Report finds fraud in for-profit education firms' recruiting

By Daniel de Vise
Washington Post Staff Writer
Wednesday, August 4, 2010

A new government report on recruiting techniques in the for-profit higher education industry finds instances of college officials urging applicants to invent children and to hide their savings as a way to leverage more federal aid.

The Government Accountability Office study, scheduled for release Wednesday, used undercover investigators to pose as applicants at 15 for-profit colleges around the nation. Congress had asked the agency to determine whether the sector, which has fallen under intense federal scrutiny, engaged in fraud, deception or questionable marketing practices, as critics allege.

Investigators found evidence of all those kinds of abuses. One unidentified college told an undercover applicant to fabricate three dependents on an aid form so that he might qualify for a federal grant. A Texas institution advised an applicant not to report a $250,000 inheritance because it "was not the government's business." A small D.C. beauty college told an applicant that barbers can make $150,000 to $250,000 a year.

The findings might turn up the heat on for-profit higher education, the fastest-growing sector of academe. Up to now, mounting industry criticism has been mostly anecdotal, and for-profit leaders have blamed a few rogue operators.

Of the 15 unnamed colleges targeted in the investigation, four "encouraged fraudulent practices" and "all 15 made deceptive or otherwise questionable statements to GAO's undercover applicants," the report says.

Shares of for-profit higher-education companies fell Tuesday as news of the study leaked out.

"The GAO report confirms what we know: that there are bad actors in the for-profit sector who are defrauding students and taxpayers," said Justin Hamilton, press secretary for Education Secretary Arne Duncan.

The 18-page study is scheduled to be presented as testimony at a Senate education hearing as part of an inquiry into for-profit colleges.

A spokesman for Kaplan Higher Education, a for-profit institution owned by The Washington Post Co., said of the findings: "We take these issues very seriously. Our admissions staff receives intensive training and very clear guidance, and we conduct our own internal reviews to ensure compliance with the laws and regulations we must follow."

New regulations are raining down on the industry this summer. Duncan has proposed, for example, that for-profit colleges be required to demonstrate that their graduates are not saddled with too much debt. Other prospective rules would curb incentive payments to college recruiters and require schools to disclose graduation and job-placement rates to prospective students.

The GAO report portrays an industry poised to pounce on any lead. One undercover applicant who filled out a form on a college search Web site was bombarded with 180 telephone calls from competing schools.

Many schools exaggerated the value of their programs. One told an applicant a $14,000 massage therapy certificate was a good value, though a nearby community college offered the same certificate for $520. One college recruiter told an applicant, falsely, that the school was accredited by the same agency as Harvard University. All but one for-profit program proved more expensive than the comparable offering at the nearest public college.

Several schools told applicants not to report their assets on aid forms, even when the applicants said they had enough cash to cover their education. It was "unclear," the report says, what motivated the colleges to encourage fraud when the applicant had no need of a loan.

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