Domestic, Education Quality, Ethics, For-Profit, Friend, Fraud, or Fishy, Gainful Employment, Lawsuits & Legal, Legislation, Minorities, Recruitment, Regulatory, Required, Retention Rates, Universities & Colleges - Written by on Wednesday, August 8, 2012 13:17 - 0 Comments

Sen. Harkin’s Latest Report Delivers Another Blast To For-Profit College Industry

Photo Credit: Phil Roeder via Compfight

Senator Tom Harkin, D-IA, and his Senate Health, Education, Labor and Pensions (HELP) Committee staff released a blockbuster report in late July that concludes a massive investigation into the 30 largest for-profit college companies. The report served another blow to the already-troubled for-profit college industry. It rippled across the mainstream media. It was also nuanced in its critique, lauding some schools while criticizing others. It indicates new approaches to regulate and legislate an ethical way forward for the industry that could affect the broader higher education industry in the United States. Here’s a compilation of media stories on the report.

NPR interviewed Sen. Harkin:

Harkin’s office reports:

Via Sen. Harkin Office


David Halperin writes on RepublicReport:

I’ve been saying for a couple of years that, no matter how cynical one’s view of Washington is, it cannot encompass the perpetuation of the terrible impunity of America’s for-profit colleges. For over a decade, these corporations have taken billions from taxpayers — now about $33 billion a year — for a toxic mix of high-priced, low-quality programs that leave many students — veterans, students of color, low-income students, immigrants, and others — deep in debt, their hopes crushed, their lives ruined.

For-profit colleges now account for about 10 percent of U.S. students but 25 percent for federal financial aid and nearly half of all student loan defaults. Many schools get 85-90 percent or more of their revenues from federal taxpayers, and they spend most of it on items like marketing, recruiting, and big executive salaries, rather than education and job placement. Not all for-profit colleges are that bad, but many, including most of the big ones, are.

There is stalemate in Washington on holding this industry accountable, because the big money that it spends on lobbyinglawyering, and campaign contributions has bought the allegiance of many congressional Republicans and  Democrats and has thwarted federal regulations. Thus determined reform efforts by the Obama Administration, and principled leaders like Senators Harkin, Dick Durbin (D-IL), and Kay Hagan (D-NC), and Representatives Elijah Cummings (D-MD), Maxine Waters (D-CA), and Keith Ellison (D-MN), have largely been blocked.

But after an extended period of scrutiny by federal officials, nonprofits, and diligent news reporters, the truth is coming out and having an impact. Federal investigators are probing for-profit institutions including giants the University of Phoenix and EDMC and smaller operations like Florida’s FastTrain College, where, on the day of an FBI raid, one student told a reporter that she had been charged for room and board — at a school that does not offer student housing.

More than 30 state attorneys general are accelerating a joint investigation of fraud by for-profits including Corinthian, Kaplan, and Bridgepoint. Long lethargic accrediting bodies are at last reconsidering the free pass they have given these schools. Investors are realizing that the reckless joy ride may be over soon. Most importantly, students are getting the message that they need to look elsewhere for educational opportunities. Veterans are especially incensed, and more and more of them are speaking up about the deceptive and coercive recruiting tactics many for-profits use to exploit lucrative GI bill dollars. Check out the hard-hitting video from the Iraq Afghanistan Veterans of America, above.

The for-profit colleges have adopted a talking point — see here and here — asserting that those who question their industry are driven by “their political or ideological agenda.”  But the agenda that Harkin and his allies are pursuing is purely common sense: Taxpayer money should not fuel waste, fraud, and abuse.  There can be a constructive role for for-profit institutions in educating Americans, but the current race to bottom — where profits depend on abusing and exploiting students — must end. With federal dollars already scarce, policy must instead reward schools that compete by helping students train for careers and obtain good jobs. This straightforward approach could be considered contentious only in a warped world where slick industry lobbyists and campaign money distort the debate.

Tamar Lewin at The New York Times reports:

For-profit higher education has long been a politically divisive issue, with Democrats generally arguing that greater regulation is needed to prevent huge publicly traded colleges from plundering the Treasury for student financial aid while leaving students with crippling debt and credentials that are worthless in the job market. Many Republicans see such colleges as a healthy free-market alternative to overcrowded community colleges, offering useful vocational training and education to working adults who will not attend more traditional institutions.

The Republicans on the Senate committee criticized the Democrats’ investigation for including testimony from Steve Eisman, the hedge fund manager who was one of the first to compare for-profit colleges to the subprime mortgage industry; for making public the internal company documents that the committee gathered; for refusing to broaden the investigation to include abuses by nonprofit colleges; and for being what they said was a hostile partisan effort.

Over the last 15 years, enrollment and profits have skyrocketed in the industry. Until the 1990s, the sector was made up of small independent schools offering training in fields like air-conditioning repair and cosmetology. But from 1998 to 2008, enrollment more than tripled, to about 2.4 million students. Three-quarters are at colleges owned by huge publicly traded companies — and, more recently, private equity firms — offering a wide variety of programs.

Colleges with very high loan default rates in the two years after graduation (now changing to three years) lose their eligibility for federal student aid. As a result, the report found, many of the for-profit colleges try to move students having trouble with repayment into deferral or forbearance until they are past the years the government monitors.

Via The New York Times


Ryan Randazzo at The Arizona Republic writes about the report’s mention of Arizona institutions such as University of Phoenix:

The report noted that Apollo is taking steps to improve, but said its withdrawal rate is higher than the industry average, as is the percentage of revenue spent on marketing and taken as profits. Students’ default rate on federal loans is high and rising, the report said.

Apollo Group officials said the company has spent millions of dollars to provide better learning opportunities for University of Phoenix students. Harkin, in fact, held out Apollo Group as a positive example of change in the industry. “There are also for-profit colleges that have had very serious shortcomings in the past but are beginning to make very serious changes,” he said before mentioning Apollo by name.

In 2010, the University of Phoenix began requiring new students to take a three-week orientation course, allowing those who withdraw to not incur debt to the school. “Over the last four or five years, Apollo has really thought through the student-learning life cycle,” said Mark Brenner, senior vice president of external affairs for the company.

He said that in addition to acclimating students to the curriculum, the colleges have worked to reduce student debt. ”We help students before they enroll to fully understand the obligations through their course of study, and keep loans as low as possible for them,” he said. The report quoted a 2007 training manual for Apollo recruiters, instructing them to develop a sense of urgency in potential students “so they resist the urge to wait and get excited to begin NOW.” Brenner said the industry is regulated in how it compensates recruiters and does not pay them based solely on how many students they enroll. ”It is not a high-pressure sales environment,” he said. “We are trying to help students make the right decisions.”

Via The Arizona Republic

James Hyerczyk writes on the Nasdaq community pages about the report’s impact on For-Profit College stocks:

Even before Sen. Tom Harkin (D-Iowa) concluded last month a two-year investigation of the for-profit higher education industry, the stock market appeared to already know the results. The five stocks I analyzed for this article all showed massive declines since the first of the year with some even beginning their latest plunge late last year. As an investor, one has to decide if this investigation means the end for several of these companies or better times ahead now that the problems have been identified and improvements can be made.

…. Looking at the performance of the stocks of two companies that report this week, Education Management (EDMC) and DeVry (DV), one has to conclude that prior to the start of this investigation, shareholders milked these stocks for all they could get. As a whole this entire sector has been punished severely, but through diligent research investors could be looking at a good opportunity in a few of these stocks. After all, the sell-off in these two stocks could be indicative of “sell the rumor, buy the fact.”

Since reaching major tops at $74.36 in April 2010 and $66.85 in July 11, DeVry has been hit hard by long liquidation and short-selling. On July 26, stock reached a multiyear low at $18.15. Since then it has rebounded back to $20.42 but could also be forming a support base. As recently as July 2, the stock was trading as high as $31.80. Rather than just a common “dead cat bounce”, the market appears to be forming a constructive support base, but will still need time to change the trend back to up. Analysts have dropped the projected earnings of DeVry from 79 cents to 47 cents over the past month according to Forbes. This accounts for the rapid decline since early July. Forbes also notes that nine of 15 analysts rate this stock as a hold. In addition, the number of buy ratings is up slightly over the past 90 days.


It looks as if investors got it right in dumping these stocks as the government investigated this sector. Now that the major problems have been identified, and stock prices have reached extremely low levels, it may be time for bargain-hunting investors to take a look for a few hidden gems in the sector. DeVry(DV) and Education Management (EDMC) are the two stocks mentioned in this article, but others include Corinthian College (COCO), Career Education Corp. (CECO), and Apollo Group (APOL).

Via Nasdaq Community 

Peter Fenn writes on US News & World Report:

Sen. Tom Harkin, Democrat of Iowa, released a report recently on for-profit colleges that should make your hair stand on end. So many bad apples, so little time to remove them.

… I have written a number of blog posts on the for-profits, and each new revelation makes me angrier. No one disputes that efforts at nontraditional learning, online courses, helping those who are older and are raising families succeed, are laudable and should be pursued with all due speed. But the current crop of for-profits are, by and large, failing to serve these students and ripping off taxpayers.

The Washington Post’s Dylan Matthews summarized it as follows: Most students don’t graduate, the schools are really expensive, and you’re paying for it. He should have added that many in this “business” are getting fabulously wealthy soaking in taxpayer dollars. The average CEO of the publicly traded for-profits made $7.3 million in 2009…$7.3 million! If they were delivering a serious and worthwhile product and their compensation was tied to student success, that would be one thing, but far from it.


And how do these for-profits spend their money—on education? An educational institution, one would think, should be investing in education, right? Sorry, 23 percent goes for marketing and recruitment, 20 percent is considered profit, and actual instruction for students comes to a paltry 17 percent. Don’t forget the lobbying expenses that have increased rapidly as these for-profits have come under legitimate criticism.

Via US News


Paul Fain at InsideHigherEd writes about where the for-profit colleges go from here:

WASHINGTON — Sen. Tom Harkin’s two-year investigation of for-profit higher education has ended, and was capped with a four-tome final report that many — at least critics of the industry - see as definitive. The for-profit policy battle is far from over, however, although it probably won’t fire up again until 2013.

The report was accompanied by a shift in tone by the Congressional Democrats who are leading the ongoing pursuit of the for-profit-college industry. Instead of taking on the entire sector, or questioning whether profit and higher education are compatible, lawmakers at the report’s Monday release on Capitol Hill said for-profits are here to stay and will continue to help more disadvantaged and nontraditional students attend college.

“Their success is in the national interest,” Harkin said, offering praise for several for-profits — a rare occurrence for the Iowa Democrat. He said American Public Education, Strayer Education, Walden University and National American University have largely risen above problems found in the report, which was prepared by staff at the Committee on Health, Education, Labor and Pensions, which Harkin chairs.

Receiving a more nuanced compliment were Kaplan Higher Education, DeVry and the Apollo Group, all of which have had “very serious problems” in the past, according to Harkin, but are now moving in the right direction. He didn’t specify what those large, publicly traded institutions had done to clean up their acts. But both Kaplan and Apollo’s University of Phoenix have moved to become more selective and to make it easier for unprepared students to leave or be shown the door without taking on debt. Those changes have contributed to steep enrollment declines.

… Harkin acknowledged that any new or pending legislation that seeks to tighten the screws on for-profits has little chance of moving forward in the coming months in a badly split Congress in an election year. A better bet, he said, would be for bills to be considered in 2013, as Congress moves to reauthorize the Higher Education Act. “Honestly, this year I don’t think we’re going to get much done,” he said.

… there were signs Monday that Harkin would include nonprofits in future legislative gambits. For example, he pointed to a bill he proposed with Hagan that would ban the use of revenue from federal financial aid for advertising, marketing and recruitment. That legislation would apply to all colleges, Harkin said Monday.

Another proposed reform that would also target nonprofits is the report’s call for the U.S. Department of Education to collect more “comprehensive” data on student outcomes, such as more and deeper graduation and retention rates. For-profits back that idea, Gunderson said. If Harkin succeeds in getting Congress to tighten controls on federal aid during reauthorization next year, for-profits might not be only ones feeling the heat. For example, on Monday Harkin said the “efficiencies of online education are not passed on to the students.” While he was talking about for-profits, that statement should make some nonprofit colleges nervous.

Via InsideHigherEd


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