schools that have been found to have fraud rings operating?
    Answer 3. Of the 66 fraud rings we were investigating at the time 
of the hearing, 40 of them involved non-profit or public schools and 26 
involved for-profit schools. These fraud rings mainly target on-line 
programs at lower-cost institutions. Fraud rings operate in on-line 
environments because it allows criminals to avoid setting foot on 
campus which makes exploiting schools easier. They mainly target lower-
cost institutions because the Federal student aid awards are sufficient 
to satisfy institutional charges (such as tuition) and result in 
disbursement of the balance of an award to the student for other 
educational expenses (such as books, room and board, and commuting 
expenses).

    Question 4. The Office of Inspector General released a report 
finding similar title IV funds management problems with distance 
learning at Baker College, a non-profit school in August 2010. To what 
extent and in what ways do these problems involving title IV funds 
management identified in your report on Ashford also occur in public 
and non-profit schools?
    Answer 4. Over the last several years we have completed and issued 
five audit reports on distance education schools and identified similar 
findings in the awarding, disbursing and returning of title IV funds. 
We have issued four audit reports on proprietary schools, and one on a 
non-profit school, Baker College. We have two ongoing audits of other 
distance education schools, one proprietary school and one non-profit 
school. We also recently initiated another audit on the oversight of 
distance education by the Department, accrediting agencies and States. 
As part of this audit we will be visiting a variety of schools 
including 2-year and 4-year distance education programs at public and 
non-profit, as well as for-profit. This audit should give us a better 
picture of distance education programs in a variety of schools.

    Question 5. As you noted in your testimony, much of the existing 
regulatory and oversight framework is ``based on traditional, semester-
based classroom instruction, and in particular, determining whether 
students in distance education are `regular students' as required by 
the HEA and actually in attendance for Federal student aid purposes.'' 
What are some of the more acute challenges that the Department faces in 
adapting its regulatory and oversight framework to distance education?
    Answer 5. A difficult problem facing the distance education schools 
and the Department is assuring the identity of the persons enrolling 
and verifying accuracy of applications for financial aid. For example, 
many proprietary distance education schools and community colleges do 
not require high school transcripts or other credentials, and schools 
can rely on the applicant's self assertion that they have a high school 
diploma or GED. As long as an applicant uses the identity of a real 
person (i.e., name, social security number and date of birth), the 
application for financial aid will likely pass the data matches the 
Department uses to screen applications for basic eligibility. Also, an 
applicant can claim little or no income to qualify for the maximum 
amount of title IV funds, and the Department does not have authority to 
verify income with the Internal Revenue Service. The next problem for 
schools and the Department is determining if the student is actually 
attending the distance education program. Tracking students' attendance 
in the on-line environment is a problem we have consistently found and 
is a contributing factor to problems with the awarding, disbursing and 
returning title IV funds.
    The Department also faces problems in ensuring that students are 
provided with the right amount of title IV aid for their postsecondary 
work. While this is not unique to distance education schools, we 
believe it is a significant challenge for distance education. 
Accrediting agencies vary in their attention to the value of a credit 
hour, providing little assurance that full-time postsecondary work is 
actually required at all institutions. Since the regional accrediting 
agencies we reviewed either could not or did not provide guidance on 
the assignment of credit hours for even traditional semester-based 
programs, the issue is magnified when dealing with distance education.

    Question 6. A Daily Caller article released the same day as your 
testimony describes a short seller's attempts to obtain insider 
information from your office on the Ashford audit. What are your 
office's policies on releasing information or discussing an audit 
before it is issued? How were those policies observed in this case to 
the best of your knowledge?
    Answer 6. OIG has a longstanding policy and our staff are trained 
to operate within that policy that an ongoing audit is not discussed 
within anyone but the auditee and the pertinent department management. 
As such, we do not release draft reports to anyone other than the 
auditee and pertinent departmental management until the final report is 
issued. This is done so as the auditee has an opportunity to review the 
findings and provide OIG with information that may not have been 
provided previously to address those findings.
    If asked by a congressional committee for information on an audit 
not yet final, we offer to brief the staff; however, we do not provide 
a copy of the report until it is final, and in such briefings, we make 
clear that the information may change based on our receipt of any new 
information from the auditee, and thus cannot be publicly disclosed. If 
asked by the press or general public for information on an audit not 
yet issued in final, our policy is to confirm that we have an audit 
underway and state that we cannot discuss the details of our ongoing 
work. The individual mentioned in the Daily Caller article contacted 
OIG on several occasions. To the best of our knowledge, in keeping with 
our policy, OIG staff did not provide him with a copy of our draft 
report, nor did OIG staff discuss our findings with him.
        Response to Questions of Senator Enzi by Sylvia Manning
    Question 1. During the hearing, Senator Hagen asked if faculty and 
administrative salaries are a factor considered by HLC in its 
accreditation reviews. Why does HLC not review salaries of faculty and 
administrators? If appropriate, how would you propose that salaries be 
considered as a factor in the accreditation process? If it is not 
appropriate, why not?
    Answer 1. The HLC does review salaries of faculty and 
administrators, but not in the way that appeared to be intended by 
Senator Hagen's question. The question before the HLC reviewers is not 
the sufficiency or excess of any particular salaries, but the possible 
relationship of salary structure to the quality of education.
    The role of the HLC is to review the quality of the education 
offered by institutions that seek accreditation by the Commission and 
to make a judgment to recognize that quality by awarding accreditation. 
In making that judgment the Commission considers a multitude of 
factors: one significant factor is the quality of the faculty. The 
Commission reviews a number of items in making a determination 
regarding the quality of the faculty. These items include the 
credentials and experience of the faculty, their role in the teaching 
and learning process, and their broader role in sharing governance of 
the institution with the administration and the governing board. The 
Commission also looks carefully at the experience and qualifications of 
the institution's senior administrators as well as their role in 
leading the institution. The quality of the faculty and their role in 
the institution, as well as the leadership of the senior 
administrators, contribute greatly to the quality of the instructional 
program.
    As a part of a comprehensive review of an institution the 
Commission receives detailed financial information about that 
institution's assets and expenditures. This information includes recent 
audited financial statements and budgets for recent and forthcoming 
years. In conjunction with this financial information the Commission 
has aggregate and individual salary information for faculty positions 
as well as for administrative positions. The Commission considers this 
information in determining whether the institution is contributing 
sufficient financial resources to support an instructional program of 
appropriate quality. In addition, the Commission considers whether 
compensation practices support appropriate student-faculty ratios and 
otherwise contribute to an environment in which there is appropriate 
attention to academic quality.
    The Commission must consider what limitations the law places on its 
activities. In the case of the faculty and administrative salaries, 
antitrust considerations prohibit the Commission from directly 
regulating compensation. A Federal district court has previously agreed 
with the Department of Justice that an accreditor's practices 
attempting to regulate compensation at its accredited schools were an 
unnecessary restraint of trade and that considerations related to 
compensation were not directly relevant to the quality of the 
institution's academic program, which was the principal focus of the 
accreditor (United States v. American Bar Association Final Judgment 
and Consent Decree 1995). Therefore the Commission's focus related to 
compensation remains determining whether those expenditures are part of 
an overall pattern of institutional expenditures indicating appropriate 
attention to instructional and institutional quality. I believe that 
this focus related to compensation is indeed the right role for an 
accreditor.
    In so far as the Congress has concerns about the use of Federal 
funds in what it views as excessive compensation for administrators or 
executives, I would respectfully suggest that such use be regulated 
directly through requirements for the use of Federal student aid funds 
rather than through accreditation.
            Reponse to Question of Senator Enzi by Jose Cruz
    Question. Since January 20, 2008, have you been employed by the 
Department of Education or the Obama administration in any capacity? 
Have you worked for the Administration on a contractual basis during 
this time? If so, please explain the nature and scope of the work 
performed--as well as any compensation provided. Please also provide 
the committee with copies of any consulting contracts.
    Answer. Since January 20, 2008 I have not been employed by the 
Department of Education or the Obama administration in any capacity. I 
have not worked for the Administration on a contractual basis during 
this time, but in April 2009 I did serve on a review panel for the 
National Science Foundation's Centers for Research Excellence in 
Science and Technology (CREST). In accordance with standard NSF 
procedures, the Foundation covered the cost of my round-trip airfare 
(coach class) and provided me with a travel reimbursement of $280 and a 
meeting reimbursement of $480 a day. The review panel lasted 2 days. 
These reinforcements covered the cost of my hotel, ground travel in DC, 
and meals for the duration of the review panel.
                                 ______
                                 
                                Letters
                                       U.S. Senate,
                                 Washington, DC 20510-6300,
                                                  October 26, 2010.
Mr. Michael D. Bopp,
Gibson Dunn,
1050 Connecticut Avenue, NW,
Washington, DC 20036.

    Dear Mr. Bopp: As you know, on August 5, 2010 your clients, 
Corinthian Colleges, Inc., received a document request from the Senate 
HELP Committee. The request asked your client to provide two sets of 
documents with production deadlines of August 26 and September 16, 
2010. We note that a number of items from the production requested for 
September 16 remain outstanding.
    We recognize that the request sought a significant amount of 
information that took time to compile and review, and for that reason 
the committee has been generous in allowing extensions of time to 
comply with the September 16 deadline. In fact, no recipient of the 
document request was asked to complete production prior to October 5, 
almost 3 weeks after the deadline. We also acknowledge that your client 
has provided responses or partial responses to a number of the 
requested items, and that you have assured the committee that efforts 
to complete the production are ongoing.
    However, given the elapsed time and the need for the committee to 
complete its review in a timely fashion, the committee hereby requests 
that all remaining responsive documents, not including email 
communications, be provided no later than November 5, 2010. To the 
extent that documents have been withheld for any reason for any item in 
the second production, a log listing all withheld documents along with 
the reason for withholding each document, as set forth in Section M of 
the instructions accompanying the August 5 request, should also be 
provided no later than November 5. Moreover, as stated in paragraph 1 
of the Data Delivery Standards, please ensure that your cover letter 
includes, for each item, the Bates range and a general description of 
responsive documents.
    With regard to items that call for email communications, given the 
time required to search and review potentially responsive emails, 
additional time is being provided to allow for the completion of these 
items. However, we wish to reaffirm that work on reviewing these 
materials should be moving towards conclusion, and the committee 
expects production of all responsive emails no later than November 16, 
2010.
    Thank you for your prompt attention to this matter, and please feel 
free to contact Chief Investigative Counsel Elizabeth Stein at 202-224-
2931 with any questions.
            Sincerely,
                                           Daniel E. Smith,
                               Staff Director, Committee on Health,
                                    Education, Labor, and Pensions.
                                 ______
                                 
                                       U.S. Senate,
                                 Washington, DC 20510-6300,
                                                  January 21, 2011.
Mr. William O'Reilly,
Jones Day,
Louisiana Avenue, NW,
Washington, DC 20001.

    Dear Mr. O'Reilly: I am writing in response to your letter, dated 
December 14, 2010, regarding the undercover visits by representatives 
of the Government Accountability Office (GAO) to Argosy University in 
Chicago, owned by your client Education Management Corporation. Your 
letter asks that findings made by the GAO about recruiting practices at 
Argosy be removed from the record on the grounds that they are 
inaccurate. I respectfully disagree and believe that the GAO findings 
with regard to Argosy are clear.
    I would also note that while Argosy was included in the overall 
findings of misleading and deceptive practices at all colleges visited 
by GAO, at the insistence of HELP Committee staff Argosy was also 
singled out in the report and in the testimony at the August 4, 2010 
hearing for certain ``good practices'' the recruiter demonstrated 
during one of the visits.
    You correctly note that revisions made to the GAO findings in the 
November 30, 2010 errata include the deletion of a reference to the 
qualifications of the professors at Argosy. I believe that this finding 
required more context as it related to the counseling experience of the 
psychology faculty, but should have remained in the report. Documents 
received by the committee suggest that this is a common response 
provided to questions about faculty qualifications, and in fact is 
often used to obscure the fact that the faculty often have limited 
academic qualifications. For that reason, I believe the excerpt 
provided useful and important information.
    You specifically raise concerns with the following additional 
findings of the GAO:

    1. Admission representative said the bachelor's degree would take 
3.5 to 4 years to complete, but provided an annual cost estimate for 
\1/5\ of the program.

    You correctly state that, in the audio, the admissions 
representative says that the program requires 120 credits, and 
separately states the program can be completed in 3.5 years if the 
student goes full-time including summer. The representative also 
explains that the program costs $510 per credit hour, plus a $10 fee. 
However, she then says that most students take 12 credits per semester 
which costs $6,240, or $12,480 a year.
    While a prospective student with a calculator in hand and fast 
typing skills could have come up with a correct cost estimate of 
$61,200 for the program, the information conveyed to the undercover 
representative implied that the cost was 3\1/2\ years at $12,480 a year 
(or $43,680), significantly lower than it actually was. Moreover, while 
this was the only instance of this type of tactic employed by Argosy, 
it was not the only instance of underestimating total cost encountered 
by undercover GAO representatives. The fact that this type of 
underestimation occurred at multiple schools likely and correctly 
played a role in the determination to include this exchange in the 
findings.

    2. Admissions representative did not provide the graduation rate 
when directly asked. Instead she indicated that not everyone graduates.

    As you note, the actual exchange goes ``Does everyone graduate who 
starts?'' and the response given is, ``I don't know what our graduation 
rate is. I know, it's not 100 percent.'' There simply is no question of 
fact in this instance. Moreover, it strains credibility that the 
representative did not actually know the graduation rate.
    I would like to also take this opportunity to point out some 
additional questionable conduct documented by GAO but not included in 
the report.
    In Argosy Scenario 2, the school representative tells the applicant 
that he may be eligible for interest-free loans, telling the applicant 
that ``the unsubsidized loan has interest, the subsidized loan does 
not.'' As you know, while interest on subsidized loans does not accrue 
while a student is enrolled in school, the Federal Government does not 
offer interest-free loans to higher education students.
    Thank you for taking the time to raise your concerns with me, and 
for providing me with the opportunity to share with you and your client 
additional questionable behavior documented by the GAO. While I believe 
that the practices demonstrated by Argosy representatives in the GAO 
undercover visits are at the less egregious end of the spectrum of 
practices documented, they nonetheless demonstrate the misleading and 
deceptive tactics that seem to pervade for-profit recruiting at this 
time. The GAO report and the underlying investigative work have 
provided a valuable window into the practices of companies like those 
operated by your client, and I commend the GAO for the time and 
professionalism they have brought to this project.
            Sincerely,
                                                Tom Harkin,
                                     Chairman, Committee on Health,
                                    Education, Labor, and Pensions.
                                 ______
                                 
                                       U.S. Senate,
                                 Washington, DC 20510-6300,
                                                  February 1, 2011.
Mr. Duncan Anderson,
President and Chief Executive Officer,
5026 Campbell Blvd., Suite D,
Baltimore, MD 21236.

    Dear Mr. Anderson: I am writing in response to your letter of 
December 17, 2010, regarding the undercover visits by representatives 
of the Government Accountability Office (GAO) to MedVance Institute in 
Miami, owned by your company, Education Affiliates. Your letter asks 
that findings made by the GAO about recruiting practices at MedVance be 
removed from the record on the grounds that they are inaccurate. I 
respectfully disagree and believe that the GAO findings with regard to 
MedVance are clear.
    You specifically raise concerns with the following findings of the 
GAO:

    1. When asked by the undercover applicant for the graduation rate 
for two programs, the admissions representative did not answer 
directly. For example the representative stated that ``I've seen it's 
an 80 to 90 percent graduation rate'' for one of the programs but said 
for that information ``I would have to talk to career services.'' She 
also said 16 or 17 students graduated from one of the programs, but 
couldn't say how many students had started the program. The college's 
Web site also did not provide the graduation rate.

    Your letter is correct that the errata issued by the GAO on 
November 30, 2010, both clarified that the question regarding 
graduation rate was asked for two programs, and provided additional 
detail regarding the MedVance representative's incorrect and misleading 
answers to the questions. Avoiding the question by stating how many 
students started and providing an answer that does not match actual 
statistics is misleading conduct. I am also confident that if you 
listen to the tapes again you will note that the graduation rates 
estimate is for a program in medical coding and billing while the 
statement regarding how many students finished recently pertains to a 
radiology program. The report also notes that the MedVance Web site did 
not provide the graduation rate. As you note, this is not a violation 
of law but it is also not a practice that promotes informed student 
enrollments. Together the three failures to provide adequate 
information on graduation rates sheds light on practices that your 
company might presumably be focused on improving rather than defending.

    2. Admissions representative told our prospective undercover 
applicant that student loans were not like car loans because student 
loans could be deferred in cases of economic hardship, saying ``It's 
not like a car note where if you don't pay they're going to come after 
you. If you're in hardship and you're unable to find a job, you can 
defer it.'' The representative did not explain the circumstances under 
which students might qualify for deferment. Borrowers who do not 
qualify for deferment or forbearance and who cannot pay their loans 
face fees, may damage their credit or have difficulty taking out future 
loans. Moreover, in most cases, bankruptcy law prohibits a student 
borrower from discharging a student loan.

    The GAO errata properly provides the new context that the MedVance 
representative's statement that the student loan was not like a car 
loan where ``if you don't pay they are going to come after you'' was 
made in the context of explaining that student loans may be placed in 
forbearance or deferred. While this is a true statement, the 
representative made it sound as this was a simple transaction with no 
negative consequences, when, in fact, there are criteria that must be 
met for deferment, both forbearance and deferment are time limited, and 
interest accrues throughout the both deferment and forbearance, thus 
potentially vastly increasing the cost of the loan. Additionally, 
unlike any other consumer loan, student loans can almost never be 
discharged in bankruptcy, and as you know, the Federal Government will, 
in fact, come after delinquent borrowers rather relentlessly, going so 
far as to attach tax refunds and Social Security payments. While 
deferment and forbearance provide important flexibility to students in 
repayment, neither is the equivalent of a ``get out of jail free 
card.'' Given the increasing numbers of for-profit students being 
counseled into immediate forbearance as evidenced by the committee's 
document requests, this exchange is of interest to the committee.

    3. Admissions representative suggested to the undercover applicant 
that he not report $250,000 in savings reported on the FAFSA. The 
representative told the applicant to come back once the fraudulent 
financial information changes had been processed. This change would not 
have made the undercover applicant eligible for grants because his 
income would have been too high, but it would have made him eligible 
for loans subsidized by the government.

    You state that the audiotapes do not support the allegation that 
either the financial aid or the admissions representative suggested 
that he not report his inheritance. I have included the exchange below 
to clarify that both representatives, but particularly the admissions 
representative, encouraged the undercover GAO representative to 
resubmit the FAFSA without the $250,000 inheritance. While the 
conversation is somewhat lengthy it occurred as follows:

          GAO 1: ``Now, I put in, uhm, you know, that I had some money 
        from inheritance, uhm, which is a big chunk, you know. Does 
        that need to go in there, that's not money that I worked for, 
        or anything like that.''
          Financial Aid Representative: ``It's up to you. I cannot tell 
        you what to but there, but if you already reported it, I mean--

          GAO 1: ``I can't make changes to it anymore?''
          Financial Aid Representative: ``It's up to you. You can go in 
        there and make any changes you want.''

          GAO 1: ``And then they will recalculate it?''
          Financial Aid Representative: ``Mmmhmm--So, if you want to do 
        that--So, I'm going to have this, let me give you that 
        paperwork.''

          GAO 1: ``OK. We're good?''
          Admissions Representative: ``No, you're not good yet, don't 
        you want to try to do some stuff today?''

          GAO 1: ``Well, she was going to give me some--''
          Admissions Representative: ``OK. There's a change that you 
        want to make in your financial aid, right?''

          GAO 1: ``Well, I put a big chunk in there, I don't know if it 
        should be in there.''
          Admissions Representative: ``So, what happens is if you make 
        that change, it's going to take like three days for her to get 
        a new form and be able to give you accurate figures. OK?''

          GAO 1: ``OK, yeah.''
          Admissions Representative: ``So what are your options? 
        Changing and waiting the three days, but it might help you out 
        some. Or not changing it and basing it on the figures that you 
        have right now. What do you want? A or B?''

          GAO 2: ``It'd be good to see what, you know, what could 
        happen.''

          GAO 1: ``Yeah. I'd like A. To change, right?''
          Admissions Representative: ``To make the change. OK.''
          Financial Aid Representative: ``OK.''
          Admissions Representative: ``Because that means that you're 
        going to have to hold tight a little bit. But your patience in 
        the long run may reward you. It's probably going to give you a 
        more accurate figure. Because right now we base it on that, you 
        may only qualify for a certain amount and we're going to have a 
        clearer picture once we make that change. Does that make 
        sense?''

          GAO 1: ``Yeah, yeah.''

          GAO 2: ``What do you think is the biggest problem? You think 
        its like his income or things like that amount he put down?''
          Financial Aid Representative: ``That amount.''

          GAO 2: ``That amount. yeah, I mean, you wouldn't have to put 
        that on your tax return. Because it wasn't--like an 
        inheritance.''

          GAO 1: ``Yeah, I didn't work for that I just--''

          GAO 2: ``Yeah. So maybe you shouldn't put it down. They 
        wouldn't know.''
          Admissions Representative: ``No . . . that happens. There's a 
        lot of things that I didn't know unless someone like--helped me 
        out.''

          GAO 1: ``So, I'll make the changes and then I'll--''
          Admissions Representative: ``Yeah, make the changes. She'll 
        show you how to do that. And hold tight then for about three 
        days and then we'll set you up for an appointment to come back 
        and then you'll have an accurate--(conversation proceeds to 
        where to find a Starbucks).

    While it is clear that the interest of both the admissions 
representative and the financial aid representative is to get the 
undercover GAO representative enrolled that day, when they accept that 
it is not going to happen both acknowledge that removing the FAFSA 
reportable inheritance might affect the amount of financial aid he 
receives. The financial aid representative in particular never states 
that the Department of Education requires applicants to report cash, 
savings and investments on the FAFSA. This is made clear in several 
Department of Education publications. A properly trained representative 
should not have even tacitly endorsed changing a FAFSA to exclude 
reportable amounts.
    Finally, I would like to also take this opportunity to point out 
some additional questionable conduct documented by GAO but not included 
in the report.
    In the course of the first visit to MedVance, the representative 
leads the undercover prospective student to believe that she will 
receive student loan forgiveness from any hospital employer stating:

            ``You can step into a hospital tomorrow and say to HR, `I 
        have 23,000 in student loans, can you pay it off? ' And they'll 
        say, `OK Terri, you have to work with us for a year and a half 
        and we're going to pay it off.' ''

    This is an astounding misrepresentation of the availability of loan 
repayment programs, and one that I hope Education Affiliates will 
repudiate and take steps to ensure that no such practices are ongoing.
    Thank you for taking the time to raise your concerns with me, and 
for providing me with the opportunity to share with you and your 
company additional questionable behavior documented by the GAO. The GAO 
report and the underlying investigative work have provided a valuable 
window into the practices of companies like yours, and I commend the 
GAO for the time and professionalism they have brought to this project.
            Sincerely,
                                                Tom Harkin,
                                     Chairman, Committee on Health,
                                    Education, Labor, and Pensions.
                                 ______
                                 
Senator Lamar Alexander,
U.S. Senate,
455 Dirksen Senate Office Building,
Washington, DC 20510-0001.

    Dear Senator Alexander: As part of the Ashford University family, 
I'm asking you to support my university at the Senate HELP Committee 
hearing on March 10. I would like to tell you about my experience. I am 
a retired military veteran, full-time employee and student, and a 
husband and father whose main goal is to complete his degree and be an 
inspiration to his 5-year-old daughter. Leading by example has always 
been a part of my military and personal life. So in order for me to 
preach the importance of having an education to my daughter, I must 
first practice what I preach. What better way than continuing my 
education.
    When I retired from the U.S. Navy after serving faithfully for 26 
years, searching for a university that wouldn't be a hindrance to my 
way of life was first and foremost. I searched numerous institutions 
hoping I would find one that could work around my job and family while 
giving me the necessary credit for my military experience. With that 
being said, ``Ashford was the obvious choice.'' It's rich traditions, 
curriculum, knowledgeable instructors, and commitment to excellence was 
the key behind my decision to attend Ashford. Since enrolling, I have 
been able to maintain my way of life and complete the courses at the 
pace that's beneficial for me. Most full-time employees do not get that 
opportunity to sit in a classroom setting in obtaining or reaching that 
goal in earning a degree, so we must look for alternatives.
    Ashford and other's like her are truly beneficial to our active 
duty personnel, reservists, retirees (who has a full-time job), and the 
working people; because our demand for service is so intense that we do 
not get those same opportunities like some civilians to attend a 
college of our choice without some type of drawback. So before making 
any decisions, I ask that you all look at the statistics of what these 
types of universities offer not only to our military, but to everyone. 
Private sector colleges are just as challenging and have the same 
opportunities as those so-called prestigious colleges/universities. 
Their curriculum is just as challenging and rewarding, the instructors 
are very knowledgeable of their specialty, and they are committed to 
their faculty and student body. Please reconsider your decision and 
walk in our shoes for a chance and you'll see how beneficial these 
private sector universities are to people like me and our military.
            Sincerely,
                                             Louis Gladney,
                                            Memphis, TN 38125-4417.
                                 ______
                                 
Senator Lamar Alexander,
U.S. Senate,
455 Dirksen Senate Office Building,
Washington, DC 20510-0001.

    Dear Senator Alexander: As part of the Ashford University family, 
I'm asking you to support my university at the Senate HELP Committee 
hearing on March 10. I would like to tell you about my experience. I am 
a military spouse and I began attending Ashford University in November. 
We are currently stationed overseas and Ashford has been such a great 
help at helping me achieve my goals and making my dreams possible. They 
have helped me every step of the way and whenever I have any questions 
they are always there to answer. I have not had one single problem with 
this university and I have had many recruits due to the positive 
feedback I have given. My husband has also chose to attend this college 
while he is pursuing his active army career. I hope there is nothing 
but positive things to be said about this university.
            Sincerely,
                                            Amanda Knochel,
                                       Pigeon Forge, TN 37863-5704.
                                 ______
                                 
Senator Lamar Alexander,
U.S. Senate,
455 Dirksen Senate Office Building,
Washington, DC 20510-0001.

    Dear Senator Alexander: As part of the Ashford University family, 
I'm asking you to support my university at the Senate HELP Committee 
hearing on March 10. I would like to tell you about my experience.
    I am a 28-year-old single mother of three. I have just went through 
a devastating divorce and child custody battle. I went to get my 
associates and my bachelors from a traditional college campus. I was 
miserable because I hated the degree I was in, hated how I was just a 
number without a face and that no one seemed to care or understand that 
I was needed more at home than I was doing something for myself. I 
found Ashford University at an on-line research database for people who 
could not go to a traditional college because of family, medical, or 
military reasons. Doing this one small thing for myself has meant the 
world to me. I am not just a number to them. Ashford took the time to 
find what my real passion was and that going back to school and 
switching majors so late in life and with so much to worry about (the 
kids, the divorce, work) I could still do this one thing for me! If you 
take away on-line education than you might as well take away at-home 
schooling for grades K-12. It is unconstitutional to try to tell a 
person how they can get an education, where they have to go to get that 
education and not offer citizens other options based on non-traditional 
classes. Everyone can not go to a traditional class room and sit there 
for multiple hours while others work and toil around them, some have to 
go any time they can get the extra hours in the day; I am one of those 
people.
    In closing I think that to attack these kinds of schools will lead 
to a weakening of an already weak economy since most are trying to go 
back to school to get a better job, and now they will be forced to 
choose between a low paying job (that promotes poverty) or going to 
school (which in this case could promote a market crash in a wobbling 
system). I need Ashford just like so many others in my situation NEED 
Ashford. And frankly, the society that I am living in needs me, the 
educated, improved me, that can go to school and strive for and achieve 
a better future. Not just for me but for my children and those that 
come after us.
    Thank you.
            Sincerely,
                                             Samantha Rhea,
                                       Russellville, TN 37860-9333.
                                 ______
                                 
Senator Mike B. Enzi,
U.S. Senate,
379A Russell Senate Office Building,
Washington, DC 20510-0001.

    Dear Senator Enzi: As part of the Ashford University family, I'm 
asking you to support my university at the Senate HELP Committee 
hearing on March 10. I would like to tell you about my experience.
    I was really nervous to go back to school. I was scared that I 
would mess everything up and not be able to get accepted into college. 
Ashford made it extremely easy for me to start school. My academic 
counselor walked me through everything. Within a few weeks I started 
school. I have been attending Ashford for 7 months now. I love it. I 
have a 3.8 GPA. I did not even do that well when I was in High School. 
They have made me feel comfortable and happy. I love it there!
            Sincerely,
                                         Stephanie Vallejo,
                                           Sheridan, WY 82801-4844.
                                 ______
                                 
                        Citizens for Responsibility
                   and Ethics in Washington (CREW),
                                             March 1, 2011.
Arne Duncan,
Secretary of Education,
U.S. Department of Education,
Washington, DC 20202.

    Dear Secretary Duncan: Citizens for Responsibility and Ethics in 
Washington (``CREW'') writes to followup to our letter to you of 
January 19, 2011, requesting that you examine the role hedge fund 
managers and outside interest groups have played in the Department of 
Education's (Education) formulation of regulations governing the for-
profit education industry. Additional agency records CREW obtained 
recently in response to our Freedom of Information Act (FOIA) request 
provide further evidence that high-level Education officials involved 
in the agency rulemaking process not only knew of the efforts of 
certain hedge fund managers to influence the regulatory outcome, but 
may themselves have colluded with those individuals to protect the 
short-sellers' financial interests. They also document a plan by high-
level Education officials to leak the contents of the gainful 
employment regulations in advance of their public issuance.
    The newly discovered documents show, among other things, that both 
Deputy Undersecretary James Kvaal and Budget Development Staff Director 
David Bergeron carried out a planned leak of the proposed gainful 
employment regulations to a number of outside individuals and groups in 
advance of the regulations' public release. This effort started with an 
email from hedge fund short-seller Steven Eisman to Mr. Bergeron on 
July 19, 2010, just days before Education released the regulations. The 
subject line of Mr. Eisman's email reads ``I know you cannot respond'' 
with the following text: ``But just fyi. Education stocks are running 
because people are hearing DOE is backing down on gainful employment.'' 
\1\
---------------------------------------------------------------------------
    \1\ A copy of this email is attached as Exhibit A.
---------------------------------------------------------------------------
    The email thread of which this is a part shows this email was 
forwarded to a number of Education officials, landing eventually in the 
email box of your confidential assistant, Phil Martin, with the 
statement ``Let's discuss.'' \2\
---------------------------------------------------------------------------
    \2\ See id.
---------------------------------------------------------------------------
    The following day Mr. Kvaal initiated a plan to call various 
outside groups and individuals with the apparent purpose of giving them 
a heads up on the upcoming regulations. The email thread shows that Mr. 
Kvaal and Mr. Bergeron divided the calls between them, with some key 
individuals and groups scheduled for contact as early as July 21, 2 
days in advance of when Education issued the proposed gainful 
employment regulations.\3\ None of the listed groups and individuals 
included anyone representing or acting on behalf of the for-profit 
education industry.
---------------------------------------------------------------------------
    \3\ This email chain is attached as Exhibit B.
---------------------------------------------------------------------------
    The email chain references both Mr. Eisman and Diane Schulman of 
The Indago Group as individuals who should receive advance notice.\4\ 
The Indago Group is a small research company used by Mr. Eisman and his 
hedge fund, FrontPoint Services Fund to obtain information and entree 
to Washington lawmakers for Mr. Eisman.\5\ Notice to either Mr. Eisman 
or Ms. Schulman, either directly from Education officials or indirectly 
from others in contact with Education officials, would have provided 
Mr. Eisman with reassurance about the likely market impact of the 
upcoming regulations. While neither is listed on the final call list 
for Mr. Kvaal or Mr. Bergeron, other documents reveal that Mr. Eisman 
likely received that notice from at least one non-profit group in 
receipt of an advance copy of the regulations.\6\
---------------------------------------------------------------------------
    \4\ Specifically, a followup email from Mr. Bergeron on July 21 
(enclosed with Exhibit B) discussing who both he and Mr. Kvaal would 
call, states: ``Also, there's the Eisman/Schluman/et al. [sic] but 
Eisman is a short seller anyway you cut it and anything you tell 
Schulman gets to Eisman.''
    \5\ Their professional relationship is spelled out in our January 
19, 2011 letter to you.
    \6\  See Letter to Arne Duncan from Anne L. Weismann, January 19, 
2011, at pp. 6-7.
---------------------------------------------------------------------------
    The newly acquired documents also show that on the same day Mr. 
Eisman initially contacted Mr. Bergeron with an update on how education 
stocks were faring, Mr. Kvaal quickly located the analysis prepared by 
the investment banking firm Signal Hill that apparently was fueling 
market speculation that Education had made the proposed gainful 
employment regulations ``more accommodating'' to the for-profit 
education industry.\7\ Signal Hill questioned Mr. Eisman's analysis, 
suggesting a need to ``discredit the widely-circulated Eisman negative-
earnings scenario,'' and disputing ``the assumption used by most 
shorts, including apparently Mr. Eisman, that `active repayment' means 
current within 30 days.'' \8\ Mr. Kvaal, with no explanation, promptly 
characterized this assessment as ``not all accurate information.'' \9\
---------------------------------------------------------------------------
    \7\ See email from Barmak Nassirian to James Kvaal, Re Write-up, 
July 19, 2010 and enclosed Regulatory Update from Signal Hill, attached 
as Exhibit C.
    \8\ See Signal Hill Regulatory Update at p. 1.
    \9\ See email from James Kvaal to Gomez Gabriella (Education's 
Assistant Secretary for Legislative and Congressional Affairs), Re 
Write-up, July 19, 2010 (attached as Exhibit D).
---------------------------------------------------------------------------
    These documents also bear directly on issues that have been 
referred to Education Inspector General Kathleen Tighe. Last November 
Senators Richard Burr (R-NC) and Tom A. Coburn (R-OK), who at that time 
were both on the Senate Committee on Health, Education, Labor, and 
Pensions, requested that Ms. Tighe investigate the failure of key 
Education negotiators for the gainful employment regulations to comply 
with the organizational protocols governing Education's rulemaking 
process. Among their concerns was evidence that ``the Department may 
have leaked the proposed regulations to parties supporting the 
Administration's position and investors who stand to benefit from the 
failure of the proprietary school sector.'' \10\ As this latest batch 
of documents reveals, Education officials at least had a coordinated 
plan to leak information about the gainful employment regulations to 
outside organizations in advance of the regulations' issuance.\11\
---------------------------------------------------------------------------
    \10\ See letter from Senators Burr and Coburn to Kathleen Tighe, 
November 17, 2010 (attached as Exhibit E).
    \11\ One of the newly released documents shows that at least some 
in the non-profit community understood the restrictions imposed on 
Education officials. In a June 17, 2010 email to Education Press 
Secretary Justin Hamilton, Edie Irons, Communications Director for 
TICAS, notes: ``I know that you all haven't been allowed to talk 
publicly about these rules yet.'' This email is enclosed as Exhibit F.
---------------------------------------------------------------------------
    Together with the previously released documents discussed in our 
letter of January 19, 2011, this new batch of documents raises 
extremely troubling questions about the actions of Education officials 
at the highest levels of this regulatory process. Those officials 
knowingly allowed short-sellers to manipulate agency processes for 
personal gain and ignored their own responsibilities to the agency they 
serve. Unless these questions are answered, the public can have no 
faith in any aspect of Education's rulemaking process.
            Very truly yours,
                                          Anne L. Weismann,
                                                     Chief Counsel.

                               EXHIBIT A



                               EXHIBIT B





                               EXHIBIT C









                               EXHIBIT D



                               EXHIBIT E

                                       U.S. Senate,
                                      Washington, DC 20510,
                                                 November 17, 2010.
Ms. Kathleen Tighe,
Inspector General,
U.S. Department of Education,
Office of Inspector General,
Washington, DC 20202-1500.

    Dear Ms. Tighe: The work of your office is essential to protecting 
the efficiency and effectiveness of programs administered by the U.S. 
Department of Education. Independent analysis helps ensure the 
integrity of the Department's mission and operations. To that end, we 
request an investigation by your office of the events leading up to the 
issuance of the Department's proposed regulations regarding ``gainful 
employment.''
    As you know, Section 492 of the Higher Education Act requires the 
Department to convene negotiated rulemaking any time it promulgates 
regulations affecting the Federal student aid programs. Negotiated 
rulemaking ensures the Department works with individuals who are 
experienced in implementing the Federal student aid programs and who 
understand the consequences of the proposed regulations.
    Information has become available that raises serious concerns about 
whether some negotiators failed to comply with the organizational 
protocols governing the rulemaking process and other laws governing 
these proceedings. In addition, publicly available documents indicate 
the Department may have leaked the proposed regulations to parties 
supporting the Administration's position and investors who stand to 
benefit from the failure of the proprietary school sector. We believe 
an independent investigation will provide additional transparency 
surrounding the actions taken by Department officials and those who 
stand to benefit financially from the regulations.
    Since November 2009, the Department of Education has been engaged 
in negotiations to promulgate regulations designed to improve the 
integrity of the Federal student aid programs. At the beginning of the 
rulemaking sessions, the negotiators adopted. ``Organizational 
Protocols'' that governed the proceedings. One of the agreed upon 
principles states: ``All members and the organizations they represent 
shall act in good faith in all aspects of these negotiations''--
(``Organizational Protocols,'' U.S. Department of Education. Section 
VI.B.). Another states:

          ``Contact with the media, the investment community, and other 
        organizations outside the community of interest represented by 
        the member will generally be limited to discussion of the 
        overall objectives and progress of the negotiations''--
        (``Organizational. Protocols,'' U.S. Department of Education. 
        Section VI.C.).

    The panel met three times between November 2009 and January 2010 
and did not reach consensus on the regulations package. On June 16, 
2010, the Department released the first package of proposed regulations 
on ``program integrity.'' A month later, on July 23, 2010, the 
Department released the second package of proposed regulations on 
``gainful employment.''
    In a July 23 Freedom of Information Act (FOIA) request, Citizens 
for Responsibility and Ethics in Washington (CREW) sought information 
pertaining to the communications occurring between Department officials 
and several individuals and organizations outside of the Department. In 
its request, CREW stated:

          Specifically the requested records will inform the public 
        about the role of Education in the controversy over the for-
        profit education industry and the extent to which Education has 
        knowingly relied on, or has been manipulated by, the views of 
        individuals who seek to advance their financial interests in 
        the for-profit industry by publicly criticizing certain for-
        profit education entities and companies.

    It is our understanding that as of today, the Department has not 
responded to this FOIA request.
    Based on information that has come to light from records released 
under a Florida public records request, it appears Department officials 
may have leaked information to outside organizations, some of whom may 
stand to financially benefit from the failure of the proprietary school 
sector. For example, an email attached to this letter demonstrates that 
Edie Irons, communications director for TICAS, emailed an embargoed 
copy of the program integrity regulations to the ``Gainful Employment 
Group'' on June 15 at 5:38 p.m. As previously noted, the regulations 
were not made public until June 16. If one group received an embargoed 
copy of these proposed regulations, other groups, including those who 
stand to benefit financially from the failure of the proprietary 
sector, may have as well.
    To resolve these questions, we request an investigation by your 
office into the events leading up to and surrounding the issuance of 
the Department's proposed program integrity regulations for the period 
of April 2009 to the present. In this investigation we respectfully 
request your review of whether the organizational protocols adopted for 
negotiated rulemaking were followed by both non-Federal negotiators and 
Department staff. In addition, we ask that you review the propriety of 
all communications between Department employees and outside individuals 
and organizations to determine if the proposed regulations packages 
were inappropriately provided to any individuals or organizations prior 
to their public release.
    Members of the public, including students and the institutions they 
attend, have a right to expect the Department of Education to 
promulgate regulations through a negotiated rulemaking process that is 
undertaken in good faith and without bias.
    Thank you for your attention to this request. If you have any 
questions, please do not hesitate to contact our offices.
            Sincerely,
                                              Richard Burr,
                                                      U.S. Senator.

                                       Tom A. Coburn, M.D.,
                                                      U.S. Senator.

                               EXHIBIT F






                              DicksteinShapiro llp,
                                 Washington, DC 20006-5403,
                                                 December 17, 2010.
Hon. Tom Harkin, Chairman,
Committee on Health, Education, Labor, and Pensions,
SD-644 Dirksen Senate Office Building,
Washington, DC 20510.

Hon. Mike Enzi, Ranking Member,
Committee on Health, Education, Labor, and Pensions,
SH-833 Hart Senate Office Building,
Washington, DC 20510.

    Dear Chairman Harkin and Ranking Member Enzi: I am writing on 
behalf of my client, Alta Colleges, Inc. and its subsidiary Westwood 
College, concerning several allegations that have been leveled against 
Westwood during the course of the Senate HELP Committee's investigation 
of career colleges. Career colleges play an important role in today's 
educational landscape, and Alta is proud to provide educational options 
to thousands of Americans. Alta understands the committee's interest in 
ensuring that Federal student assistance funds are providing value to 
students and taxpayers, and it has gone to great lengths to cooperate 
and provide documents responsive to the committee's request, at a cost 
of several hundred thousand dollars.
    Westwood has been the subject of several false and damaging 
accusations. While we do not wish to speculate on the motivations of 
the accusers, we can demonstrate that their allegations are factually 
baseless. Perhaps more troubling, the GAO recently amended its 
testimony from the August 4, 2010 hearing before your committee; a 
revision to one of the factual scenarios concerning Westwood shows that 
there was at least one material omission in the original scenario that 
has unfairly tarnished Westwood's reputation with the committee and 
prospective students.
                      Allegations of Joshua Pruyn
    On August 4, 2010, Joshua Pruyn, a former Westwood admissions 
representative, testified before the committee in an investigatory 
hearing entitled, ``For-Profit Schools: The Student Recruitment 
Experience.'' In a portion of his testimony, Mr. Pruyn alleged that 
representatives at Westwood attempted to pressure a student, who had 
recently been called up from the Army Reserves to active duty, to stay 
at Westwood in order to get the student past his fourteenth day of 
attendance. This student contacted Mr. Pruyn in order to inform him 
that he had been called to active duty status and that his duties as a 
drill instructor would preclude him from continuing school while on 
active duty. Mr. Pruyn further testified that his director and 
assistant director both called the student and ``pushed him to stay 
enrolled.'' According to Mr. Pruyn, he was ``disgusted by such a 
flagrant disregard for the student. . . .''
    Mr. Pruyn's assertion that the student was pressured to remain 
enrolled is fatally undermined by the physical evidence, as well as the 
student's own recollection of the events. Westwood was able to identify 
the student at issue and examine the evidence related to this claim.\1\ 
Contrary to Mr. Pruyn's testimony, there is no evidence that Mr. 
Pruyn's supervisors spoke to the student after the term began. Westwood 
College Online uses a system called CosmoCom, which allows for the 
recording and retrieval of inbound and outbound calls. Call records 
reflect that Mr. Pruyn spoke with the student for approximately 55 
minutes on March 31, 2008 concerning his request to withdraw. However, 
records do not reflect that the admissions director or assistant 
director spoke to the student after this point, which was confirmed in 
a call on April 1, 2008, in which Mr. Pruyn asked the student if the 
director had called him regarding his decision to withdraw, and the 
student responded that she had not. When contacted recently, the 
student remembered Mr. Pruyn asking a lot of questions about his 
reasons for leaving Westwood, but that the questions did not seem 
aggressive. He also did not remember speaking with anyone else 
concerning his decision to withdraw from Westwood. The student 
apparently felt that he was being treated fairly, because he told a 
Westwood employee during a brief call on March 31, 2008, prior to 
speaking with Mr. Pruyn, that Westwood would be the first college he 
considered when he was able to enroll in school again.
---------------------------------------------------------------------------
    \1\ Mr. Pruyn referred to the student as ``Jeffrey'' in his 
testimony. We referenced the list of students enrolled by Mr. Pruyn 
during his tenure and found only one student with the first name of 
Jeffrey enrolled by Mr. Pruyn, and this individual cancelled his 
enrollment after being called up to active duty. Only three students 
enrolled by Mr. Pruyn had military experience; of the three, only the 
one named Jeffrey withdrew after the term began, which is the factual 
scenario described by Mr. Pruyn.
---------------------------------------------------------------------------
    During the hearing, Mr. Pruyn testified that ``[f]ourteen was the 
magic number,'' because once a student attended class for 14 days after 
the start of a term, the school was allowed to keep any financial aid 
it received as a result of enrolling that student. However, Mr. Pruyn 
fundamentally misconstrues the significance of a student being enrolled 
for 14 days. During a student's first 14 days of school, Westwood staff 
will monitor a student's attendance and academic progress to determine 
if a student is likely to succeed at the school. If Westwood determines 
that a student is not committed or is not likely to succeed 
academically, his/her enrollment is cancelled and no tuition is charged 
to the student. Westwood starts charging tuition to a new student after 
14 days. This internal Westwood practice does not impact access to 
title IV funds: Westwood cannot draw down title IV loan funds for a 
first-time student until the student has attended school for at least 
30 days. In addition, the return of Federal funds requirement results 
in the bulk of student aid funds being returned if a student withdraws 
prior to the 60 percent point in time of the term, so even if student 
aid is disbursed to a student after 14 days, there would be little 
financial benefit to Westwood. In this case, Westwood charged the 
student no tuition, nor were any Federal financial aid funds related to 
this student's enrollment disbursed.
    As detailed above, Mr. Pruyn's damaging allegations were factually 
and materially incorrect, if not deliberately false, and his ignorance 
concerning Westwood's 14-day conditional enrollment period created the 
erroneous impression that Westwood had a financial incentive to prevent 
this student from withdrawing prior to 14 days of attendance. We have 
attempted to contact Mr. Pruyn to discuss some of these allegations, 
but he has declined to be interviewed. In light of this evidence, we 
respectfully request that you strike Mr. Pruyn's testimony from the 
hearing record and send him a written request to clarify his remarks.
                    Allegations of Michelle L. Zuver
    During a forum on August 31, 2010, Senator Durbin invited several 
witnesses to speak, including Michelle L. Zuver, a 2008 criminal 
justice graduate from Westwood College's DuPage campus in the Chicago, 
IL area. Ms. Zuver stated that she (1) was not adequately informed of 
Westwood's accreditation status; (2) was told the cost of the program 
would be $53,000, yet upon graduation she had $86,000 in debt; (3) is 
not able to obtain employment using her Westwood degree; and (4) had a 
poor initial experience with Westwood. In an impromptu press conference 
at the end of the forum, Senator Durbin gave a statement, with Ms. 
Zuver at his side, in which he used Ms. Zuver's experience as a basis 
to opine that taxpayer money is being wasted on private-sector 
colleges. Ms. Zuver has also appeared on the CBS Evening News.
    Documentary evidence clearly shows that Ms. Zuver's allegations are 
baseless. Although she claimed that no one informed her until 2007 that 
her program was not regionally accredited, Ms. Zuver initialed a 
document when she re-enrolled in 2006 that specifically explained that 
``Westwood College is nationally accredited, not regionally accredited, 
which could have an impact on opportunities with some Chicago and 
surrounding area employers, including the city of Chicago'' (emphasis 
added). Because of the school's effort to ensure that students are 
fully informed on this point, the particular sentence noted above must 
specifically be initialed. Ms. Zuver did just that on July 31, 2006. 
Westwood's course catalog reflected the same information, and faculty 
and staff emphasized this point during the time she attended the 
college. Based largely on this information, in January 2009 an 
independent arbitrator, with the American Arbitration Association 
dismissed a legal action brought by Ms. Zuver containing an identical 
allegation, finding that ``the matters allegedly misrepresented or 
omitted were in fact sufficiently disclosed'' to her.
    When Ms. Zuver initially enrolled in 2004, her enrollment agreement 
stated the cost of the program would be $56,000. Ms. Zuver quit college 
and re-enrolled in 2006. When she re-enrolled the cost of the program 
was indeed higher ($61,600) due to tuition increases that had occurred 
during the ensuing period of time. The higher cost was reflected on the 
enrollment agreement Ms. Zuver executed when she re-enrolled. The 
actual total of tuition and fee charges paid to Westwood was $58,735, 
reflecting the fact that Ms. Zuver finished her degree in 2008 one term 
early (14 terms rather than 15). The reason her debt became so high is 
that when she re-enrolled she took out private student loans, in excess 
of the cost of attendance, for living expenses. Westwood does not 
encourage this practice, but that decision is ultimately up to the 
individual student. The loans Ms. Zuver incurred while attending 
Westwood were significantly less than the $86,000 that she claimed.
    Our records show that Westwood made numerous and substantial 
attempts to provide employment assistance to Ms. Zuver. Career 
counselors sent her job leads on 17 occasions; provided access to a 
resume workshop, which Ms. Zuver attended; and provided information 
about an upcoming job fair. However, on at least three occasions in 
2008, Ms. Zuver stated that she did not intend to seek employment in 
the field of criminal justice. In February 2009 she expressed interest 
in finding employment in this field in Virginia, and the College 
provided her numerous leads in Virginia.
    Finally, by her own account, Ms. Zuver's initial experience at 
Westwood was extremely positive. Despite indicating in Senator Durbin's 
forum that her first semester with Westwood was a negative experience, 
when she left school in 2004, Ms. Zuver sent a letter describing the 
faculty as ``amazing,'' ``knowledgeable, experienced, and 
understanding'' (see attachment). She stated that the facility was 
``extraordinary,'' she had ``absolutely no complaints,'' and her 
overall experience was ``immensely magnificent.'' It is also telling 
that Ms. Zuver re-enrolled in Westwood to complete her education.
                             GAO Testimony
    The August 4, 2010 written testimony of Gregory Kutz, Managing 
Director, GAO Office of Forensic Audits and Special Investigations, 
contains an appendix listing the detailed results of GAO's undercover 
investigation. This testimony was subsequently reissued on November 30, 
2010 in order to ``clarify and add more precise wording'' to, among 
other things, some of the examples cited in the Appendix. With respect 
to at least one of the examples pertaining to Westwood, however, the 
``clarifications'' are not semantic or stylistic; rather, they are 
extremely significant and cast doubt upon the credibility of the GAO, 
supposedly an independent fact-finder. We have attempted to obtain 
copies of the GAO tapes in order to confirm the content and context of 
each of the allegations related to Westwood, but have so far been 
unable to obtain access.
    The initial version of the GAO testimony cited the following 
``scenario,'' in relevant part, as evidence of deceptive/questionable 
behavior:

     Admissions representative said the program would cost 
between $50,000 and $75,000 instead of providing a specific number.

    By contrast, the revised scenario adds a critical piece of 
information, as follows:

     Admissions representative said the program would cost 
between $50,000 and $75,000 instead of providing a specific number. It 
was not until the admissions representative later brought the student 
to financial aid that specific costs of attendance were provided. 
(emphasis added)

    The fact that specific costs were provided to the prospective 
student/undercover investigator prior to the conclusion of the initial 
visit to the College is a material omission from the first version of 
the testimony. The admissions representative was disciplined for this 
incident based upon these allegations, including a formal reprimand in 
his permanent HR file, which may have been unwarranted had the entire 
set of facts been properly disclosed. It is difficult to understand how 
such critical mitigating facts could have been left out of this 
testimony and why it took nearly 4 months to correct, particularly 
since we expressed concern over the factual basis of this particular 
scenario during a meeting with your staff on August 27, 2010. Indeed, 
rather than revising this scenario, it should rightfully be removed 
from the GAO testimony entirely.
    We request that you take the information in this letter into 
account as the committee proceeds with its investigation. While the 
committee's interest in career colleges is understandable in light of 
the amount of Federal funds used by students who choose to attend 
institutions in this sector of higher education, investigations should 
be based on solid factual evidence and not influenced by baseless, 
exaggerated, or biased allegations. The allegations described above 
have unfairly smeared Westwood's reputation with the committee, 
accrediting bodies, and the public, at significant financial and human 
cost. In the event that the committee contemplates using any other 
claims concerning student experiences, Westwood's practices, or the 
conduct of its employees in its reports or hearings, we would 
appreciate the opportunity to discuss such claims with you or your 
staff before public disclosure to ensure that they are portrayed 
accurately and in context.
            Sincerely,
                                          Mark R. Paoletta,
                                    [email protected].
                                 ______
                                 
                               Attachment

                               Wednesday, December 8, 2004.

    To Whom It May Concern: I would like to thank Westwood College for 
the stay here in the Dupage campus. I am almost done successfully 
completing two terms in this wholesome facility. I am now going to 
cease my education here at the end of this term. I have many personal 
reasons for my failure to continue my education here at Westwood. There 
is nothing that this facility or its staff did that influenced my 
decision. I am leaving for other personal reasons that will take my 
life in a different direction then to continue my education. I am very 
grateful for the experience I have had here for the last 20 weeks. The 
staff here is amazing. They are very knowledgeable, experienced, and 
understanding. I want to thank all of my instructors personally for the 
immensely magnificent experience I encountered here. I would like to 
thank all the support staff in student services, the bookstore, and the 
program directors for steering my education in the right direction. I 
will leave this facility with 30 credit hours and it will more than 
likely be the best hours I will receive in my pursuit to continue my 
education in the future. This extraordinary facility was very well 
maintained and clean. There was absolutely no complaints about the 
building or the staff that I had throughout my entire career here at 
Westwood. I would like to say goodbye to all here at Westwood Dupage 
and say I hope the best for all of you. Thank you once again for the 
experience. It will last me a lifetime.
            Sincerely,
                                            Michelle Zuver.
                                 ______
                                 
                                        WilmerHale,
                                      Washington, DC 20006,
                                                 February 10, 2011.
Beth Stein, Esq.,
Chief Investigative Counsel,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510-6300.

Re: Bridgepoint Education

    Dear Beth: I am in receipt of Daniel Smith's letter dated February 
7, 2011. Mr. Smith's letter does not accurately represent our ongoing 
correspondence and conversations. This concerns us and we will take 
this opportunity to respond.
    As you know, the Department of Education Office of Inspector 
General (``OIG'') has recently issued its audit report entitled 
``Ashford University's Administration of the Title IV, Higher Education 
Act Programs.'' Those programs are administered by the Office of 
Federal Student Assistance (``FSA''). That Office now has jurisdiction 
over the completion of the audit process, and is empowered to take 
remedial action if it finds errors in the way those programs were 
administered. The FSA must determine whether facts exist that would 
justify any such actions, which may include further fact gathering, 
assessment of repayment obligations, penalties, reformation of 
processes, or conceivably, proceedings to fine, limit, suspend or 
terminate Ashford University from participation in such programs. 
Ashford University is scheduled to submit a response to the OIG report 
by late February. The regulatory process then provides for negotiation 
between FSA and the University, issuance of a Final Audit Determination 
Letter, a formal administrative adjudication if necessary and then 
Federal court proceedings if necessary. Ashford University has informed 
FSA that it will reply to the OIG report and has already asked for a 
meeting to discuss that report and the University's response.
    As we have discussed, in order to avoid compromising the integrity 
of the FSA proceedings, Bridgepoint Education (``Bridgepoint'') is 
simply not in a position to make witnesses available or agree to 
testify in a public hearing prior to submitting its response to FSA and 
having a meaningful opportunity to discuss scope and resolution of this 
matter with the FSA. Ashford University cannot make individuals 
available or respond publicly to questions concerning a matter in which 
it is engaged in non-public discussions and negotiations with FSA. To 
do otherwise would interfere with Ashford University's due process and 
its ability to protect itself and its students' interests in the 
proceedings before the Department of Education. As to which individuals 
you might interview before a hearing, after we have had a meaningful 
opportunity to discuss the scope and resolution of this matter with FSA 
we could discuss the details of a hearing, but are not in such a 
position at this time.
    While our ability to appear is predicated on the progress of FSA's 
inquiry, Bridgepoint also notes once again that its practices are 
within industry norms and that the OIG did not find it had violated 
incentive compensation regulations. Ashford University was not one of 
the 15 institutions criticized by the GAO report on the for-profit 
sector. Indeed, in the Chairman's February 7 remarks on the Senate 
floor, he singled out four of our country's publicly traded, post-
secondary education providers for criticism. Three of them were 
criticized by the Chairman for what he considered to be improper 
recruiting practices. Ashford University was not among that group. 
Rather, Ashford University was criticized for (1) having originally 
been a small, religiously affiliated school that was acquired by a for-
profit company, under whose ownership the school has experienced 
substantial growth, mostly in online offerings, and (2) having a 21 
percent 3-year student loan default (well below the 30 percent 
regulatory requirement and the reported 25 percent industry average). 
It is difficult to understand why having acquired, and likely saved 
from closure, a small liberal arts college, should subject Ashford 
University to being singled out during the pendency of a regulatory 
proceeding for a possible solo appearance at a public hearing when it 
has statutorily acceptable and below average default rates.
    We will provide the requested spreadsheet related to request four 
under separate cover. We are reviewing the expanded set of document 
requests that you posed to us on January 25, and will respond to you 
about those separately.
    Bridgepoint appreciates your understanding of our due process 
rights and the need to engage with the FSA without prejudice.
            Sincerely,
                                             Jay P. Urwitz.
                                 ______
                                 
                                       U.S. Senate,
                              Committee on HELP, Education,
                                       Labor, and Pensions,
                                 Washington, DC 20510-6300,
                                                     March 1, 2011.
Andrew S. Clark,
Chief Executive Officer,
Bridgepoint Education, Inc.,
San Diego, CA 92128.
    Dear Mr. Clark: On March 10, 2011, the Senate HELP Committee will 
hold a hearing titled, ``Bridgepoint Education, Inc.: A Case Study in 
For-Profit Education.'' Notice of this hearing, together with a request 
for your testimony, was provided to your attorneys in mid-January 2011. 
At that time committee staff also requested to schedule bi-partisan 
staff interviews with 6-7 additional Bridgepoint executives and 
employees in advance of the hearing.
    Also in January, the Department of Education Inspector General 
issued the results of a final audit report making six findings with 
regard to Bridgepoint-owned Ashford University's handling of title IV 
financial aid dollars. At that time, your attorneys insisted that the 
company had serious concerns about appearing at a hearing before the 
completion of the final audit determination by the Department of 
Education, a process that averages 12 to 18 months. Your attorneys 
later insisted that Bridgepoint would, of course, not expect to 
complete the process but would cooperate with the committee after the 
company had the opportunity to submit comments on the audit to the 
Department of Education, and to meet with the appropriate Department 
officials. While neither the Department of Education nor the Inspector 
General had any concern with regard to the hearing or your 
participation, purely as a matter of courtesy, the committee agreed to 
postpone the hearing from February 17 to March 10, on the condition 
that you would provide testimony at the later hearing, and that the 
company would also make the requested employees and executives 
available for interview.
    Notwithstanding this courtesy, Bridgepoint has continued to refuse 
to make any of the relevant employees available for interviews. In 
addition, on February 23, 2011, Bridgepoint submitted documents to the 
Department of Education pursuant to the final audit determination 
process. On that day your attorneys also provided assurances to the 
committee that Bridgepoint was continuing to followup on its request to 
immediately schedule a meeting with Department officials. However, on 
February 24 Bridgepoint attorneys separately told the Department: 
``[w]e would still like to have a call early on in the resolution 
process, as discussed in our earlier email exchange, and plan to call 
in 2 weeks to see if we can arrange a time that is convenient for 
all.'' Thus while providing assurances to the HELP Committee through 
one attorney, your company through a second set of attorneys was 
simultaneously seeking a delay that would provide a colorable excuse 
for your failure to appear and testify on March 10.
    This letter is to inform you that the March 10, 2011 hearing will 
proceed as planned. You will receive a formal invitation to appear and 
provide testimony in the upcoming days. Should you choose not to 
appear, leaving your company without the ability to respond to issues 
raised in the hearing, that is your choice. However, you should be 
aware that it will be made clear at the hearing that your failure to 
appear is based on nothing other than your own apparent unwillingness 
to testify regarding how a company that receives over 86 percent of its 
revenues from the Federal Government saw a 1-year increase in profit 
from $81 to $216 million, but also has student withdrawal rates of at 
least 65 to 75 percent.
    We look forward to a robust hearing and expect that you will see 
the wisdom of joining the committee in the exercise of its oversight 
authority.
            Sincerely,
                                           Daniel E. Smith,
                                                    Staff Director.
                                 ______
                                 
                              BridgepointEducation,
                                  San Diego, CA 92128-8104,
                                                     March 7, 2011.
Hon. Tom Harkin, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510-6300.

Re: Invitation to Testify at March 10, 2011 Hearing

    Dear Chairman Harkin: Thank you for your invitation of March 1, 
2011 to testify at a hearing of the U.S. Senate Committee on Health, 
Education, Labor, and Pensions. Bridgepoint Education makes an 
important contribution to the education of the people of this country, 
especially those who have difficulty availing themselves of education 
elsewhere. In that spirit, we have extensively cooperated with your 
staff, providing a wide range of documents about our operations, 
inviting and hosting your staff at our Ashford University, Clinton, IA 
campus, and answering specific questions your team has generated.
    As we explained to both Ms. Stein on February 10, 2011, and Mr. 
Smith on March 7, 2011, Bridgepoint Education will not be able to 
testify on March 10, 2011 (copies included.) We are currently in 
proceedings before the Department of Education's Office of Federal 
Student Aid (``FSA''). FSA now has jurisdiction over the completion of 
the review process for a report by the Office of Inspector General. The 
FSA must determine whether facts exist that would justify any 
remediation, and must interpret the statute and regulation. Those 
proceedings have not advanced to the point where we have had a 
meaningful opportunity to discuss scope and resolution of the matter. 
Thus, Ashford University cannot respond publicly to questions which 
will be the subject of non-public discussions and negotiations with 
FSA.
    I am confident that you will understand our decision at this time. 
Thank you for your appreciation of this important process.
            Respectfully submitted,
                                              Andrew Clark,
                                                 President and CEO.
                                        WilmerHale,
                                      Washington, DC 20006,
                                                     March 7, 2011.
Daniel E. Smith,
Staff Director,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510-6300.

Re: March 1, 2011 Letter to Bridgepoint Education

    Dear Mr. Smith: We have received your letter of March 1, 2011, 
addressed to Andrew Clark, Chief Executive Officer of Bridgepoint 
Education (``Bridgepoint''), and are responding on Mr. Clark's behalf. 
The letter does not accurately represent the conversations and 
correspondence among Bridgepoint, HELP Committee staff, and the Office 
of Federal Student Aid. Bridgepoint has sought to cooperate throughout 
its discussions with committee staff and has repeatedly indicated its 
willingness to have a representative of Bridgepoint or Ashford 
University testify before the committee at an appropriate time. 
However, Bridgepoint has also indicated certain limitations as to the 
timing of such testimony. Bridgepoint takes this opportunity to 
reiterate its efforts to cooperate with the committee and the 
circumstances under which a Bridgepoint or Ashford University 
representative could testify.
    As you know, the Department of Education Office of Inspector 
General (``OIG'') issued its audit report entitled ``Ashford 
University's Administration of the Title IV, Higher Education Act 
Programs'' on January 21. In accordance with standard procedure, the 
Department asked for Ashford University's comments on the audit report, 
and Ashford University submitted comments to the Department's Office of 
Federal Student Aid (``FSA'') on February 23, 2011.
    FSA now has jurisdiction over the completion of the review process. 
The FSA must determine whether facts exist that would justify any 
remediation, and must interpret the statute and regulation. Following 
Ashford University's submission, the regulatory process allows for 
discussions between FSA and Ashford University, issuance of a Final 
Audit Determination Letter, a formal administrative adjudication if 
necessary, and Federal court proceedings if necessary.
    On Monday, January 24, the first business day after the OIG issued 
its audit report the committee staff informed Bridgepoint that it would 
like a representative to appear at a hearing that would focus on some 
of the practices that were discussed in the audit report. That same 
day, the committee issued a press release that inaccurately described 
the OIG findings. Since then Bridgepoint has had several conversations 
with committee staff. Through these conversations, Bridgepoint has 
consistently explained that it is not in a position to testify in a 
public hearing prior to having a meaningful opportunity to discuss the 
scope and resolution of this matter with the FSA. Ashford University 
cannot make individuals available or respond publicly to questions 
concerning a matter in which it is potentially exposed to significant 
adverse action by FSA, anticipates being engaged in non-public 
exchanges with FSA, and is yet to have a substantive exchange with FSA 
as to the scope and resolution of the matter. To do otherwise would 
interfere with Ashford University's due process and its ability to 
protect its students' interests and the institution in the proceedings 
before the Department of Education.
    The second paragraph of the letter misstates what the committee has 
been told about the circumstances under which Bridgepoint could 
testify. Bridgepoint has never said that it would not voluntarily 
appear at a hearing ``before the completion of the final audit 
determination.'' Nor has it ever stated that it would be able to appear 
directly ``after the company had the opportunity to submit comments on 
the audit to the Department of Education, and to meet with the 
appropriate Department officials.'' Instead Bridgepoint clearly 
reiterated, in writing, the circumstances regarding its appearance in 
the letter of February 10 sent to the committee's Chief Investigative 
Counsel, which is attached. It stated: ``Bridgepoint Education 
(``Bridgepoint'') is simply not in a position to make witnesses 
available or agree to testify in a public hearing prior to submitting 
its response to FSA and having a meaningful opportunity to discuss 
scope and resolution of this matter with the FSA'' (February 10, 2011 
letter to Beth Stein from Jay Urwitz). Indeed, in that letter 
Bridgepoint further stated that the assertion about our alleged 
agreement to testify on March 10 ``does not accurately represent our 
ongoing correspondence and conversations.''
    These are not random conditions, but rather stem from the real due 
process concerns that have been noted--namely, that Bridgepoint or 
Ashford University could not characterize the facts or the law until 
they had a meaningful and substantive dialogue with the body that is 
able to determine whether to seek remediation.
    The characterization of Bridgepoint's efforts as trying to slow the 
FSA process is unfounded, and the quotations from the correspondence 
with FSA were taken completely out of context. That context, provided 
in the attached letters to FSA and from FSA, shows that Ashford 
University first requested a meeting with FSA on January 31, 2011, 
promptly after receiving the OIG Report. The correspondence also shows 
that Ashford suggested to FSA that it was available to talk as soon as 
is FSA. In two separate letters, Ashford University asked for a 
conference call; twice FSA responded by saying it would review the 
documents and call Ashford University when and if necessary (``[U]pon 
receipt of the institution's formal response to the audit . . . if 
additional information is needed for the final audit determination, FSA 
will contact the University.''). In the February 24 letter, Ashford 
University reiterated its willingness to meet and then suggested that, 
in any case, counsel would call in 2 weeks.
    On March 4, an initial telephone conference took place between FSA 
officials and representatives of Ashford. However, on March 3, the 
representatives were informed by FSA that it would not be in a position 
to engage in meaningful discussions. Specifically, an FSA official told 
the representatives that FSA would not be in a position to provide 
conclusions and that the purpose of the call was for Ashford to ``bring 
to FSA's attention anything that you may wish.'' This, in fact, was the 
nature of the call. FSA confirmed that its review was at a preliminary 
stage and that it was not yet in a position to engage in a substantive 
discussion about the matters under review or their resolution.
    The assertion that ``neither the Department of Education nor the 
Inspector General had any concern with regard'' to Bridgepoint's 
participation in the hearing is irrelevant. Neither the accuser (the 
OIG) nor the adjudicator (FSA, at least initially) have to be concerned 
about Bridgepoint not exercising its rights.
    Since the committee began its industry-wide inquiry examining 30 
companies providing post-secondary education in August of last year, 
Bridgepoint has cooperated. Within 2 business days of receiving your 
request, Bridgepoint issued a comprehensive document preservation 
notice to all relevant employees. Bridgepoint immediately began 
collecting documents and made its first production in response to your 
39-item request on August 31, 2010, after we met with the committee 
staff on August 26. Bridgepoint made seven additional productions and 
completed its response in early December.
    All of this was a very significant undertaking that was 
accomplished quite quickly, based on the committee's time demands. In 
total, Bridgepoint produced tens of thousands of pages in response to 
your requests. Further, Bridgepoint has responded to multiple requests 
from the committee staff for specific information, some under very 
short timetables.
    In addition to the productions listed above, Bridgepoint went one 
step further by inviting your staff to visit Ashford University's 
campus in Clinton, IA on October 14, 2010. They had the opportunity to 
meet students, staff, and administration. They also were provided a 
demonstration of an online course, visited a campus class in session, 
and toured the campus.
    It is difficult to understand why having acquired, and likely saved 
from closure, a small liberal arts university in Iowa should subject 
Ashford University to being singled out for a solo appearance at a 
public hearing. This is especially difficult to rationalize when 
Ashford University has been cooperative with the committee and has 
always maintained acceptable outcomes by all regulatory measures.
    Ashford University is dedicated to providing access to higher 
education to groups who have traditionally been excluded from its 
benefits. We have dedicated ourselves to doing so in a way that is 
affordable to them. Our mix of students--71 percent of our online 
students are women; half identify themselves as minorities; and, at an 
average age of 35, they are attempting to better their situation even 
past the time when traditional students do so--face more challenges in 
undertaking their higher education, and we are proud to offer them this 
opportunity.
    Finally, Bridgepoint is troubled by the apparent involvement of 
Senate staff in Ashford University's ongoing agency proceeding, as 
evidenced by the excerpt from Ashford University's letter to the FSA, 
which is not a public document, that was quoted in your letter. 
Interference in an agency adjudication by a third party, even Congress, 
``may undermine the integrity of the ensuing decision,'' as the U.S. 
Court of Appeals for the D.C. Circuit has held. American Public Gas 
Ass'n v. Federal Power Com'n, 567 F.2d 1016, 1069 (D.C. Cir. 1977) 
(``Congressional intervention which occurs during the still pending 
decisional process of an agency endangers, and may undermine, the 
integrity of the ensuing decision, which Congress has required be made 
by an impartial agency charged with responsibility for resolving 
controversies within its jurisdiction. Congress as well as the courts 
has responsibility to protect the decisional integrity of such an 
agency.''); see also Morton Rosenberg and Jack H. Maskell, 
Congressional Intervention in the Administrative Process: Legal and 
Ethical Considerations, CRS Report for Congress, Sept. 25, 2003, at 4 
(``[I]nsulation of the decisionmaker from political influence through 
public pressure or unrevealed ex parte contacts has been deemed 
justified by basic notions of due process to the parties involved'' in 
agency adjudications, whether formal or informal.''). Thus, your 
involvement in that process deepens Bridgepoint's concerns about 
receiving adequate due process in the context of the FSA's proceeding 
and reinforces our belief that now is not the appropriate time to 
testify.
    Bridgepoint appreciates the opportunity to correct the record in 
this matter.
            Sincerely,
                                             Jay P. Urwitz.

    [Whereupon, at 12:40 p.m., the hearing was adjourned.]

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