Education Department to Increase Scrutiny of Proprietary Colleges

The U.S. Department of Education will hire 60 more investigators and increase the number of investigations by 50 percent, partly in response to the findings of a GAO undercover investigation of 15 proprietary schools, Education Secretary Arne Duncan said today.

Details of the Education Department’s plans to step up enforcement action against possible fraud in federal student loan programs were included in a letter from Duncan to Sen. Tom Harkin (D-Iowa), chairman of the Senate Health, Education, Labor and Pension Committee, who has been leading the committee’s probe of proprietary schools.

“The unethical and potentially illegal practices uncovered by the GAO are unacceptable,” Duncan wrote in the letter. He said information about the Government Accountability Office’s findings are being turned over to the department’s Office of Inspector General for possible administrative action or possible termination of the schools’ eligibility to participate in the loan programs.

Of the 15 schools investigated by the GAO, all were found to have misled applicants and several even coached and helped the undercover investigators bypass rules for obtaining federal loans.  Among the schools were several operated by some of the nation’s largest publicly trade educational corporations, including the Apollo Group’s University of Phoenix, the Washington Post Co.’s Kaplan University and Corinthian Colleges.

Leaders of the various educational institutions had blamed reports of recruiting misconduct on a few “bad apples” and protested that their schools did not employ such practices. After videotapes of the undercover agents’ interviews at the 15 schools were played during a committee hearing, several corporation heads said they were “appalled” by the actions and the University of Phoenix and Westwood College announced they were ending the use of incentives for recruiters.

Stock prices of most of the publicly traded educational corporations have been under pressure since Harkin’s hearing and several declined farther today.

Duncan said the Education Department will study methods used by the GAO in its investigation and may copy the tactics during its increased enforcement actions.

Harkin, who has been holding a series of hearings on the recruitment, management and accreditation of proprietary colleges has sent each of the 14 publicly traded corporations and 16 other closely held schools questions about their graduation rates, loan defaults among former students and recruitment practices. He has planned another hearing for September.

A new legislative package concerning proprietary colleges could be ready by the end of the year, Harkin has said.

The Department of Education is already considering new regulations that could knock some proprietary colleges out of the federal student loan program, on the grounds that their programs cost too much for a graduate to be able to pay for.

Under what is known as the “gainful employment” regulation, a student should have to pay no more than 8 percent of gross income or 20 percent of discretionary income to repay college loans. If a college’s graduates are having to pay more, the college could be found ineligible to continue in the student loan programs.

Currently, proprietary schools enroll less than 10 percent of the nation’s post-secondary education students, but they receive about 25 percent of all federal student loans. In addition, their loan default rates are higher than those for nonprofit and public colleges and universities.




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