[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
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Volume 1 of 4--Parts I-III
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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
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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
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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
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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
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Page
Minority Committee Staff Views................................... 793
Table of Appendixes
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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..