[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

                                _____

                  U.S. GOVERNMENT PRINTING OFFICE

74-931                    WASHINGTON : 2009
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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..




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