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GAO report: How damaging to for-profits?

Within the higher education industry, there seems to be a rough consensus that Wednesday's release of a Government Accountability Office report on boiler room recruiting techniques in the industry could mark a turning point.

The report makes an emphatic point. The GAO picked 15 for-profit campuses, a small but representative sampling of the industry, and found deceptive marketing practices at every one. Four encouraged applicants to commit fraud.

The video may have hit even harder. Undercover GAO investigators captured some priceless images on hidden cameras, secreted inside baseball caps, depicting desperate recruiters using high-pressure sales techniques and making stuff up to land a sale.

For the for-profit industry, it was not a good day. One source, speaking on condition of anonymity because his company did not want to be associated with the GAO report, put it this way:

"This one of these days where I think there's a very clear before and a very clear after. Because there's images that stick in people's minds. And these images will likely stick."

Here are some of the images:

A Florida recruiter says, "I know medical assistants who are making 68, $69,000 a year, and they only went to school for nine months." (Medical assistants make nowhere near that much.)

The same guy, a few minutes later, laughs off the notion that one has some obligation to pay off one's student loans. "I owe $85,000 to the University of Florida. Will I pay it back? Probably not." (This prompts nervous laughter from the applicant.) "I look at life a little differently than most people."

When an applicant asks to see a loan advisor, a Texas recruiter says, "No, they won't even let you back there." Then, she bullies him: "Let me ask you, are you really serious about the program?"

Another recruiter theatrically rips up an application, in mock disgust, when the applicant won't sign a binding contract without first talking to an aid officer.

Donald Graham, whose Washington Post Co. owns the Kaplan Higher Education system, said the tapes were "sickening." Kaplan is among the for-profit entities targeted in the investigation.

The full impact of the report on the fastest-growing sector of higher education is hard to gauge. And unbiased sources are hard to find. Many of the most prominent higher education associations represent not-for-profit colleges, who are the nominal competition of for-profits, although only a few of their lobbyists have gone on the attack. (So far, the massive enrollment gains in the for-profit sector have not come at the expense of the not-for-profits.)

Terry Hartle, senior vice president for the American Council on Education, is in a good position to size up the damage. His group represents both for-profits and not-for-profits, being the umbrella group for presidents and provosts.

Here is Hartle's take:

"I don't think there's anything you can say about the GAO report except that it is deeply troubling," Hartle said.

The full extent of marketing trickery and deception in the for-profit industry has been "a great big unknown" up to now, Hartle said. Critics claimed it was rife, but they could only offer up a few anecdotal examples. For-profit leaders denied there was any systematic problem and accused their detractors of blowing their anecdotes out of proportion.

The GAO report will surely change the tone of this debate.

"After reading the GAO report, anyone who is involved in higher education has to feel that this is terribly problematic," Hartle said. "They did find some evidence of fraud. Equally troubling, they found evidence of misrepresentation at all of the institutions . . . There is no defense for a lot of what came forward in today's GAO report."

What the report shows most clearly, Hartle and others have said, is how relentlessly recruiters will push applicants to max themselves out in student loans. The problem is, many for-profit students are poor, and paying off a student loan may prove an insurmountable hurdle.

"These are people trying to get back on their feet, and to swamp them with debt ... that's not right," said Arne Duncan, the education secretary, in a telephone interview Wednesday with my colleague Jenna Johnson.

And, contrary to the comments of the Florida recruiter, you can't just stop making payments.

"The fact is that if you default on a student loan, the government will ruin your life," Hartle said.

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By Daniel de Vise  |  August 5, 2010; 11:13 AM ET
Categories:  Access , Administration , Admissions , Aid , For-profit colleges , Public policy  | Tags: GAO investigation for-profit colleges, GAO report for-profits, for-profit colleges, for-profits  
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Dear Full Sail- Let me tell you my story. you showed me this tour with amazing equipment, lights, smoke, concerts, it was a huge production, I was impressed. right after you pressured me into the most expensive degree $74,000 for 2 years. You told me not to worry because I could get a job any where I wanted. You teamed up with sallie mae and pretty much made me max out my loans for 4 years in 2. you arranged it so you can get 4 years worth of money in 2. I wasn't worried because my recruiter said that 90% of the Grads pay off their loans in 2 years (not true) Pretty sneaky Full Sail. I never did used any of that equipment you showed me. My teachers were kids some never even went to college. My degree was Digital art and design a fancy name for Graphic design I never did get to print a single item, you don't even have a print house. 74k I should have been able to print something, it's is kind of important in Graphic Design don't you think. I did graduate, because once you sign up your stuck in a contract to pay even if you leave (another red flag) You have a job placement department, can you guess how many interviews you sent me on? 0 not 1 you said freelance. Do you think I can repay a 150,000 loans with freelance gigs. that's right 150k in debt is what I left with after living expenses because you make it impossible to have a job because the school runs 24/7 (another red flag) you claimed it is to get you ready for the real world but in reality it's to squeeze as many dollars I mean students into the seats a day. I hope you now get what you deserve for ripping off all the bright eyed, eager student that you have taken advantage of over the years. That is having the government strip you of you loans. If you were ever thinking of attending Full Sail just get a membership for $25 a month because that's what Full Sail does.

Posted by: sdotshawn | August 5, 2010 4:25 PM | Report abuse

This report and investigation was long past due and it's good that Congress is finally waking up to see how people are being duped daily by these types of institutions. The reality, however, is that people will continue to seek that schools out, hoping to get an easy credential that's worthless and can't hold muster to other not-for-profit schools. Minorities are attracted to these schools like flies because they're easy to get into. People looking for short-cuts are attracted because if you can do a program in 6 - 18 months, why work hard for 4 years? Too bad Congress didn't look at alla the for-profits; the industry is rife with fraud and deception and taxpayers are footing the bill.

Posted by: cricket35 | August 5, 2010 5:17 PM | Report abuse

Taxpayers are of course harmed when students at these schools default on their student loans, but even more harm is caused because for-profit schools target students who are eligible for Pell grants.

They waste their grants at these schools, max out federal loans too, and then are encouraged to take out costly private loans for their remaining tuition deficit.

Posted by: collegeloanconsultant | August 5, 2010 6:37 PM | Report abuse

WashPostCo - you guys are gonna be toast when this Kaplan thing is all over!

Posted by: penn6020 | August 6, 2010 10:42 AM | Report abuse

If politicians, bureaucrats and ideologues are going to attack the organizations that are bringing competition, innovation and affordability to the marketplace, then some antiseptic sunlight needs to be shone on traditional institutions as well. Taxpayers need to fight back and demand reform of the corrupt NON-PROFIT system.

These have defrauded taxpayers with decades of runaway inflation far in excess of the overall economy, fueled by overstuffed administrations; lazy and overpaid faculties protected by an outdated tenure system; worthless ideologically-driven pseudo-academic programs; unionized workforces; and a panoply of gold-plated non-academic frivolities. Bear this in mind when politicians bloviate about seizing more of your hard-earned money to subsidize this racket.

Posted by: thebump | August 10, 2010 3:11 AM | Report abuse

LOOK AT DEVRY. LOOK AT DEVRY. LOOK AT DEVRY I work there now. They do the EXACT SAME THING that all the other for profits do, but they HIDE IT BETTER. Their admissions advisors are salespeople. They are hired as salespeople. They are fired and leads are taken way from them if they do not make their numbers. Please, take this piece of crap for school down. They do everything the report says, including financial aid fraud, but their numbers are skewed to make them look good, because they figured out early this might be a factor in their business. I've seen them make fun of "hicks" when they try to get them to buy into their school. Please, LOOK CLOSELY AT DEVRY. Close them down and look at their share drive where they keep their advisor numbers and information on how their advisors are compensated. How they didn't care about students until they 'had' to, then give a 1/2 a**ed attempt to do so. All these for profits are the same. The Admissions Advisors, under Ted Kulawiak, VP, are kept track by number of APPLICATIONS they get. I've seen little white envelopes on their desks after a session. They give profits on the sly. The government will never know because Devry has gotten the better, like all of them have. Its sickening and sad how they take advantage of these people. APLEASE DO SOMETHING ABOUT IT!!!!

Posted by: morgana7430 | August 12, 2010 10:28 PM | Report abuse

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