    [Senate Prints 112-37, Volume 1]
    [From the U.S. Government Publishing Office]

    112th Congress  }                                    {   S. Prt.
    2d Session      }             COMMITTEE PRINT        {   112-37
    _______________________________________________________________________

                          FOR PROFIT HIGHER EDUCATION:
                      The Failure to Safeguard the Federal
                     Investment and Ensure Student Success

                                prepared by the

              COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
                              UNITED STATES SENATE

                                   ----------

                           Volume 1 of 4--Parts I-III

                                   ----------

                                 JULY 30, 2012

          Available via the World Wide Web: http://www.gpo.gov/fdsys/

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

    112th Congress }                                               { S. Prt.
     2d Session    }             COMMITTEE PRINT                   { 112-37
    _______________________________________________________________________

                          FOR PROFIT HIGHER EDUCATION:

                      The Failure to Safeguard the Federal

                     Investment and Ensure Student Success

                                prepared by the

                        COMMITTEE ON HEALTH, EDUCATION,

                              LABOR, AND PENSIONS

                              UNITED STATES SENATE

                                   __________

                           Volume 1 of 4--Parts I-III

                                   __________

                                 JULY 30, 2012

                           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        MICHAEL B. ENZI, Wyoming
    JEFF BINGAMAN, New Mexico            LAMAR ALEXANDER, Tennessee
    PATTY MURRAY, Washington             RICHARD BURR, North Carolina
    BERNARD SANDERS (I), Vermont         JOHNNY ISAKSON, Georgia
    ROBERT P. CASEY, JR., Pennsylvania   RAND PAUL, Kentucky
    KAY R. HAGAN, North Carolina         ORRIN G. HATCH, Utah
    JEFF MERKLEY, Oregon                 JOHN McCAIN, Arizona
    AL FRANKEN, Minnesota                PAT ROBERTS, Kansas
    MICHAEL F. BENNET, Colorado          LISA MURKOWSKI, Alaska
    SHELDON WHITEHOUSE, Rhode Island     MARK KIRK, IIllinois
    RICHARD BLUMENTHAL, Connecticut
                 Pamela J. Smith, Staff Director, Chief Counsel
                     Lauren McFerran, Deputy Staff Director

                     OFFICE OF OVERSIGHT AND INVESTIGATIONS

               (During the 112th Congress at Time of the Report)

                Elizabeth M. Stein, Chief Investigative Counsel
                    Elizabeth E. Baylor, Senior Investigator
                     Ryan K. McCord, Investigative Counsel
                            Kia Hamadanchy, Counsel
                   Bryan F. Boroughs, Congressional Fellow,
                    Georgetown Congressional Law Clerk Fellowship

                      Andrea M.K. Jarcho, Senior Law Clerk
                            Lucy V. Stein, Law Clerk
                         Nicholas J. Wunder, Law Clerk
                          Shauna M. Agan, Legal Intern
                        Keagan D. Buchanan, Legal Intern
                        Douglas S. Dorando, Legal Intern

                                      (ii)

                              UNITED STATES SENATE

              COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

    _______________________________________________________________________

                          FOR PROFIT HIGHER EDUCATION:

                      The Failure to Safeguard the Federal

                     Investment and Ensure Student Success

                      MAJORITY COMMITTEE STAFF REPORT AND
                  ACCOMPANYING MINORITY COMMITTEE STAFF VIEWS

                        COMMITTEE ON HEALTH, EDUCATION,
                              LABOR, AND PENSIONS

                              UNITED STATES SENATE

                                 JULY 30, 2012

                               SENATOR TOM HARKIN

                                   Chairman

                            SENATOR MICHAEL B. ENZI

                            Ranking Minority Member

                     OFFICE OF OVERSIGHT AND INVESTIGATIONS

                               Elizabeth M. Stein
                          Chief Investigative Counsel

                              Elizabeth E. Baylor
                              Senior Investigator

                                 Ryan K. McCord
                             Investigative Counsel

                                 Kia Hamadanchy
                                    Counsel

                               Bryan F. Boroughs
                              Congressional Fellow

                   Georgetown Congressional Law Clerk Fellow

                                  ----------

    Andrea M.K. Jarcho           Lucy V. Stein           Nicholas J. Wunder
    Senior Law Clerk               Law Clerk                      Law Clerk

    Shauna M. Agan             Keagan D. Buchanan        Douglas S. Dorando
    Legal Intern               Legal Intern                    Legal Intern

                           Table of Contents--Part I

                                  ----------
                                                                       Page
    Executive Summary................................................     1
    Introduction.....................................................    15
    Institutions Examined............................................    25

        Publicly Traded Companies....................................    25
        Private Equity Owned Companies...............................    27
        Closely Held Corporations....................................    29

    The Federal Investment and the Changing Sector...................    30

        Increasing Federal Investment................................    30
        Increasing Reliance on Federal Dollars.......................    30
        Pell Grant Funds.............................................    31
        Military Education Benefits..................................    33
        Growth and Change in the For-Profit Sector...................    37

    Why Are Companies ``That Own For-Profit Colleges Financially
      Successful''?..................................................    40

        High Cost of Attendance......................................    40
            Higher Tuition at For-Profit Colleges....................    40
            Tuition Decisions Made to Maximize Revenue...............    42
            Executives' Recognition That Higher Tuition Leads to More
              Withdrawals............................................    49
            Concealing the Cost of Tuition...........................    51

        Aggressive and Deceptive Recruiting..........................    53
            Recruiters Operate in a Boiler-Room Sales Atmosphere.....    55
            Misleading and Deceptive Tactics.........................    61
            Techniques to Close a Sale...............................    68
            Military Focused Recruiting..............................    78

    How Are Students Performing......................................    82

        Inadequate Public Data for Meaningful Oversight..............    83
        Low Student Retention........................................    84
        Worst Performing Programs....................................    85
        Online Student Retention.....................................    87
        Publicly Traded Company Student Retention....................    88
        Heavy ``Churn''..............................................    89
        The Costs of Withdrawal......................................    91

    Why Do Many Students Fail to Complete For-Profit Programs?.......    92

        Spending Choices of For-Profit Education Companies...........    92
            Marketing, Recruiting, and Profit........................    92
            Executive Compensation...................................    95
            Instructional Spending...................................    98
            Student Success is Divorced From Company Success.........   100

        Academic Quality.............................................   101
            Part-time Faculty........................................   108
        Student Services.............................................   109
        Career Placement Services....................................   112
            Incentives for Career Services Staff.....................   115

        Programmatic Accreditation and Licensure.....................   117
            What Is Programmatic Accreditation.......................   117
            Students Are Not Informed About Programmatic
              Accreditation..........................................   118

                                     (iii)

                      Table of Contents--Part I--Continued

            A Case Study of Sanford-Brown's Disclosures for Popular
              Program Areas..........................................   122
            A Comparison of Multiple Schools' Disclosure for Two
              Smaller Degree Programs................................   125
            Lower Licensing Exam Pass Rates..........................   127
            Conclusion...............................................   128
    What Are the Consequences for Students?..........................   128

        High Debt....................................................   128
        What Default Means for Students and Society..................   136
        Higher Unemployment..........................................   138
        Credentials in Lower Demand Careers..........................   139

    Why is This Happening?...........................................   140

        Accreditation................................................   141
            Structural Defects in the Accrediting Process............   142
            Accreditors Are Not Equipped to Properly Regulate Large
              For-Profit Institutions................................   144
            Higher Learning Commission of the North Central
              Association of Colleges and Schools....................   146
        Federal Law and Regulation...................................   153
        Evasion of Regulatory Requirements...........................   159
            90/10 Strategies.........................................   159
            Student Loan Default Rate Management and Manipulation....   174
            Return of Title IV Funds.................................   185
            Job Placement Rate Manipulation..........................   187

    The Consequences of Inaction.....................................   194
    What Needs to Be Done?...........................................   196

        Enhanced Transparency........................................   197
        Stronger Oversight...........................................   199
        Meaningful Protections.......................................   200

                           Table of Contents--Part II

                                  ----------
                                                                       Page

    Alta Colleges, Inc. (19,190 students, based in Denver, CO........   206
    American Career Colleges, Inc. (4,761 students, based in Irvine,
      CA.............................................................   235
    American Public Education (77,000 students, based in Charlestown,
      WV)............................................................   249
    Anthem Education Group, Inc. (12,792 students, based in Phoenix,
      AZ)............................................................   265
    Apollo Group, Inc. (470,800 students, based in Phoenix, AZ)......   284
    Bridgepoint Education, Inc. (77,179 students, based in San Diego,
      CA)............................................................   308
    Capella Education Company (38,634 students, based in Minneapolis,
      MN)............................................................   334
    Career Education Corporation (118,205 students, based in
      Schaumburg, IL)................................................   351
    Chancellor University LLC (739 students, based in Seven Hills,
      OH)............................................................   380
    Concorde Career Colleges, Inc.  (7,952 students, based in Kansas
      City, MO)......................................................   391
    Corinthian Colleges, Inc.  (113,818 students, based in Santa Ana,
      CA)............................................................   408
    DeVry, Inc.  (130,375 students, based in Downers Grove, IL)......   435
    ECPI Colleges, Inc.  (13,119 students, based in Virginia Beach,
      VA)............................................................   454
    Education America, Inc.  (10,018 students, based in Heathrow, FL)   469
    Education Management Corporation  (158,300 students, based in
      Pittsburgh, PA)................................................   485
    Grand Canyon Education, Inc.  (42,300 students, based in Phoenix,
      AZ)............................................................   513
    Henley Putnam University  (515 students, based in San Jose, CA)..   531
    Herzing, Inc.  (8,253 students, based in Milwaukee, WI)..........   540
    ITT Educational Services, Inc.  (88,004 students, based in
      Carmel, IN)....................................................   558
    Kaplan Higher Education Corporation  (112,141 students, based in
      New York City, NY).............................................   592
    The Keiser School, Inc.  (18,956 students, based in Fort
      Lauderdale, FL)................................................   623
    Lincoln Education Services Company  (33,175 students, based in
      West Orange, NJ)...............................................   639
    Med-Com Career Training/Drake College  (2,692 students, based in
      Elizabeth, NJ).................................................   658
    National American University Holdings, Inc.  (8,255 students,
      based in Rapid City, SD).......................................   671
    Rasmussen Colleges, Inc.  (17,090 students, based in Minnetonka,
      MN)............................................................   693
    Strayer Education, Inc.   (60,711 students, based in Arlington,
      VA)............................................................   713
    TUI Learning LLC  (7,307 students, based in Cypress, CA).........   728
    Universal Technical Institute, Inc.  (21,000 students, based in
      Scottsdale, AZ)................................................   738
    Vatterott Education Holdings, Inc.  (11,163 students, based in
      St. Louis, MO).................................................   756
    Walden, LLC (47,456 students, based in Minneapolis, MN)..........   777

                          Table of Contents--Part III

                                  ----------
                                                                       Page

    Minority Committee Staff Views...................................   793

                              Table of Appendixes

                                  ----------
                                                                       Page

    Appendix 01: Definitions.........................................   799
    Appendix 02: The Committee Investigation.........................   804
    Appendix 03: Methodology.........................................   816
    Appendix 04: The Committee Document Request and Compliance.......   828
    Appendix 05: The Undercover General Accountability Office
      Recruiting Investigation, Report and Corrections...............   851
    Appendix 06: Responses of Companies to Documents Being Made
      Public.........................................................   854
    Appendix 07: Fall Enrollment, 2001-2010..........................  1024
    Appendix 08: OPEID Numbers Controlled by Each of 30 Companies
      Examined, Fiscal Year 2010.....................................  1027
    Appendix 09: Funds Reported Pursuant to 90/10 Rule by Company,
      Fiscal Years 2006-10...........................................  1033
    Appendix 10: Estimated Federal Revenues, Fiscal Year 2010........  1038
    Appendix 11: Post 9-11 GI Bill Disbursements to 30 Companies
      Examined and Cumulative Data...................................  1039
    Appendix 12: Tuition Assistance and MyCAA Disbursements to 30
      Companies and Cumulative Data Fiscal Years 2009 and 2010.......  1041
    Appendix 13: Pell Grant Disbursements, Award Year 2007-10........  1043
    Appendix 14: Tuition and Fee Comparison..........................  1044
    Appendix 15: Retention and Withdrawal............................  1055
    Appendix 16: Trial 3-Cohort Default Rates by Company, Fiscal
      Years 2005-8...................................................  1062
    Appendix 17: Executive Compensation..............................  1066
    Appendix 18: Revenue, Expenses, and Profit (Operating Income),
      Fiscal Years 2006-10...........................................  1071
    Appendix 19: Revenue, Profit, (Operating Income), Marketing,
      Fiscal Year 2009...............................................  1076
    Appendix 20: Per Student Spending on Profit, Fiscal Year 2009....  1077
    Appendix 21: Integrated Postsecondary Education Data System Per
      Student Spending on Instruction, Fiscal Year 2009..............  1078
    Appendix 22: Per Student Spending on Marketing, Recruiting, and
      Admissions, Fiscal Year 2009...................................  1079
    Appendix 23: Per Student Spending on Instruction at Comparison
      Institutions in Other Sectors..................................  1080
    Appendix 24: Employment Distribution by Company, Fiscal Years
      2006-10........................................................  1083
    Appendix 25: Documents Produced to the Committee.................  1087
                                       VI

    ?

        In accordance with Rule XXV of the Standing Rules of the
      Senate, the U.S. Senate Committee on Health, Education, Labor,
      and Pensions (the committee) holds legislative jurisdiction
      over all proposed legislation, messages, petitions, memorials,
      and other matters relating to education and student loans and
      grants. Proprietary schools and institutions of higher
      education, henceforth referred to as for-profit colleges, fall
      under this jurisdiction both as academic institutions and as
      eligible recipients of Federal loans and grants provided
      through Title IV of the Higher Education Act. Senate rules also
      provide that the committee shall study and review, on a
      comprehensive basis, matters relating to education. In April
      2010, under the leadership of Chairman Tom Harkin, the
      committee initiated an oversight into the proprietary sector of
      higher education. The majority staff offers this report to the
      committee with accompanying minority staff views..