Report Uncovers Widespread Fraud by For-Profit Colleges

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A new report from the U.S. Government Accountability Office, which used investigators posing as prospective students, finds that 15 for-profit colleges committed widespread fraud on financial aid applications and used deceptive marketing practices.

The companies identified in the report—which includes footage from hidden cameras—are among the largest for-profit firms in the country, including the University of Phoenix. Enrollment in for-profit colleges has become a huge business, the report notes, growing from 365,000 students to almost 1.8 million in recent years. In 2009, students at these colleges received more than $4 billion in Pell Grants and more than $20 billion in federal loans provided by the U.S. Department of Education.

Undercover tests at the for-profit institutions found that four colleges encouraged fraudulent practices, and all 15 made deceptive or otherwise questionable statements to GAO's undercover applicants. For example, four undercover applicants were encouraged to falsify their financial aid forms to qualify for federal aid. 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.

"GAO's findings make it disturbingly clear that abuses in for-profit recruiting are not limited to a few rogue recruiters or even a few schools with lax oversight," says Sen. Tom Harkin (D-Iowa), who chairs the Senate Committee on Health, Education, Labor and Pensions, which held an Aug. 4 hearing at which the report was released. "To the contrary," Harkin says, "the evidence points to a problem that is systemic to the for-profit industry: a recruitment process specifically designed to do whatever it takes to drive up enrollment numbers, more often than not to the disadvantage of students."

Harkin points out a "cruel irony" in the findings. "One ostensibly admirable aspect of for-profit colleges is that they seek out and enroll large numbers of minority and low-income students, offering them opportunities they wouldn't otherwise have," he says. "In choosing to enroll in a for-profit college, these students typically go deeply into debt and make other sacrifices, all in search of a better life. They need information that is clear, complete and honest. Instead, too often, they are victims of deceptive and/or abusive marketing tactics."

The Senate committee is holding a series of hearings focused on the growing federal investment in for-profit colleges and universities. Harkin announced that at least three more hearings will take place this year. Although the Department of Education is in the midst of formulating regulations that could impose tighter restrictions on the for-profit industry, Harkin and his fellow Democrats indicated that stronger legislation may be necessary. "I think where we're headed is very clearcut legislation that can't be overturned by another administration," he says.

More information on the report, including some of the hidden camera video clips, is available online. AFT's FACE blog also includes a commentary on the report and on concerns about the expansion of the for-profit sector of higher education. [Dan Gursky, Government Accountability Office, Senate Committee on Health, Education, Labor and Pensions]

August 5, 2010