Highlights from Hearing on For-Profit Marketing Tactics

Just finished watching a few hours of the Senate HELP committee hearing:  For-Profit Schools: The Student Recruitment Process. 

Highlights:

• The first half of the hearing focused on the GAO report which hit yesterday and included videotape (here is a link to the video) demonstrating the fraudulent and deceptive marketing practices uncovered.

• Senator Harkin will be sending an information and document request to 30 for-profit schools tomorrow.  He is planning on holding another hearing in September to "get to the bottom of this."  He seemed most interested in graduation rates and churn rates but I would be surprised if he didn't ask about recruitment practices also. 

• Harkin also seemed interested in finding a legislative solution to this issue.  He described the Dept. of Education regulations on program integrity to be a good "first step" but expressed concern that regulations can be changed too easily by future administrations, using the "safe harbors" of incentive compensation as an example. 

• The accreditation process also will be coming under additional scrutiny too with Senator Franken, in particular, focusing his line of questioning on the issue of how well accreditors are ensuring that their rigorous standards are being adhered to.  

• I missed the first 30 minutes of the hearing but the committee "named names" of the colleges investigated in the GAO report (from Barrons): 

• Case 1:  University of Phoenix, Arizona
• Case 2:  Everest College, Arizona
• Case 3:  Westech College, California
• Case 4:  Kaplan College, California
• Case 5:  Potomac College, Washington, DC
• Case 6:  Bennet College, Washington, DC
• Case 7:  Medvance Institute, Florida
• Case 8:  Kaplan College, Florida
• Case 9:  College of Office Tech, Illinois
• Case 10:  Argosy College, Illinois
• Case 11:  U of Phoenix, Pennsylvania
• Case 12:  Anthem Institute, Pennsylvania
• Case 13:  Westwood College, Texas
• Case 14:  Everest College, Texas
• Case 15:  ATI Career Training, Texas

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Other notes that I scribbled down (hope to have a transcript up in 24 hours):

• Here is a transcript of the video provided at the hearing:  http://www.gao.gov/videofiles/gao-10-948t/gao-10-948t.txt with some statements made by admissions reps.:

• "You gotta look at it - I owe $85,000 to University of Florida. Will I pay it back? Probably not. I look at life a little differently than most people. I look at life as tomorrow is never promised."
• "Most doctors are walking around with over $250,000 in student loans...but it's workable, you know, it's really workable. And the…a lot of people have student loans...but the best thing about it, it's not like a car note, where if you don't pay they're gonna come after you."
• When a prospect wanted to learn more about financial aid, the admission supervisor had this to say before tearing up their application:  "So, honestly, I gotta tell you, I totally understand your concern, but I really, with all due respect, I don't believe you're ready to take that step, period. That paper could say $40,000. And in your situation, and at your stage in life, you should be ready to make your investment of time and money necessary to get you to where you should be at this point. But you’re not. And we're trying to help you get there and trying to help you… understand it, but there’s…What are you really afraid of? There has to be something more."

• GAO investigation showed that 6 of the 15 admission counselors would not provide financial aid information until the student had signed an enrollment agreement and paid an application fee.  Investigator said it It's not not hard to find fraudulent and deceptive practices; the big difference is the vast amount of money is coming from American taxpayers. 

• Isakson suggested that there should be a focus on enforcing current laws and asked what Dept. of Education was going to do to enforce Program Participation Agreements.  

• Sen. Burr made two comments:  Department of Education should look at elimination of incentives and their role in the willingness of counselors to break the law.  Also, rattled off statistics on graduation rates at both for-profit and non-profit institutions in his state. 

• GAO investigator's take on current oversight and enforcement regime:  "Given what we saw it looked like the "wild, wild west." 

• Sen. Mikulski referred to admissions counselors as "bounty hunters"  and described students encountering a "black hole of debt, disappointment and heartbreak."

• With several admissions counselors in the investigation recommending that prospects falsify their FAFSA, several senators recommended linking the FAFSA forms to the IRS database for verification purposes.

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Panel 2

David Hawkins of the National Association for College Admission Counseling highlighted the information asymmetry between prospect and admissions counselor akin to the subprime mortgage industry which makes students vulnerable to being misled in the process.  Also highlighted the role of the "safe harbors" that were added to the incentive compensation ban as "effectively gutting" that ban and "providing a roadmap for institutions to circumvent the law as originally designed" and leading to these "boiler room sales tactics."

• GAO found 32 violations of incentive compensation since 1998
• Here is history of incentive pay issue as posted earlier

Michael McComis , Executive Director, Accrediting Commission of Career Schools and Colleges, Arlington, VA discussed the accreditation process including the triad system which includes federal and state regulators in addition to accreditors.  He described a multi-step process including student surveys, on-site visits, interim reviews and a robust compliant process.  He concluded by saying that ACCSC would look forward to working with Congress to strengthen the process.

Joshua Pruyn , former Admissions Representative, Alta College, Inc., Denver, CO described the daily grind of being on the front lines of selling on-line education to the masses.  He described being trained in a 7-step sales process, described the interview with a prospect as "psychological game" after initial training.  Prospective students are referred to as "leads."  He described the importance of "starts" with the focus on having a student in program for at least 14 days, after which the schools keeps the federal financial aid.   Described how one Asst. Director received  the "Best Liar award" at team celebration.  Also discussed the obfuscation behind the internal private loan program offered by Westwood including a) not to call it a loan but instead "Westwood would step in to help" b) need to pay $150 while in school (which didn't keep loan balance from increasing) and 3) 12% interest on the loans. 

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Questions to panelists

• Compensating admissions directors based on students enrolled is common practice; what's wrong with that? 

Hawkins:  Since safe harbors, we have been collecting stories; lawsuits, media reports.  We have 10 pages of bullet summaries of this evidence.  There is no doubt in my mind because of safe harbors that there is preponderance of evidence that this is industry practice.  How much more evidence do we need?    There is significant need for counseling for low-income students and when you don't provide it they are at a disadvantage and when you give them misinformation...

• What are the rigorous standards used by accreditors to ensure schools only admit students that are accurately and fully informed?

McComis:  [This was the most pointed line of questioning with Senator Franken highlighting            the fact that three of the schools from the GAO investigation were accredited by ACCSC].  In          the end, McComis said that his commission will look to see if there is more they can do on              diligence [Later Sen. Harkin made the point that ACCSC made 629 on-site evaluations and            didn't find any substantial non-compliance while GAO randomly sampled 3 institutions and had          adverse findings at all of them].