```

[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]

    ENFORCEMENT OF FEDERAL ANTI-FRAUD LAWS IN FOR-PROFIT EDUCATION

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             March 1, 2005

                               __________

                            Serial No. 109-2

                               __________

  Printed for the use of the Committee on Education and the Workforce

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house
                                   or
            Committee address: http://edworkforce.house.gov

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
99-773                      WASHINGTON : 2005
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512�091800  
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001

                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice     George Miller, California
    Chairman                         Dale E. Kildee, Michigan
Howard P. ``Buck'' McKeon,           Major R. Owens, New York
    California                       Donald M. Payne, New Jersey
Michael N. Castle, Delaware          Robert E. Andrews, New Jersey
Sam Johnson, Texas                   Robert C. Scott, Virginia
Mark E. Souder, Indiana              Lynn C. Woolsey, California
Charlie Norwood, Georgia             Ruben Hinojosa, Texas
Vernon J. Ehlers, Michigan           Carolyn McCarthy, New York
Judy Biggert, Illinois               John F. Tierney, Massachusetts
Todd Russell Platts, Pennsylvania    Ron Kind, Wisconsin
Patrick J. Tiberi, Ohio              Dennis J. Kucinich, Ohio
Ric Keller, Florida                  David Wu, Oregon
Tom Osborne, Nebraska                Rush D. Holt, New Jersey
Joe Wilson, South Carolina           Susan A. Davis, California
Jon C. Porter, Nevada                Betty McCollum, Minnesota
John Kline, Minnesota                Danny K. Davis, Illinois
Marilyn N. Musgrave, Colorado        Raul M. Grijalva, Arizona
Bob Inglis, South Carolina           Chris Van Hollen, Maryland
Cathy McMorris, Washington           Tim Ryan, Ohio
Kenny Marchant, Texas                Timothy H. Bishop, New York
Tom Price, Georgia                   John Barrow, Georgia
Luis G. Fortuno, Puerto Rico
Bobby Jindal, Louisiana
Charles W. Boustany, Jr., Louisiana
Virginia Foxx, North Carolina
Thelma D. Drake, Virginia
John R. ``Randy'' Kuhl, Jr., New 
    York

                    Paula Nowakowski, Staff Director
                 John Lawrence, Minority Staff Director

                                 ------                                

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on March 1, 2005....................................     1

Statement of Members:
    Boehner, Hon. John A., Chairman, Committee on Education and 
      the Workforce..............................................     2
        Prepared statement of....................................     3
    Hinojosa, Hon. Ruben, a Representative in Congress from the 
      State of Texas, Prepared statement of......................    72
    Miller, Hon. George, Ranking Member, Committee on Education 
      and the Workforce..........................................     4
    Porter, Hon. Jon C., a Representative in Congress from the 
      State of Nevada, Prepared statement of.....................    75
    Waters, Hon. Maxine, a Representative in Congress from the 
      State of California........................................     7
        Prepared statement of....................................     9

Statement of Witnesses:
    Carter, Thomas A., Deputy Inspector General, U.S. Department 
      of Education, Washington, DC...............................    31
        Prepared statement of....................................    32
    Dorsey, Paula, Former Director of Admissions, Bryman College, 
      Reseda, CA.................................................    38
        Prepared statement of....................................    40
    Glakas, Nick, President, Career College Association, 
      Washington, DC.............................................    42
        Prepared statement of....................................    45
    Rhodes, David, President, The School of Visual Arts, New 
      York, NY...................................................    27
        Prepared statement of....................................    29

Additional materials supplied:
    Fager, Jeff, Executive Producer, 60 Minutes, Letter submitted 
      for the record.............................................    70

 
    ENFNORCEMENT OF FEDERAL ANTI-FRAUD LAWS IN FOR-PROFIT EDUCATION

                              ----------                              

                         Tuesday, March 1, 2005

                     U.S. House of Representatives

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The Committee met, pursuant to call, at 2:10 p.m., in room 
2175, Rayburn House Office Building, Hon. John A. Boehner 
(Chairman of the Committee) presiding.
    Present: Representatives Boehner, Petri, McKeon, Castle, 
Johnson, Biggert, Kline, Price, Fortuno, Drake, Miller, Kildee, 
Andrews, Scott, Hinojosa, McCarthy, Tierney, Wu, Van Hollen, 
and Bishop.
    Staff Present: David Cleary, Professional Staff Member; 
Kevin Frank, Professional Staff Member; Alison Griffin, 
Professional Staff Member; Sally Lovejoy, Director of Education 
and Human Resources Policy; Alexa Marrero, Press Secretary; 
Greg Maurer, Coalitions Director; Catharine Meyer, Legislative 
Assistant; Krisann Pearce, Deputy Director of Education and 
Human Resources Policy; Amy Raaf, Professional Staff Member; 
Deborah L. Samantar, Committee Clerk/Intern Coordinator; Dave 
Schnittger, Director of Communications; Todd Shriber, 
Communications Assistant; Ellynne Bannon, Minority Legislative 
Associate/Education; Tom Kiley, Press Secretary; Ricardo 
Martinez, Minority Legislative Associate/Education; Alex Nock, 
Minority Legislative Associate/Education; Joe Novotny, Minority 
Legislative Assistant/Education; and Mark Zuckerman, Minority 
General Counsel.
    Chairman Boehner. The Committee on Education and the 
Workforce will come to order, a quorum being present.
    The Committee will be holding this hearing today to hear 
testimony on enforcement of Federal antifraud laws in for-
profit education. Under the Committee rules, opening statements 
are limited to the Chairman and Ranking Member. Therefore, if 
further Members have opening statements, they can be submitted 
for the record.
    And, with that, I would ask unanimous consent that the 
hearing record will remain open for 14 days to allow Members' 
statements and other extraneous material referenced during the 
hearing today to be submitted for the official hearing record.
    Without objection, so ordered.

   STATEMENT OF HON. JOHN A. BOEHNER, CHAIRMAN, COMMITTEE ON 
                  EDUCATION AND THE WORKFORCE

    I want to welcome everyone today to our hearing.
    One of the chief responsibilities for this Committee in the 
109th Congress will be the renewal of the Higher Education Act, 
the Federal law enacted 4 decades ago for the purpose of 
ensuring that a college education is within reach for every 
American student who strives for it.
    The face of higher education is changing today, because our 
economy itself is changing. Higher education has never been 
more important than it is today. More students than ever are 
seeking a college degree, and there has been a dramatic 
increase in the number of nontraditional students pursuing a 
college education. Many of these students are minorities, 
working parents, and first-generation college students, or 
students who do not have the ability or means to attend a 
traditional 4-year college.
    Traditional colleges and universities have not been able to 
meet this growing demand or respond to the needs of these 
students. Proprietary schools, or ``for-profit'' schools, have 
been stepping in to fill this void. There are thousands of 
proprietary schools across the United States, and they are 
playing a critical role in providing college access for some of 
our Nation's most vulnerable students. And thus, they are 
playing a critical role in carrying out the mission of the 
Higher Education Act.
    Students who attend proprietary schools are not treated 
fairly under current Federal higher education law. As this 
Committee learned in a hearing last year, proprietary school 
students and the institutions they attend are essentially 
treated like second-class citizens under outdated current law. 
New York has taken action to address this inequity at the State 
level, and I expect more States will follow suit. And my 
colleague, Buck McKeon, and I have introduced legislation at 
the Federal level that would do the same.
    It is also necessary for us to ask whether proprietary 
school students are being adequately protected by Federal law 
against fraud and abuse, and to examine the steps the Bush 
administration has taken to enforce those laws. When we talk 
about college access, we mean access to quality education. All 
students should be able to have faith in the institution they 
attend. All parents should be able to trust that the schools 
receiving their hard-earned money are delivering quality in 
return. We expect all institutions of higher learning, 
nonprofit and for-profit, to abide by this same standard. When 
parents and students are misled or willfully denied the 
information they need to make informed decisions when they 
invest in a college education, it is a breach of trust.
    As Congress reauthorizes the Higher Education Act, our 
first priority has to be providing access and fairness to low- 
and middle-income students and families struggling with the 
high price of college. This means holding nonprofit schools 
accountable for the role they are playing in the hyperinflation 
of college costs. It means providing fairness for students at 
proprietary schools. And it means ensuring that the Federal 
antifraud laws to protect students are both adequate and fully 
enforced.
    In that light, we are going to look today specifically at 
the for-profit sector. I think what we want to know is what 
laws exist to protect proprietary school students against 
fraud. How are they being enforced? Are any of these laws 
outdated to the point where they are now hurting the students 
they were enacted to protect? Do we have different standards 
for proprietary schools than we have for nonprofit schools? Are 
there legal safeguards and standards in for-profit education 
that ought to be considered in the nonprofit sector, where the 
vast majority of Federal higher education resources are being 
spent?
    I want to thank all of our witnesses for their willingness 
to be here today to provide insights on these questions, 
including our colleague from California, Ms. Waters.
    We cannot condemn an entire sector for the errors of a 
relatively small number of bad actors, but we cannot turn a 
blind eye to those errors, either. This is the case in the for-
profit education industry. It is also the case in the nonprofit 
education industry and, for that matter, in other education 
programs like Head Start. Either extreme would hurt vulnerable 
students and parents, the very people the laws we oversee were 
intended to help.
    We are holding this hearing today to ensure that this 
Committee produces legislation in the future that strikes the 
right balance for American students and families that we were 
all sent here to represent.
    With that, I would like to yield to my friend and 
colleague, the gentleman from California, Mr. Miller.
    [The prepared statement of Chairman Boehner follows:]

Statement of Hon. John A. Boehner, Chairman, Committee on Education and 
                             the Workforce

    Good afternoon. Welcome everyone.
    One of the chief responsibilities for this committee in the 109th 
Congress will be the renewal of the Higher Education Act, the federal 
law enacted four decades ago for the purpose of ensuring that a college 
education is within reach for every American student who strives for 
it.
    The face of higher education in America is changing today, because 
our economy itself is changing. Higher education has never been more 
important than it is today. More students than ever are seeking a 
college degree. There has been a dramatic increase in the number of 
non-traditional students pursuing a college education. Many of these 
students are minorities, working parents, first-generation college 
students, or students who do not have the ability or means to attend a 
traditional four-year college.
    Traditional colleges and universities have not been able to meet 
this growing demand or respond to the needs of these students. 
Proprietary schools, or ``for-profit'' schools, have been stepping in 
to fill this void. There are thousands of proprietary schools across 
the United States, and they're playing a critical role in providing 
college access for some of our nation's most vulnerable students. And 
thus, they're playing a critical role in carrying out the mission of 
the Higher Education Act.
    Students who attend proprietary schools are not treated fairly 
under current federal higher education law. As this Committee learned 
in a hearing last year, proprietary school students and the 
institutions they attend are essentially treated like second-class 
citizens under outdated current law. New York has taken action to 
address this inequity at the state level. I expect more states will 
follow suit, and my colleague Buck McKeon and I have introduced 
legislation at the federal level that would do the same.
    It's also necessary for us to ask whether proprietary school 
students are being adequately protected by federal law against fraud 
and abuse, and to examine the steps the Bush administration has been 
taking to enforce those laws.
    When we talk about college access, we mean access to a quality 
education. All students should be able to have faith in the institution 
they attend. All parents should be able to trust that the schools 
receiving their hard-earned money are delivering quality in return. We 
expect all institutions of higher learning--nonprofit and for-profit--
to abide by this standard. When parents and students are misled, or 
willfully denied the information they need to make informed decisions 
when they invest in a college education, it is a breach of trust.
    As Congress reauthorizes the Higher Education Act, our first 
priority has to be providing access and fairness for low and middle-
income students and families struggling with the high price of college. 
This means holding ``nonprofit'' schools accountable for the role 
they're playing in the hyperinflation of college costs. It means 
providing fairness for students at proprietary schools. And it means 
ensuring that federal anti-fraud laws to protect students are both 
adequate and fully enforced.
    In that light, we're going to look today specifically at the for-
profit sector--in part, because of a recent report by the CBS program 
``60 Minutes'' on alleged incidents of fraud in the for-profit 
education industry. We want to know:
      What laws exist to protect proprietary school students 
against fraud?
      How are they being enforced?
      Are any of these laws outdated, to the point where 
they're now hurting the students they were enacted to protect?
      Do we have different standards for proprietary schools 
than we have for ``nonprofit'' schools?
      Are there legal safeguards and standards in for-profit 
education that ought to be considered for the non-profit sector, where 
the vast majority of federal higher education resources are being 
spent?
    I want to thank all of the witnesses for their willingness to be 
here today to provide insights on these questions, including our 
colleague from California, Ms. Waters.
    We can't condemn an entire sector for the errors of a relatively 
small number of bad actors, but we can't turn a blind eye to those 
errors either. This is the case in the for-profit education industry. 
It's also the case in the nonprofit education industry--and, for that 
matter, in other education programs like Head Start. Either extreme 
would hurt vulnerable students and parents--the very people the laws we 
oversee were created to help. We are holding this hearing today to 
ensure this committee produces legislation in the future that strikes 
the right balance for the American students and families we were sent 
here to represent.
    With that, I would turn to the senior Democratic member of our 
committee, Mr. Miller, for any comments he may have.
                                 ______
                                 

 STATEMENT OF HON. GEORGE MILLER, RANKING MEMBER, COMMITTEE ON 
                  EDUCATION AND THE WORKFORCE

    Mr. Miller. Thank you, Mr. Chairman, for agreeing to hold 
this hearing on abuse in the student aid program and the 
proposed changes to the College Access and Opportunity Act, 
H.R. 609, which would change some of those safeguards.
    I would like to begin by welcoming to the Committee our 
colleague, Maxine Waters, from Los Angeles. She has represented 
the South Central Los Angeles, the Westchester community with 
Gardena, Hawthorne, Inglewood, and Lawndale, for the better 
part of 2 decades and she serves as chief deputy whip of the 
Democratic Party.
    During her 25 years of service, she has been on the cutting 
edge of controversial issues, and it is no surprise to see her 
here today. When I saw the ``60 Minutes'' piece, my mind 
immediately went to Maxine, because we had been in this fight a 
decade ago, and she, even before then, was trying to assure 
that fraudulent practices would not take their toll on young 
people who were seeking to make the most of their lives by 
participating in higher education and continuing education. And 
she, in fact, wrote State legislation to deal with this issue. 
So I think the Committee will be enriched by her testimony and 
her participation today.
    There are two basic goals that we should focus on as we 
reauthorize the Higher Education Act. First, we should ensure 
that students are not prevented from getting a high-quality 
college education because they cannot afford one.
    A basic sense of fairness says that students should not be 
denied the opportunities that higher education brings just 
because they cannot afford to pay for college.
    But it is not only about fairness. Our Nation's economy 
depends more each year on having a highly skilled workforce to 
compete in the global economy, and higher education is a key 
ingredient to creating that workforce.
    Second, we should ensure that tax dollars are invested 
wisely. Tax dollars should be used to help students pay for 
college, not to boost companies' bottom lines in the for-profit 
sectors. Unfortunately, H.R. 609, while it includes some good 
provisions, does not do enough either to make college more 
affordable or to eliminate the waste and abuse issues.
    On the issues before us today, safeguarding against fraud 
and abuse by for-profit colleges, H.R. 609 takes us further 
away from the goal of reducing waste. A recent ``60 Minutes'' 
piece, ``For-profit Colleges: An Expensive Lesson,'' documented 
aggressive and misleading recruitment practices in certain for-
profit colleges. As you correctly pointed out, this is not to 
provide for the indictment of all of the colleges in this 
sector, because they do provide an important and necessary 
resource for higher education opportunities for so many of 
America's students.
    Specifically, the report documented how certain colleges 
owned by Career Education Corporation misrepresented graduation 
rates, promised inflated salaries to prospective enrollees, 
enrolled students who did not have the ability to complete 
casework, and focused heavily on boosting enrollment numbers 
and Federal student aid payments. These actions represent a 
disservice to students, taxpayers, and those colleges that play 
by the rules and provide a quality education on a fair basis.
    Last year, the Federal Government distributed more than $80 
billion in student aid of which 70 percent was in student 
loans. Students at both for-profit and nonprofit schools are 
eligible for these funds, and for-profit institutions have 
participated in these programs for more than 30 years. For-
profit colleges have been the forerunners of many innovations 
such as online courses, accelerated course time, and flexible 
scheduling for nontraditional students, and have helped 
increase access to higher education for many, many students.
    However, the same business model that allows for-profit 
schools to innovate can also breed the types of rampant fraud 
and abuse that occurred in the 1980's and the early 1990's, 
without sensible safeguards. We must take reports of fraud and 
abuse in the student aid program seriously.
    Congressional hearings in the 1990's found similar problems 
to those raised in numerous recent reports such as the ``60 
Minutes'' segment, primarily at for-profit colleges 
participating in the Federal student aid program. The abuses 
included disbursing funds to ineligible students, falsifying 
and forging documents, setting tuition prices at artificially 
high levels, and providing inadequate instruction.
    None of us on this Committee can support these practices. 
That was a decade ago.
    Today we are holding a hearing, unfortunately on some of 
the repeats of those practices by some institutions. We have 
got to make sure that the taxpayer dollars are, in fact, used 
for the purposes for which they were provided, and that we do 
not end up simply saddling well-intentioned, well-motivated 
students with debt because they did not get the opportunity 
that was represented to them and promised to them.
    When these laws have been assertively enforced, we have 
seen that they do stem fraud and abuse in the student aid 
programs. However, there is some question as to whether or not 
these laws are being adequately enforced and whether or not the 
current institutional integrity provisions in the Higher 
Education Act are sufficient.
    In addition, although sufficient problems exist, many 
protections have been substantially weakened and considered for 
repeal. We must balance flexibility and innovation in higher 
education against the dangers of repeating past abuses.
    That is the goal of this hearing. I hope it is the goal of 
the oversight and of the testimony that we receive; and as we 
proceed with markup of the higher education bill, I hope that 
these hearings will turn out to be a valuable resource to us so 
that we can meet those twin goals of providing affordable 
education and access to that affordable education, and 
protecting the taxpayers at the same time.
    Mr. Chairman, again, my thanks to you for your timeliness 
in holding this hearing.
    Chairman Boehner. We welcome all of our witnesses today. 
Mr. Miller has already introduced our first witness, Ms. 
Waters. Let me yield to the gentlewoman from New York, Ms. 
McCarthy, to introduce our second witness today.
    Mrs. McCarthy. Thank you, Mr. Chairman.
    Mr. Chairman, I would like to introduce Mr. Rhodes. He is 
currently serving his 27th year as the President of the School 
of Visual Arts, located in New York City, New York.
    The School of Visual Arts began as a trade school in 1947 
with three instructors and 35 students, and has grown into a 
multiple discipline institution with a faculty of more than 800 
that currently serve an undergraduate enrollment of 3,092. In 
1972, the New York Board of Regents first authorized SVA to 
confer fine arts bachelor's degrees. Since then, the SVA has 
been widely recognized as one of the finest art schools in the 
country for its innovative programs.
    In addition, President Rhodes serves as a commissioner for 
the Commission on Higher Education of the Middle States 
Association of Colleges and Schools.
    Mr. Rhodes, welcome to the Committee, and thank you for 
being here.
    Chairman Boehner. Thank you, Mrs. McCarthy.
    Thirdly, we will hear from Mr. Thomas Carter. Mr. Carter 
currently serves as the Deputy Inspector General for the 
Department of Education. From 1985 to 2000, Mr. Carter served 
in a variety of staff and management positions at the 
Department that included responsibilities for special studies 
of Department programs and operations, internal evaluations of 
OIG operations, development of audit policies and procedures, 
as well as strategic and annual work planning. We thank you for 
being here.
    We will then hear from Ms. Paula Dorsey. Ms. Dorsey joins 
us today having recently served as the former Director of 
Admissions for Bryman College located in California. 
Established in 1960, Bryman College was created with a mission 
to provide quality, job-relevant career training designed to 
prepare men and women of all ages to enter, prosper in, and 
meet the needs of the employment community.
    Lastly, we will hear from Mr. Nick Glakas. Mr. Glakas 
currently serves as President of the Career College 
Association, a voluntary membership organization of private, 
postsecondary schools, institutes, colleges, and universities 
that provide career-specific educational programs. Prior to 
joining CCA, Mr. Glakas spent nearly 10 years as an executive 
with the ITT Corporation, and most recently as Senior Vice 
President for Government Affairs here in Washington.
    As I am sure someone has explained to all of you, we allow 
5 minutes for each of our witnesses to testify, and we would 
all hope that you could do that.
    With that, Ms. Waters, I am glad you are here.

   STATEMENT OF THE HON. MAXINE WATERS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Waters. Thank you very much.
    Chairman Boehner and Ranking Member Miller, I thank you for 
calling this hearing today. And to all of the Members of the 
Committee, I am very appreciative for the opportunity to 
testify before you. I have prepared 55 pages of testimony, and 
I have tried to condense that down into the 5-minute time that 
is allotted.
    So let me start with my testimony, but you have that 55 
pages before you.
    The for-profit trade schools, or rather, the students they 
enroll, have been a matter of deep concern to me for more than 
20 years. These proprietary schools talk in terms of providing 
minorities with opportunities and talk about discrimination. I 
take umbrage when these tactics are employed. African Americans 
and Latinos, since the era of reconstruction and the arrival of 
Cortez, respectively, have been offered these same deceptive 
opportunities. These schools are harming my community.
    The growth default rate for proprietary schools is 44.6 
percent for the period 2000 to 2002, so nearly half of the 
students do not make enough to make the minimum loan payment. 
There is no statute of limitations for the collection of 
student loans from defaulting students, so these loans never go 
away. Former students cannot discharge their loans in 
bankruptcy when they cannot pay. Removing the 90/10 protection 
will allow more of my constituents to be ripped off.
    The provisions of H.R. 507, or whatever the number is now, 
easing the restrictions on distance learning and including 
proprietary institutions within the definition of an 
institution of higher education must be rejected. It is time we 
thought about the students, not just the schools' bottom lines.
    The schools with the heaviest dependence on financial aid 
have the highest default rates and the lowest completion and 
placement rates for students. What point is there in allowing 
these schools more access to low-income minority students if 
the students do not get decent-paying jobs?
    For the 2-year courses, only one-third of students complete 
the course. Often, the school's poor completion rates are not 
disclosed or grossly misrepresented.
    At the Katharine Gibbs School, the ``60 Minutes'' producer 
asked the completion rate and was told that it was 89 percent, 
when it was actually 29 percent, a 60 percent error. The 
graduates often find no jobs, or only low, low-paying jobs. 
Some of these fields of study like cosmetology and fashion have 
more applicants than jobs. I do not want these students to pay 
$30,000 to $50,000 for a fashion course of study and end up 
folding T-shirts at The Gap, as disclosed on the ``60 Minutes'' 
segment.
    The letters I have received since the ``60 Minutes'' story 
reinforce my beliefs. An employee of American Intercontinental 
University, a sister school of Brooks College in Long Beach, 
California, featured in the ``60 Minutes'' story, provided 
this, and I quote: ``we have been raising issues with these 
questionable practices ever since CEC bought AIU 3 years ago. 
We saw the demographic shift to primarily low-income, D-
average-and-below students who were ill-prepared to commit to 
the structure, rigors, and requirements of a design college. 
They were taking out huge Federal loans to pay for their 
tuition and then, because they had no funds for supplies, 
transportation, or even food, would fail.
    I have a deep-seated moral problem with lying to them in a 
variety of ways. For example, they will be able to get a B.A. 
degree in 2 years, they will be able to get a job with J-Lo 
designing, they will be able to get a job with Spielberg, and 
the list goes on and on and on. In these schools, often the 
number of admissions representatives or recruiters dwarfs the 
number of full-time faculty. The amount spent on advertising, 
lead creation, recruiting, and admissions representatives far 
exceeds the salaries paid to faculty.
    The entrance standards at these proprietary trade schools 
are exceedingly low, usually 2.0 grade point average for the 2-
year courses. But low-performing students and those in need of 
remedial education are led into these programs regardless of 
their grades.
    Jennifer McDonald, the Associate Producer at ``60 
Minutes,'' could not disqualify herself for admission by low 
grades, drug addiction, or failing the entrance test. Those who 
complete the course do not necessarily fare any better, because 
they have a bigger debt to pay.
    At Brooks College in Long Beach, the data showed that the 
average starting wage for fashion merchandising, a 2-year 
course, is barely above minimum wage. The most common job title 
for fashion merchandising is sales associates. But, the 
admission representatives featured on ``60 Minutes'' indicated 
they would be making a starting salary of $35,000 to $40,000 a 
year.
    The school's placement rate is often misstated to get the 
student to enroll. The recruiter for Brooks College in Long 
Beach said, and I quote, ``We are telling you that you are 
going to have a 95 percent change, that you are going to have a 
job paying $35,000 to $40,000 a year by the time you are done 
in 18 months,'' says Shannon. We later found it was not true at 
all.
    Sadly, more than a decade after the passage of additional 
student and financial protections, many of the same problems 
persist. Yet, the U.S. Department of Education does little or 
nothing in following up on student complaints, whistle-blower 
complaints and lawsuits which expose wrongdoing by the schools.
    The students going to proprietary schools need additional 
protection. These families will be squeezed to the breaking 
point when the Department of Education tries to collect on the 
$40,000 in loans, when the family member did not get a job and 
has barely enough to feed and house the family.
    These schools are using mostly African American and Latino 
students as mere ciphers to get the highest level of financial 
aid. They want my constituents and others like my constituents 
around the country merely to feed their bottom line without 
regard to the misery that most certainly will follow.
    We must not permit them to do so, and I look forward to the 
Committee's questions. Thank you.
    Chairman Boehner. Thank you.
    [The prepared statement of Ms. Waters follows:]

Statement of Hon. Maxine Waters, a Representative in Congress from the 
                          State of California

MY INTEREST IN PROPRIETARY TRADE SCHOOLS
    I want to speak to you about the necessity of keeping current 
student protections in federal law, and insisting the Department 
enforce current law. A host of new protections are needed, but that is 
for another day.
    The for-profit trade schools, or rather, the students they enroll, 
have been a matter of deep concern for me for more than twenty years. 
These proprietary schools talk in terms of providing minorities with 
opportunities, and cloth themselves with terms of the civil rights 
struggle.
    I take umbrage when these tactics are employed by the for-profit 
trade schools. African-Americans and Latino's, since the era of 
reconstruction, and the arrival of Cortez, respectively, have been 
offered these same deceptive opportunities. These schools are 
continually harming my community.
    I have always supported job programs and job preparedness programs 
in my district. I often go to graduation ceremonies or completion 
celebrations to provide support for the efforts of young people who 
were looking for a chance at a better life and employment training.
    I had GED courses conducted in my office so that my constituents 
could pass the math portion of the GED to get into the construction 
training programs. The 17-30 program in my district got former gang 
members back into a school or a training program. I have spoken at 
graduation ceremonies many times at the Maxine Waters Employment 
Preparation Center, part of LA Unified Adult Education Program.
    And with respect to all these groups of young people and all these 
events, there was one thing in common--most of the participants had 
been ripped off by a for-profit trade school.
    Many of these students had families, and could not pursue further 
education or training because they had defaulted on previous student 
loans used to attend a trade school, and thus did not qualify for any 
current financial aid (including Pell Grants), which they needed to 
support themselves while attending Community College to obtain 
training.
    At one graduate ceremony at the Employment Preparation Center, I 
asked how many of the graduates had been ripped off by a trade school, 
and all hands but one went up. I do not want this pattern to extend 
into the indefinite future.
    Removing the 90/10 protection will have severe consequences in my 
district. The provisions of HR 507 easing the restrictions on distance 
learning, and including proprietary institutions within the definition 
of ``an institution of higher education'' must be rejected. It is time 
we thought about the students, not just the school's bottom line. These 
schools had a gross default rate of 44.6% for the period 2000-2002.\1\
---------------------------------------------------------------------------
    \1\ ED-OIG/A03-C0017 DECEMBER 2003 ``Audit to Determine if Cohort 
Default Rates Provide Sufficient Information on Defaults in the Title 
IV Loan Programs'-See chart on p. A1 titled ``Gross Default Rates By 
Risk Category'' (hereinafter referred to as Audit Defaults).
---------------------------------------------------------------------------
NO STATUTE OF LIMITATIONS
    In this country, there is no statute of limitations for murder, and 
for the collections of student loans from defaulting students. When 
these students are suffering under a crushing student debt burden, 
because the promised jobs were nowhere to be found, they learn that 
these loans cannot be discharged in bankruptcy (as one of the victims 
on the Sixty Minutes program suggested as her only option).
    So, the government has insulated itself from the consequences of 
these schools' deception, and the disastrous consequences. Don't these 
ripped-off students deserve some consideration and protection?
    The reason that I am so strongly support the 90/10 rule, formerly 
85/15 (which should actually have a larger number at the bottom), is 
because I think my constituents and other low income persons and 
minorities are ill served by the for-profit trade schools and need even 
more protection from the false sales pitches of many of these for-
profit trade schools.
    I am not saying that all the for-profit trade schools are bad, but 
enough of them are, to necessitate the need for student protections. 
Before my office burned down, I had a pile of trade school complaints 
two feet thick, and nothing has changed.

RATIONALE FOR THE 90/10 RULE
    The 90/10 rule, previously 85/15, was passed to combat rampant 
fraud, misrepresentations, and exploitative practices in the for-profit 
vocational education industry. Those practices continue.
    Keeping the 90/10 rule or increasing the denominator would give 
schools the incentive to raise the quality of the education to attract 
a broad range of students, instead of tailoring the education to the 
amount of federal funds available to the poorest students.
    Eliminating the 90/10 rule would allow problem for-profit trade 
schools to more easily continue to deceive and mislead low income 
students (often minorities) at a time when there are few other 
safeguards.
    The 1997 GAO report titled, ``Poorer Students Outcomes at Schools 
that Rely More on Federal Student Aid \2\,'' provides support for the 
90/10 rule. The rationale behind the 85/15 or the 90/10 rule is that 
schools providing a quality education should be able to attract a 
reasonable percentage of their revenue from sources other than title IV 
funds.
---------------------------------------------------------------------------
    \2\ Proprietary Schools: Poorer Student Outcomes at Schools That 
Rely More on Federal Student Aid, HEHS-97-103, June 13, 1997, online at 
http://www.gao.gov/archive/1997/he97103.pdf
---------------------------------------------------------------------------
    According to Mr. Moore, CEO of Corinthian, in his testimony before 
this committee last year, if the rule is eliminated, his schools will 
be able to offer greater access to low income and minority students. 
But this is already is the case. Ninety percent of revenue per campus 
can come from such students.
    The GAO report even suggested limiting the amount of title IV funds 
available to 55% of revenue, because it would save an estimated 11 
million dollars in default claims annually.\3\
---------------------------------------------------------------------------
    \3\ Id., page 3
---------------------------------------------------------------------------
    The current rule generously requires that only 10% of a school's 
services be pitched to and obtained from groups which have some non-
title IV funds to pay for tuition. Why do these schools object? Is it 
that other groups not so heavily dependent on financial aid are more 
discerning consumers?
    By limiting the percentage of federal funds available to each trade 
school campus, the expectation is that the overall quality of education 
will improve because the school would have to recruit more well-off 
students who would have to pay for at least part of the program from 
other sources, such as their own savings.

ENFORCEMENT OF 90/10
    Despite the harshness alleged by schools of the 90/10 rule, only 
four schools have ever been shut down by it. I assume this is because 
the rule is enforced by self-reporting of the schools. I believe this 
is a mistake.
    Further, if only four schools have ever faced a problem with 90/10, 
why is this industry so vehemently fighting to eliminate it? Have these 
schools thus far deceived the Department with respect to their sources 
of funding, because of lack of oversight by the Department and the 
Department's reliance on self-reporting?
    The OIG has postulated that indiscernible or unreported data may 
indicate probable violations of the 90/10 rule. Because of the inherent 
flaw in relying on a self-reporting system, it is likely there are some 
schools in violation of the 90/10 rule that we do not know about.\4\ 
Again, if only 4 schools were truly in violation this would be a non-
issue.
---------------------------------------------------------------------------
    \4\ See General Accounting Office, ``Proprietary Schools: Poorer 
Student Outcomes at Schools that Rely More on Federal Student Aid,'' 
GAO/HEHS-97-103, June 1997
---------------------------------------------------------------------------
    By way of example, Mr. Moore of Corinthian at last year's hearing 
provided funding information regarding two entirely different campuses 
which had funding near the 90% limit. It would be interesting to know 
how these same campuses survived the 85/15 rule, unless both are new 
campuses.
    Mr. Moore compared these with suburban campuses which had more non-
title IV funding. But nothing indicates that the student outcomes at 
the two campuses (inner-city v. suburban) were comparable, or that the 
completion / placement rates at either were good. So why should access 
to intercity students be encouraged?
    No information was provided by Mr. Moore about the starting salary 
earned by these students. I am not interested in having low income 
minority students go into debt and get no job or a low paying job. But 
even these statistics re starting salaries are suspect, because they 
are self-reported.
    A report done by the OIG \5\ indicated that self-reported 
placements by accrediting agencies were not reliable, as most of the 
schools in the sample inflated the placement rate, and often by a huge 
component. Only two of the seven provided accurate data. None of the 
additional schools that were evaluated correctly reported its placement 
rate.
---------------------------------------------------------------------------
    \5\ OIG Report ACN:06-3004 dated May 8, 1995 ``Looking Ahead'' 
Managing for Results: Review of Performance-Bases Systems at Selected 
Accrediting Agencies.
---------------------------------------------------------------------------
    How close proprietary schools are near to the 90%, or how many are 
likely to be over, it is not known. It is a very bad idea to eliminate 
a rule that if enforced may have a salutary effect on the education 
which students receive at proprietary schools, or which may decrease 
the number of ripped-off students.
    I hope the committee is not fooled by the contention that fraud and 
violations of the law no longer exist. I know this not to be the case.

THERE IS NO POINT TO INCREASE PROPRIETARY SCHOOL ACCESS TO INNER-CITY 
        STUDENTS WHEN DECENT PAYING JOBS DO NOT RESULT
    Further, what point is there in allowing these schools more access 
to low-income / minority students, if the students do not get decent 
paying jobs. For the two-year degrees, only 20% or less, up to 40% of 
students, complete the course in the schools that I have seen data for. 
Of those who complete, they often find only low paying jobs. Some of 
these fields of study, like cosmetology and fashion, have more job 
applicants than jobs.
    I do not want these students to pay $30,000-$50,000 for a fashion 
course of study and end up folding t-shirts at The Gap, as disclosed on 
the Sixty Minutes segment, when that woman could have gotten the same 
job with no vocational training.\6\
---------------------------------------------------------------------------
    \6\ See transcript of Sixty Minutes expose, attached.
---------------------------------------------------------------------------
    Further, Tami Hanson, former Director of Placement for Career 
Education Corporation (hereinafter CEC) said that the cost could be 
even more, as much as $60,000 to $80,000.\7\
---------------------------------------------------------------------------
    \7\ Id.
---------------------------------------------------------------------------
    The letters I have received since the Sixty Minutes story reinforce 
why I believe it is essential to maintain the 90/10 rule, and even 
increase the ratio. These comments from one such letter relate to 
American Intercontinental University, a sister school of Brooks College 
in Long Beach, featured in the Sixty Minutes story:
        ``We have been raising issue with these questionable practices 
        ever since CEC bought AIU three years ago. We saw the 
        demographics shift to primarily low income, D average (and 
        below) students who were ill prepared to commit to the 
        structure, rigors and requirements of a design college. They 
        were taking out huge federal loans to pay for their tuition, 
        and then because they had no funds for supplies, 
        transportation, or even food, would fail.
        I have a DEEP SEATED moral problem \8\ with targeting these 
        students, getting hold of their financial aid monies, and lying 
        to them in a variety of ways (i.e. they will be able to get a 
        B.A. degree in two years, they will be able to get a job with 
        JayLo designing, they will be able to get a job with Spielberg 
        and the list goes on and on). As stated above, the majority of 
        these students recruited are not ready for a college, 
        especially one that will land them $60,000 to $80,000 in debt 
        IF they finish, which the majority does not. They have no 
        discipline to come to class, to do the work required for 
        completion of the course and we flunk a large number of these 
        applicants. But that's ok to the Administration. They allow 
        them to withdraw or take a leave, they collect their financial 
        aid and let them back in after a quarter off. . . a student who 
        had flunked EIGHT QUARTERS (that is 3 classes each quarter at a 
        minimum of $1800 per class for a total of $43,200.). He was re-
        admitted last year only to continue his poor academic 
        standards, flunking or withdrawing from his classes!!!!!! This 
        is not unusual'' The faculty hold these students to standards 
        that are in keeping with college level classes, even though we 
        are repeatedly pressured by the Administration to ``work with 
        them'' meaning ``pass'' them through so they do not drop out 
        and we can no longer get their federal money!
---------------------------------------------------------------------------
    \8\ Emphasis in the original letter.
---------------------------------------------------------------------------
        ... It is because of this accreditation (and I use the word 
        loosely here) that AIU is eligible for these hefty federal 
        monies. It is just so morally wrong, as you know. These 
        students DO NOT need to be going to a private $60,000 to 
        $80,000 college when the Community Colleges were founded for 
        EXACTLY this purpose. I have gone down on my knees (literally!) 
        and begged some of my at-risk students to drop the first week 
        because I can TELL they will fail (they don't show up at all 
        the first day and come with no supplies or do not have money 
        for supplies the second day and they don't really even know 
        WHEN they will have money for them!). They usually fail and I 
        am forced to give them that grade.'' \9\ (emphasis in the 
        original)
---------------------------------------------------------------------------
    \9\ Excerpts from a letter from American Intercontinental 
University employee.
---------------------------------------------------------------------------
    Other letters about the same school (two others) or different 
campuses and schools, such as the Art Institute, an Education 
Management Corporation school, had the same complaints:
      unqualified students were admitted
      misrepresentations were made to get students to enroll, 
re:
          starting salary
          prestigious employers
          etc.
      And the completion rates were low.
    It would be ill advised to get rid of 90/10, so that schools can 
rip off more disadvantaged and ill prepared students. Often the poor 
completion rates are not disclosed, and if known and understood should 
influence low income students not to sign up.
LOW COMPLETION RATE / LOW STARTING SALARIES AT BROOKS COLLEGE
    A case in point is the Long Beach campus of Brooks College, owned 
by CEC. The college ``claims'' a high placement rate for its graduates 
with the school's assistance if we are to believe the school's self-
reporting. But the school's accreditor, the Western Association of 
Colleges and Universities provides in the summary of its evaluation 
report as follows:
        ``The claims must be viewed in light of the fact that only 
        about 35% of Brooks'' students ever finish the program and that 
        another 10% of those who do complete or graduate are waived 
        from placement...
        The quality of job placements is another important indicator of 
        college program integrity. The college claims in its catalog, 
        for example, that graduation from the Interior Design program 
        ``automatically puts you in the elite group of well educated 
        interior design professionals'' and that ``as a Fashion 
        Merchandiser [graduate] from Brooks College, you'll be prepared 
        to handle some of the most competitive and serious business 
        management and executive training positions in fashion capitals 
        around the country.'' Within such statements, there is an 
        implied representation of program quality, market 
        competitiveness of graduates, and availability of career 
        opportunities. However, college data show that the average 
        starting salary way for Interior Design graduates is $11.67 per 
        hour and for fashion merchandising graduates is barely above 
        minimum wage. The most common job title for fashion 
        merchandising graduates is sales associate. The average 
        starting wage for graduates and completers in all programs 
        majors is less that $11.00 per hour. (2.1, 2.9) \10\ (emphasis 
        added)
---------------------------------------------------------------------------
    \10\ WASC report summary, page 13.
---------------------------------------------------------------------------
    At the Katherine Gibb School, the Sixty Minutes producer asked the 
completion rate, and was told that it was 89%, when it was actually 29% 
(a 60% error) \11\.
---------------------------------------------------------------------------
    \11\ See Sixty Minutes transcript, attached.
---------------------------------------------------------------------------
    I do not want these opportunities for low income and minority 
people. I do not want them to pay off a $40,000 loan working as a sales 
associate at Macy's. Neither should you. These are businesses, looking 
for bodies to sign up for federal money that they put in their pockets.

LOW INCOME STUDENTS GET FAR MORE GRIEF THAN HELP FROM PROPRIETARY 
        SCHOOLS
    Low income students get far more grief than help from these 
schools. There may be some success stories but there are far more 
failures. I have seen the devastation caused by these schools in my 
community, and the devastation has continued unabated. The only 
difference in my state is that--because of state law, and the law 
regarding ability to benefit students--such students (non high school 
graduates) are at least left alone.
    But instead, equally poor and often minority high school graduates, 
who are often ill prepared for higher education, are ripped off for 
many more tens of thousands of dollars. They are signed up for courses 
they cannot benefit from, even when the instruction is adequate (which 
it often is not). Too often, adequate teaching staff is considered an 
unacceptable overhead expense by the school chain.

MOST OF THE MONEY IS SPENT ON ADVERTISING AND RECRUITER SALARY, NOT 
        FACULTY
    In these schools, often the number of admissions representatives or 
recruiters dwarfs the number of full time faculty. The amounts spent on 
advertising, lead creation, recruiting, and admissions representatives 
far exceed the salaries paid to the faculty. If the school got student 
good jobs, it could rely on word-of mouth advertising.

LOW ADMISSIONS STANDARDS
    The entrance standards at these proprietary trade schools are 
exceedingly low--usually a 2.0 grade point average for the two year 
courses. But as we saw on 60 Minutes and have found time and time 
again, low performing students and those in need of remedial education 
are let into these programs, regardless of their grades, which do not 
even meet the school's mediocre acceptance standard.
    Jennifer McDonald (Associate Producer at Sixty Minutes) could not 
disqualify herself for admission by low grades, drug addiction, or 
failing the entrance test \12\. Students are let in regardless of their 
test scores or failing grades.
---------------------------------------------------------------------------
    \12\ see Sixty Minutes transcript, attached
---------------------------------------------------------------------------
    As noted by a former recruiter for Brooks College, the only 
requirements for admission at Brooks College was ``$50.00, a pulse, and 
you've got to be able to sign your name''.\13\
---------------------------------------------------------------------------
    \13\ Id.
---------------------------------------------------------------------------
LOW COMPLETION RATES
    The school knows full well that such students will never complete 
the course. They drop out, and sometimes even re-enroll in the same 
course that he or she failed out of (see the letter from an American 
Intercontinental Staff Member above).
    From the information I have seen regarding the two year school 
trade school courses, usually only about one third (1/3) of the 
students actually complete the course. I believe the highest completion 
rate for any course at the Career Education School, Brooks College in 
Long Beach, was 38 percent \14\. In 2003, there were 396 graduates and 
1,131 drops or withdrawals at Brook College of Photography in Santa 
Barbara, part of the CEC chain.\15\
---------------------------------------------------------------------------
    \14\ See discussion above, page 9
    \15\ Evaluation Report of Brooks College by the Bureau of Private 
Postsecondary and Vocational Education (the California enforcement 
agency)
---------------------------------------------------------------------------
EVEN GRADUATES DO NOT GET DECENT PAY
    Those who complete the course do not necessarily fare any better, 
because they have a bigger debt to pay. Many do not get jobs, because 
there are too many schools teaching the same courses of study, so there 
are more graduates than there are jobs. This depresses the wage scale.
    For example, the numerous students that take medical assisting 
courses often find no job, or if they do find a job in the Los Angeles 
area, for the most part the jobs are a minimum wage or a little above, 
with no benefits and few opportunities for a significant pay raise. 
This was the case regarding the plaintiffs and witnesses in the case of 
Soltero v. Corinthian (Los Angeles Superior Court Case BC238435).
    The students were assured of a job after they graduate, making 
$9.00 to $12.00 an hour, or $10.00 to $15.00 an hour. But they got no 
job or a low paying job, for the most part. Such marginal pay does not 
justify taking on the burden of student loans, when they could have 
gotten the same salary without any training. But at least these 
students were only out $8,000 to $10,000.

LOW PAY UPON COMPLETION OF TWO YEAR COURSES
    The same is not the case for those who complete two-year trade 
school courses which lead to an applied degree. The woman on the Sixty 
Minutes expose paid for a fashion course at Brooks College in Long 
Beach, California, then got a job at the Gap folding T-shirts. The cost 
for the fashion courses can range as high as $60,000.00.\16\ I am sure 
that is not the job (Gap employee) that she envisioned after the 
expenditure of so much money for training.
---------------------------------------------------------------------------
    \16\ See Sixty Minutes transcript, attached.
---------------------------------------------------------------------------
    The accrediting agency, Western Association of Colleges and 
Universities (WASC) did an evaluation of Brooks College in Long Beach 
(one of the schools featured on Sixty Minutes). This report indicated 
similarly low starting salaries for students in other two-year courses 
at the school.
    The college data show that the average starting wage ``for fashion 
merchandising graduates is barely above minimum wage. The most common 
job title for fashion merchandising graduates is ``Sales Associate'' 
(emphasis added). The average starting wage for graduates and 
completers in all programs is about $11.00 per hour.\17\ But the 
admission representatives featured on sixty Minutes indicated that they 
would be making a starting salary of $35,000 to $40,000.\18\
---------------------------------------------------------------------------
    \17\ See more complete discussion above, page 9
    \18\ See Sixty Minutes transcript, attached.
---------------------------------------------------------------------------
    How many of the thousands of students who have attended the Brooks 
College and its sister College, American Intercontinental University in 
Culver City offering many of the same courses would have signed up for 
a course costing $30,000 to $50,000 if they knew that only about one 
third of those who started the course would finish?
    And those who completed the course and got jobs could expect 
between minimum wage and $11.00? Not many, I suspect. And this is a 
nation wide chain. \19\ For someone of even average intelligence, this 
is not a rational choice unless s / he is deceived.
---------------------------------------------------------------------------
    \19\ Career Education, the owner of these schools is a nationwide 
chain
---------------------------------------------------------------------------
    The low starting salary after a two year course of instruction in 
Photography at Brooks College in Santa Barbara was confirmed in the 
December 1, 2004 report regarding the re-approval of this school done 
by the state enforcement agency, the Bureau of Private Postsecondary 
Education (discussed hereinafter as ``Bureau''). The Bureau looked at a 
sample of graduate files.
    While the school, Brooks College in Santa Barbara, touted a 
starting salary ranging from a low of $34,000 to $75,000, the student 
sampling done by the Bureau of Private Postsecondary Education 
indicated exceeding low starting salaries (to be discussed 
hereinafter). The best pay of a graduate in the samples was a $10.50/
hour job at a photo lab, which went out of business.
    Further, the same report indicted that although the school records 
showed that the school assisted the student in obtaining the jobs, 
albeit low paying, in fact, only one of the students received any help 
from the school in obtaining employment. \20\
---------------------------------------------------------------------------
    \20\ See December 1, 2004 report.
---------------------------------------------------------------------------
PLACEMENT SERVICES MISREPRESENTED
    A class action law suit was recently filed against Brooks College 
in Santa Barbara, and another one was filed against American 
Intercontinental University, another Career Education Corporation 
(hereafter ``CEC'') school, alleged that the college's placement 
services and placement assistance was misrepresentation. From the 
sampling done by the Bureau at the Santa Barbara campus, that seems to 
be the case.
    Only one student in the Santa Barbara sample received any 
assistance. The graduates of the Brooks College in Long Beach confirmed 
that they received no placement assistance \21\.
---------------------------------------------------------------------------
    \21\ See Sixty Minutes transcript, attached.
---------------------------------------------------------------------------
EASY PREY
    I know that what students are promised by these schools is not what 
they get. Misrepresentations are made about:
      the quality of instruction
      the state of the art equipment and supplies
      the anticipated starting salary
      the transferability of units
      the completion and placement rates
      the student selection process
      placement services
      jobs with prestigious employers
      etc.
    My constituents are fooled time and time again, and are the focus 
of recruitment efforts only because of their access to financial aid. 
That is why I proposed the 85/15 amendment initially, and why it's 
watered down sister, 90/10, must be maintained. The protections that HR 
507 seeks to eliminate also must be maintained.
    These schools look for their recruits the same place the armed 
services does--in low income neighborhoods among those who are starved 
of opportunities and want a piece of the American dream.

UNITS DO NOT TRANSFER
    None of the units earned at these trade schools are meaningful. 
They do not transfer to other schools including state schools but the 
students are not aware of this. They are lead to believe despite the 
disclaimer in the catalogue that because the school is accredited the 
units transfer. The admissions representatives feed that misconception.
    If they in fact go to another school, even after paying $50,000 
they end up as freshmen again. This misrepresentation is the basis of 
law suits against Corinthian (a nation-wide chain) in Florida.

PLACEMENT RATE MISREPRESENTED
    The biggest misrepresentations made to students that convince them 
to enroll are anticipated starting salary (discussed above) and the 
placement rate. But both are often misrepresented. The starting 
salaries that prospective students are told are seldom true. Many 
schools tout a 90% plus placement rate. But these are self reported 
rates and not necessarily accurate.
    The WASC report regarding Brooks College in Long Beach implied that 
the alleged placement rate may be deceptive because most didn't 
complete the course, and an additional 10% was excluded from the 
placement calculation.
    The recruiter for Brooks College in Long Beach said:
        ``We are selling you that you're gonna have a 95% change that 
        you are gonna have a job paying $35,000 to $40,000 / year by 
        the time you are done in 18 months'', say Shannon. We later 
        found it was not true at all.'' \22\
---------------------------------------------------------------------------
    \22\ See Sixty Minutes transcript, attached.
---------------------------------------------------------------------------
    In a lawsuit against ITT a San Diego law firm proved at trial that 
ITT inflated its placement rate. For example, a student who was counter 
help at Burger King was listed as a placement for the Hotel and 
Restaurant Management course.
    The same law firm, Majors & Fox, in litigation against the 
Corinthian chain also has depositions showing that the school inflated 
its placement rate. In two class action lawsuits against two Career 
Education Corporation schools, Intercontinental University in Culver 
City and Brooks College in Santa Barbara, the plaintiffs allege that 
the colleges have inflated or misrepresented the placement rates. 
Another report in December of 2004 on the latter school by the Bureau 
\23\ (the state enforcement agency) confirmed that the school 
misrepresented its placements.
---------------------------------------------------------------------------
    \23\ dated 12/1/04 to be discussed hereinafter
---------------------------------------------------------------------------
    In addition, the Council of Private Postsecondary Education, the 
enforcement agency in California prior to 1998, reported that in a 
sampling of placement rates from for-profit trade school placement 
logs, (with respect to every school sampled), the placement rates were 
misrepresented and inflated.
    In an OIG Report \24\ regarding accrediting agencies, the IG 
checked a sampling of placement information from a series of seven 
schools with three different accrediting agencies.
---------------------------------------------------------------------------
    \24\ OIG Report ACN:06-3004 dated May 8, 1995 ``Looking Ahead'' 
Managing for Results: Review of Performance-Bases Systems at Selected 
Accrediting Agencies
    Page 6 of that report cited that:
    ``We believe inadequate verification of the performance data may 
have allowed some schools to report data that could not be supported or 
was inaccurate.
    Because of our concerns about the agencies' verification procedures 
[regarding placements--(comment added)], we visited seven schools 
accredited by three of the agencies to determine if the schools' 
reported placements were reliable. ``Our purpose is selecting and 
visiting the schools was to demonstrate the existence of a condition 
and the need to verify the accuracy of schools' reported performance 
data, not the extent of inaccurate reporting.
    Based on our work at the seven schools, we determined that:
      2 of the schools' reported placement rates were accurate,
      3 of the schools' reported placements were overstated, 
ranging from 100 to 270 percent, and
      2 of the schools had insufficient documentation for us to 
test the accuracy of reported placements.
    Additionally, our office recently issued audit or inspection 
reports on three other schools that had overstated their job placement 
rates ranging from 54 to 112 percent.'' (emphasis added)
---------------------------------------------------------------------------
    The IG found that only two schools correctly reported the placement 
rate and the others had inflated the rate as much as 270 %.\25\ Only 
two out of ten schools that were tested, accurately reported the 
placement rate.
---------------------------------------------------------------------------
    \25\ Id.
---------------------------------------------------------------------------
    Even if we assumed placement was accurately reported, which is a 
big assumption, the accreditors' definition of a placement can be so 
expansive that a job of a few hours or a day or an unrelated job counts 
as a placement.
    For example the definition of placement can be a job in the field 
of training or a related field. This could be anything and everything 
and every school could have 100% placement for paying a third party to 
hire their graduates for a half a day.
    As Tami Hanson, former placement director at CEC said, ``(A) 
placement did not necessarily mean getting students the jobs they 
trained for. As she says a job placement could mean just about almost 
anything.'' \26\ (emphasis added)
---------------------------------------------------------------------------
    \26\ See Sixty Minutes transcript, attached (emphasis added).
---------------------------------------------------------------------------
    And really should the school be allowed to count as a placement a 
job which requires no experience or training? This happens all the 
time.

FRAUD, ABUSE, AND VIOLATION OF THE LAW STILL PERSIST, WITH LITTLE 
        ENFORCEMENT
    Sadly, more than a decade after the passage of additional student 
and financial protections, many of the same problems persist. Yet, the 
US Department of Education does little or nothing in following upon 
student complaints. In the recent months, ITT, a nationwide chain of 
vocational schools, has become the subject of an FBI fraud 
investigation. Campuses have been raided in six states. Prior to this, 
the Department let this chain off with a small fine.
    The campus of a local chain in the Central Valley of California has 
also been raided by the FBI. In addition, Career Education Corp., one 
of the largest for-profit proprietary education chains, has recently 
had two class actions filed against it, claiming multiple 
misrepresentations made to students. An investigation has been 
initiated by the SEC.
    These class action lawsuits against CEC schools involve American 
Intercontinental University in Culver City \27\, and Brooks College in 
Santa Barbara \28\. Sixty Minutes did an expose featuring a third CEC 
campus, Brooks College in Long Beach, and visited a dozen CEC campuses 
where the same problems existed.\29\
---------------------------------------------------------------------------
    \27\ Outten, et. al. vs. Career Education Corp., American 
Intercontinental University (BC 318199), filed July 19, 2004. The 
complaint provides that the school made misrepresentations about the 
quality of instruction, the school's placement rate, and the placement 
assistance that would be provided (emphasis added).
    \28\ The lawsuit details the finding of the State enforcement 
agency, and claims that Brooks students were subject to high pressure 
sales pitches with misrepresentations of a 98% job placement rate, 
$75,000.00 starting salaries, a competitive application process, 
comprehensive job placement services, and an alumni network to assist 
the student in obtaining employment (emphasis added). Nelson et. al. 
vs. Career Education Corp., Case 1165597, filed February 4, 2005.
    \29\ See attached Sixty Minutes transcript, also available at CBS 
News Online
---------------------------------------------------------------------------
    For-Profit College: Costly Lesson http://www.cbsnews.com/stories/
2005/01/31/60minutes/main670479.shtml
    In California, the Department of Education has uncovered violations 
in obtaining federal loans at Corinthian's Bryman College campus in San 
Jose, California. There are two ongoing lawsuits by students in Los 
Angeles against Corinthian, and another two in Florida claiming 
misrepresentations.
    A new lawsuit has been filed by Bryman students in Long Beach (a 
chain owned by Corinthian) alleging misrepresentations. Further, 
stockholder suits have been filed against the largest proprietary 
school chains. But the Department has done nothing to follow up on 
these claims.
    Clearly the statement of Mr. Moore, CEO of Corinthian, at the June 
16th hearing that, ``this problem [abuse and fraud] has been 
effectively addressed,'' is far from accurate. In spite of this, 
industry representatives are asking Congress in current legislation to 
give these schools unfettered access to Title IV funds.
    Members of this committee should reject the provisions of HR 507, 
which enable for-profit schools greater access to financial aid. Trade 
schools abuses are an ongoing problem and it is simply being ignored by 
state and federal regulators. This is what I am distressed about.
    Few resources are invested in uncovering and investigation 
misrepresentation and fraud. The Department does not appropriately 
follow up, even when others (whether it is uncovered by whistleblowers, 
student complainants, or attorneys) have uncovered fraud and violations 
of the law.

ACCREDITING AGENCIES ARE POOR GATEKEEPERS
    Mr. Moore, CEO of Corinthian, in his testimony before this 
committee last year, declared that accrediting agency oversight is all 
that is needed to ensure quality education. But there is little reason 
for having confidence in accrediting agencies.
    An audit by the Office of the Inspector General in July 2003 \30\ 
found multiple deficiencies with respect to the Accrediting Agency 
Evaluation Unit within the Department of Education's Office of 
Postsecondary Education. This is the unit with oversight over 
accrediting agencies, which in turn have oversight over trade schools.
---------------------------------------------------------------------------
    \30\ OIG Final Audit Report ED-OIG/A09-C0014, July 2003 ``Office of 
Postsecondary Education, Accrediting Agency Evaluation Unit's Review of 
Selected Accrediting Agency Standards and Procedures'
---------------------------------------------------------------------------
    Specifically, the audit found that the Evaluation Unit did not meet 
the minimum level of quality for management controls as defined in the 
GAO office publications. The report reserved the worst criticism for 
the Unit's oversight of regional and national accrediting agencies 
which were overseeing trade schools. The report recommended that no new 
agencies be approved until protections were in place.
    The American Council of Trustees and Alumni (ACTA), in its report 
titled ``Can College Accreditation Live Up to Its Promise'' \31\ by 
George C. Leaf and Rowena D. Burris provided as follows:
---------------------------------------------------------------------------
    \31\ P. 18, online at http://www.goacta.org/publications/Reports/
accrediting.pdf
---------------------------------------------------------------------------
        1)  ``Our overall finding is that accreditation does not 
        guarantee educational quality.''
        2)  ``Finding: the accreditation process focuses on compliance, 
        with a set of input criteria that do not bear directly on 
        student learning.''
    Thomas R. Bloom (Inspector General of the U.S. Department of 
Education), in testimony \32\ before the House Committee on 
Governmental Reform and Oversight Subcommittee on Human Resources, 
March 27, 1997, on the topic of ``DOE Management and Programmable 
Issues'', stated that the Office of the Inspector General found 
accrediting agencies' monitoring of trade schools to be inadequate:
---------------------------------------------------------------------------
    \32\ P. 4, Online at http://www.ed.gov/Speeches/03-1997/oig.html
---------------------------------------------------------------------------
        ``We continue to believe that accrediting agencies are 
        inadequate gatekeepers for assuring the quality of 
        participating vocation trade schools. A recent OIG audit of the 
        accrediting agency process revealed that on-site reviews 
        conducted by six accrediting agencies were infrequent typically 
        occurring only every four to nine years, and lasting only 
        several days.'' (emphasis added)
    In his testimony before this committee last year, Mr. Moore implied 
that the 90/10 rule was no longer necessary because the accrediting 
agencies would be an adequate check on school quality and fraud.
    Accrediting agencies can not make up for the elimination of the 90/
10 rule because the accrediting agencies are themselves private 
companies dependent on the fees paid by the trade schools. They have 
few employees, given the number of schools they regulate.
    In fact, there is a built-in conflict of interest with respect to 
accrediting agencies, because they have no incentive to revoke 
accreditation since their income-stream is directly determined by the 
number of schools they accredit. Even if an agency increased its 
standards based on the elimination of the 90/10 rule, a school can 
still shop among several accrediting agencies and choose the one with 
the lowest standards.

AN EXAMPLE OF AN ACCREDITING AGENCY'S FAILURE TO APPROPRIATELY MONITOR 
        A SCHOOL
    A former employee of Brooks contacted the state enforcement agency 
(BPPVE) and the Accrediting Council for Independent Colleges and 
Schools (ACICS), the schools's accrediting agency about violation of 
the law. ACICS did an investigation and found nothing wrong.
    The Bureau of Private Postsecondary Education did an investigation 
in connection with an application for reapproval of the school, but 
unlike the accreditor, the state enforcement agency found multiple 
violations:
      the catalogue was found wanting
      its enrollment agreement was out of compliance
      another questionable practice found was that enrollment 
agreements were signed by the students several months before the actual 
start date of the educational program.
      the school did not make the necessary disclosures 
regarding completion and placement and the transferability of units as 
required by California law
      the school did not adhere to its stated admissions 
policy, including the policy that requires a 2.0 high school grade 
point average for admission.
    The state enforcement agency found that the institution is not in 
compliance with Title 5, CCR section 71770(a) which requires that: 
``the institution shall not admit any student who is obviously 
unqualified or who does not appear to have a reasonable prospect of 
completing the program.'' \33\ (emphasis added)
---------------------------------------------------------------------------
    \33\ BPPVE report re Brooks College, 12/1/05
---------------------------------------------------------------------------
    Further,
        ``the total number of graduates for 2003 to the date of the 
        visit was 396. The number of drops / withdrawals for the same 
        time period was 1,131.'' \34\
---------------------------------------------------------------------------
    \34\ Id.
---------------------------------------------------------------------------
    You do the math. This is exactly the sort of low completion rate 
information that prospective students need to be informed of, as 
required under California law (the fact that only about 30 percent of 
those who start the course graduate).
    There are numerous other violations in the report, but the most 
critical in my mind is the schools' improper inflation of its 
completion rate by misrepresenting placements which in fact are not 
placements.
    A brochure submitted with the renewal application indicates career 
``outcomes'' listing job titles, the salary range, and the catalogue 
includes a ``partial list of employers'' depicting 119 names of 
corporations and businesses. Of the fifty graduate files reviewed, only 
three listed the name of the employer and one was the institution 
itself.
    The Bureau was able to contact eleven of the graduates. The report 
states that ``of the eleven, ten of the graduates stated that they had 
not received job placement from the institution.'' (emphasis added)
    The school referred one graduate to www.monster.com and another to 
a $7.00/hour job. The best paid graduate placement on record was a 
$10.50/hour job at a photo lab which had since closed. A former student 
who is attending Chico State University as a student was listed as 
employed by Chico State.
    The report continues: ``Five of the graduates are currently 
unemployed'' (five out of eleven). The graduates that were counted as 
employed included one job at Sunwest Studios at a salary of $600.00 per 
month and another is working while enrolled in the Masters program at a 
local camera shop.
    Another graduate who was listed as employed was actually in an 
unpaid internship. Of those who were employed, all but one got the job 
on their own. However, ``the institution has indicated on the yellow 
data sheets in the placement files that they have been placed.''
    The Bureau found that:
        ``(t)he institutions'' advertisement and promotion is false and 
        misleading, as it depicts job titles and salaries that are 
        considerable, particularly when juxtaposed to the small 
        sampling of the graduates.''
    The lowest salary cited by the school is given as $34.446 (of which 
25% of the graduates in that job title will make less than that salary) 
and the highest is stated as $76.573.'' \35\
---------------------------------------------------------------------------
    \35\ page 10, 12/1/04 report by BPPVE
---------------------------------------------------------------------------
    Hopefully with the new leadership at the BPPVE and the practices 
exposed by Sixty Minutes at the Sister Brook College in Long Beach and 
elsewhere, something will be done about these schools which 
systemically violate the law.
    Because accrediting agencies are dependent on school fees, I 
strongly believe there is a legitimate need for increasing the 90/10 to 
require a higher percentage of non-title IV money.
    By maintaining and enforcing the 90/10 rule, or ideally raising it, 
proprietary institutions will hopefully have to recruit students with 
some income to spend on tuition.

THE TYPE OF STUDENT RIPPED OFF IN MY STATE HAS CHANGED, BUT THE FRAUD / 
        VIOLATIONS CONTINUE
    The characteristics of the trade school victim have changed, yet 
systemic fraud committed by for-profit trade schools has not. In the 
late 80's and early 90's the ability to benefit students (those who had 
not graduated from high school and did not have a GED) and limited 
English speaking students were most likely to be defrauded.
    Because of changes in California and federal law, a school with a 
high default rate for three years can lose financial aid entirely. But 
subsequent changes in the counting of default percentages have made 
this less of a threat.
    California law prohibits signing up limited English speakers in 
courses taught in English. Now, these problem schools recruit high 
school graduates for health certificate programs and ``two year'' 
applied degree vocational programs. These students are ripped off for a 
lot more money, and often find no job, or a low paying job after their 
training.
    The level of damage to these students is far more severe, because 
of the enormity of the loans they owe, and the fact that their loans 
cannot be discharged in bankruptcy when the students are unable to pay.
    I believe trade schools have begun to focus on high school 
graduates because they are less problematic, less likely to drop out, 
and more likely to have the ability to pay back loans or apply for 
deferments, and keep the schools' cohort default rates down. High 
school graduates often repay the loans despite the fact they do not get 
the job that they trained for or if they do, it is at a lower pay than 
the proprietary school represented.
    Many of these students do default, but because of the change in how 
default rates are counted, when they do default, it is not counted 
against the school for purposes of the 25% threshold.\36\
---------------------------------------------------------------------------
    \36\ See page 6 of GAO Report to Congressional Register 99-135, 
``Default Rates Need To Be Computed More Adequately'', July 1999
---------------------------------------------------------------------------
    Unfortunately, these students lose their dreams in addition to a 
lot more money in longer and higher priced courses. Now, the loss per 
student is much more. Further, the most recent data shows that the 
default rate for proprietary students over the life of the loan is 
exceedingly high--44% to 46% for the 2000 to 2002 period. \37\
---------------------------------------------------------------------------
    \37\ ED-OIG/A03-C0017 DECEMBER 2003 ``Audit to Determine if Cohort 
Default Rates Provide Sufficient Information on Defaults in the Title 
IV Loan Programs''-See chart on p. A1 titled ``Gross Default Rates By 
Risk Category''.
---------------------------------------------------------------------------
PROHIBITION AGAINST INCENTIVE COMPENSATION UNDERMINED BY DEPARTMENT
    Since the passage of 85/15, trade schools have been pushing not 
only for its repeal, but the removal of other safeguards imposed to 
prevent fraud in their financial aid program. 85/15 was reduced to 90/
10 in the late 90's.
    Trade schools have been successful, with the complicity of the 
Department of Education, of essentially seriously undermining the 
federal law passed in the early 90's that prohibited commissioned 
recruiters or any other types of incentive compensation.
    This law recognized that admissions representatives or recruiters 
are more likely to misrepresent the program, placement statistics, and 
potential starting salary to get an enrollee to sign up if the 
recruiter's salary increased with the number of enrollees.
    Incentive compensation gives recruiters an incentive to ``doctor'' 
financial aid documents to maximize the school's revenue. When 
Corinthian and Career College Association were unsuccessful in lobbying 
to change the federal law prohibiting incentive compensation enacted in 
1992, the Department granted their wish list regarding this prohibition 
by adopting the regulations that the trade schools had written over the 
objections of advocates for students in Negotiated Rulemaking.\38\
---------------------------------------------------------------------------
    \38\ A very disturbing pattern exists, wherein those executives who 
used to work for trade schools are in charge of matters concerning same 
while in the Department. For example, Jeff Andrade, prior to working 
for the Department of Education (hereinafter Department), used to work 
as a lobbyist for Career College Association. After lobbying for trade 
school interests, he then became a special assistant, and then a Deputy 
Assistant Secretary for Postsecondary Education. While a special 
assistant, he guided the adoption of the regulations written by the 
schools. Subsequently he again became a lobbyist, and now works with 
Powers, Pyles, Sutter & Verville in D.C. after leaving the Department.
---------------------------------------------------------------------------
    The worst provision of the regulations allows trade schools to 
raise an employee's salary up or down twice a year. Incentive 
compensation, expressly prohibited by law, was essentially undermined 
by the regulations drafted by trade schools that were ultimately 
adopted by the Department.
    Thus, the regulations allow a thinly disguised incentive 
compensation or quota system which violates the spirit and intent of 
the prohibition and the law. This very modification by regulation may 
have contributed to the financial aid violations at the San Jose campus 
of Corinthian (to be discussed below). And these regulations show that 
the Department is not serious about combating fraud, abuses or 
violations of the law.
    The schools' motivation is more understandable--they want 
unhindered access to low income or working class students' financial 
aid. The most aid is available to the poorest segment of students, who 
are the least likely to be able to combat any abuses of the school or 
find allies that can effectively advocate for them.
    Unfortunately, the perverse incentives of financial aid cause the 
excesses of these schools to be visited disproportionately on low 
income and minority students. This consequence has consistently been 
the focus of my criticism with respect to trade schools.

LACK OF ENFORCEMENT BY THE DEPARTMENT OF EDUCATION
    There are changes which can be made to existing law which would 
curb much of the abuse in the for-profit sector. This could be 
accomplished by mandatory completion and placement requirements, as 
well as strict liability provisions barring fraud and misrepresentation 
in the enrollment process. Further, the schools should be required to 
disclose chapter and verse--the jobs previous graduates obtained, the 
name of the employer, and their starting salaries.
    But there seems to be little point in this, as the Department does 
little, very little, to enforce existing law. Further, there are 
Department employees who worked for and lobbied for the interests of 
the for-profit schools either before or after they worked for the 
Department, or both.
    The Department at times acts more like a trade association for the 
trade schools than a regulator. The schools have immediate access to 
the decision makers, and those representing the interests of trade 
school students are shut out.

STUDENT COMPLAINTS AGAINST CORINTHIAN HAVE NOT BEEN INVESTIGATED
    Neither the Department, Regional Office of the Office of Inspector 
General, nor the Bureau of Private Postsecondary Vocational Education 
in California (the state enforcement agency), have investigated the 
complaints of multiple Corinthian students which were sent to them, 
even though their claims were supported by twenty to thirty 
declarations made under penalty of perjury from both students and 
instructors from multiple campuses and courses of the Bryman chain, 
owned by Corinthian.
    One would think, that even an agency seeking to avoid work, would 
follow up when the initial work was done for them, but that is not the 
case. It seems that both the executive and legislative branches of the 
federal government and those in my state are determined to remove the 
few safeguards currently in place with respect to for-profit 
proprietary schools, and to not enforce existing law if it would have a 
negative impact on the schools.

FINANCIAL AID PROBLEM AT CORINTHIAN CAMPUS OF BRYMAN IN SAN JOSE
    If middle-class kids were targeted with direct advertising and 
deceived as often as low income and minority students maybe their 
complaints would be taken more seriously by regulatory agencies and 
members of Congress, and the State Legislators.
    Now, the interests of the defrauded students, who are mostly low 
income or working class students in California, are totally ignored by 
the Department of Education and the Bureau of Private Postsecondary 
Vocational Education (the state enforcement agency).
    The Department has repeatedly ignored the wisdom and 
recommendations of the Office of the Inspector General regarding trade 
schools, as well as the fact that accrediting agencies are not 
appropriate monitors.
    The state enforcement agency in California has been continually 
criticized by student advocates, internal audits, and the Sunset Review 
Committee. The situation is so bad that a monitor has been put in place 
by state law. But recently there has been a change of leadership in 
California.
    The Department did act on a lead with respect to Corinthian's 
Bryman campus in San Jose, California. The number of dependents on 
students' financial aid applications were inflated to qualify for 
financial aid or more financial aid.
    The admissions representatives were trying to meet their quotas, no 
doubt. Even though the audit found financial aid violations, there were 
no dire consequences for Corinthian imposed by the Department.
    Further, the results of such audits show the value of the few 
remaining student and anti-fraud protections, which have also been 
undermined, specifically the prohibition against commissioned 
recruiters and incentive compensation.

DEPARTMENT'S INVESTIGATION AND PENALTIES ARE NOT SUFFICIENT
    Even when someone of acceptable credentials complains, and 
financial violations are found, like at the San Jose campus of 
Corinthian, the investigation is not extended to other campuses of the 
same chain to see if similar practices and financial violations exist. 
Rarely, with the exception of Computer Learning Center, do the trade 
schools face appropriate sanctions when violations are found.
    No such consideration by the Department is ever shown for 
defaulting students who have been ripped off by known fraudulent 
schools when they cannot pay their student loans. Payment is still 
enforced out of their disability or relatively low paychecks, even when 
the Department knows they have been misled--when they have had the 
placement rates, starting salaries, and quality of instruction 
misrepresented to get them to enroll and become obligated to repay tens 
of thousands of dollars.
    Yet the school doing the defrauding may be allowed to pay a few 
cents on the dollar to settle claims with the Department, or placed on 
reimbursement status so that they have to wait 45 days for payment of 
financial aid.
    If the school closes, owing the Department money, the corporate 
officers are not appropriately sanctioned. Then, the same people who 
served as corporate officers of the closed problem school start new 
schools and get new financial aid at the new school without any vetting 
or monitoring of the corporate officers, or restrictions placed on 
those who previously worked for problem schools which closed.
    For example, the current CEO of Career Education Corporation, Mr. 
Larson, was previously Senior Vice President of Phillips Junior College 
which closed after many audit violations and thwarted criminal 
investigations. Phillips owes the defrauded students a $10 million 
judgment in Los Angeles, as well as many unpaid refunds.
    The same history may be found among other chain schools. The 
corporate officers of the now defunct National Education Center, with a 
few exceptions, hold the same or similar positions at Corinthian 
Colleges or Schools. It is this lack of oversight and investigation 
that I have continually complained about.
      Why has the Department not looked into the executives of 
current schools who held similar positions at prior schools which had 
multiple audit violations and closed owing a lot of money in unpaid 
refunds, or was the subject of student complaints?
      Why has the Department not looked into the allegations 
made in class action lawsuits against Corinthian in the lawsuits filed 
in Florida and the three lawsuits by students in Los Angeles and the 
one in Long Beach?
      Why has the Department not looked into the allegations 
made in two class actions against Career Education Corporation schools 
is Los Angeles and Santa Barbara?
      Why has the Department not followed up on the allegations 
made in the Sixty Minutes story about Career Education Corporation, 
particularly the Long Beach campus which got a bad report from its 
accrediting agency?
      Why has the Department not followed up on allegations 
made in Matos v. Art Institute, given the significant cost of these 
programs, the harm likely to befall the students and the school's 
graduates and the likelihood that if the allegations are true, such 
irregularities are also happening at some if not all of the other 67 
campuses?
      Why has the Department not investigated claims made in 
whistleblower or shareholder lawsuits against ITT, Corinthian, CEC, and 
the University of Phoenix?
    It is certainly worth a look given the tens of millions of federal 
financial aid dollars going to this school chain.\39\
---------------------------------------------------------------------------
    \39\ In the case of Matos v. Art Institute which goes to trial this 
April in Santa Monica, allegations in the complaint made by a former 
employee said that misrepresentations were made to students. 
Specifically, misrepresentations were made by admissions 
representatives about the Visual Arts and Culinary Arts programs to 
prospective students. False promises were made to prospective students 
in order to convince them to enroll. The Art Institute provided 
inflated job placement percentages and starting salary averages for the 
institute's graduates to assist in recruiting new students. Unqualified 
students were enrolled in order to meet quarterly quotas. The Art 
Institute in Santa Monica is owned by Education Management Corporation 
(EDMC). This is a publicly traded corporation with 67 campuses in 24 
states. While putting such information in a complaint does not make it 
true. It is certainly something which should perk the interest of the 
Department and the state regulatory agency.
---------------------------------------------------------------------------
WHY IS THE DEPARTMENT RELUCTANT TO ENFORCE THE LAW?
      Why was the San Jose campus of Corinthian put on 
reimbursement (a delay in payment of tuition out of financial aid for 
45 days after the program starts) instead of being cut from financial 
aid completely as a result of its financial aid violations?
      Why weren't curbs put on financial aid given at other 
Corinthian campuses?
      What information does the Department have that the 
violations were limited to the one campus?
      Why did the University of Phoenix and ITT get off so 
easily when the Department found incentive compensation violations? (I 
am encouraged that the Department of Justice has filed a brief in 
support of the attorneys suing the University of Phoenix.)
    So, the consequence of a school, like the Corinthian School, Bryman 
in San Jose, violating financial aid law, is that it does not get 
tuition up front, but it still does get the money. Did the Department 
check to see if misrepresentations were made to these Bryman students, 
as alleged in the lawsuits by students against Corinthian, or by 
student complaints with the state enforcement agency? Or did it limit 
itself to the one issue?
    If a minority student (such as those that Corinthian seems so eager 
to educate according to the testimony of David Moore at last year's 
hearing), obtained financial aid in violation of the law, that student 
would likely be doing hard time in jail.
    It sends a bad message when violations of financial aid law have so 
few consequences for a school which is caught, but the consequences 
experienced by defaulting students are many, and severe. If they 
default (and many of those students owe $40,000 to $50,000 in federal 
student loans), then their tax refunds and earned income tax refund 
(meant for the children of the poor), families are taken year after 
year. Their paychecks and disability checks are garnished.
    Their credit is ruined, so that they cannot even get credit to 
purchase a used car to get to work. They are barred from Section 8 
housing and other government benefits. They are barred from getting 
grants and loans to get a legitimate education. Pure and simple, these 
schools ruin young adult's lives, and steal their dreams. Yet for the 
most part, the Department refuses to follow up on leads that fraud and 
violation of the law exist.

TRADE SCHOOLS THAT RELY HEAVILY ON FINANCIAL AID HAVE POORER STUDENT 
        OUTCOMES
    Proprietary schools that rely more heavily on Title IV funds have 
poorer student outcomes. The GAO report on this issue \40\ shows that 
programs with the highest reliance on Title IV funds, on average, have 
the highest default and the lowest completion and placement rates \41\. 
When students default on federal loans the schools get paid, while the 
taxpayer and the students are left footing the bill. Often, the 
expensive training does not lead to jobs, but the Department has 
rejected the OIG recommendations to limit funds for education when the 
jobs are not there.
---------------------------------------------------------------------------
    \40\ Proprietary Schools: Poorer Student Outcomes at Schools That 
Rely More on Federal Student Aid, HEHS-97-103, June 13, 1997, online at 
http://www.gao.gov/archive/1997/he97103.pdf
    \41\ Id., see page 3
---------------------------------------------------------------------------
    Mr. Moore, CEO of Corinthian, in a prior appearance before this 
committee told the committee that the Marietta campus of the Georgia 
Medical Institute had obtained 81.9 % of its revenue from title IV 
funds. The implication was that is was approaching 90%, so the 90/10 
rule was bad.
    However, he failed to mention that the default rate for that campus 
in 1999 was 2.8%, but then skyrocketed to 18.5 percent in just three 
years. One could conclude that this means nearly 1 in 5 students were 
unable to find employment sufficient to make the minimum loan payments, 
or did not know to apply for deferments.
    GAO studies show students default because they do not have 
sufficient income to pay the loans. It is disingenuous for Mr. Moore or 
the directors of other schools to hide the motivations of for-profit 
institutions behind promises of improving access to education for 
minority students. I take exception to this.
    I believe the real motive behind wanting to enroll more minority 
and low income students is that they are the most profitable students 
since they qualify for the highest amounts of federal financial aid and 
the smallest expected family contribution, or none at all.
    Further, they are less likely to complain, and when they do they 
are less effective, because they don't know where to complain, or how 
to articulate their complaint, as they do not know the requirements of 
the law.
    It is apparent that there are little or no admissions standards for 
many of these schools in practice, and unqualified students are 
enrolled (see prior discussion).
    With the newly added pressures from Wall St., the FBI, the SEC, the 
Department of Education and this committee should be more concerned 
about protecting these students and taxpayers, rather than protecting 
the proprietary schools which have a history of violations.

PROBLEM SCHOOL IN MY DISTRICT
    The American College of Medical Technology is an allied health 
school located in Gardena, CA in my district. Despite being sued at 
least twice for making misrepresentations to students, the same 
practices have continued. It is alleged by students that the school 
makes misleading remarks or fails to explain the certification that 
these students will receive after completing the MRI course.
    The school implies that the students will be qualified for a more 
widely accepted certification regarding MRI use than what they actually 
get from the program, and the school provides grossly inflated 
estimates of probable starting salaries. This is what induces students 
to spend $18,000 on tuition for the program.
    Students complain of the following:
      they have not been given any hands on experience with the 
appropriate machinery for their field,
      they were given textbooks that covered different material 
than that for the course of instruction in which they enrolled, and
      they had instructors that were unable to answer the 
simplest of questions related to the material.
    Despite the lawsuits and multiple student complaints, the school 
proceeds unabated in any way, unhindered by the state enforcement 
agency or its accrediting agency. Additional complaints will be filed.
    Further, the course does not meet the minimum completion / 
placement rules under California law. Thus, the school should be 
ordered to stop offering this program. But the enforcement agency has 
refused to enforce the law, and the accrediting agency has also been 
remiss.

PROBLEMS WITH THE CURRENT LAW
    Although most of my comments have been limited to the 90/10 
provision, I disagree with CEO of Corinthian, Mr. Moore's comments at 
the previous hearing, which indicate that the other safeguards 
regarding schools are sufficient. HR 507 must be defeated.
    Accreditation does not ensure a quality education (see discussion 
above). The cap on default rates can be avoided by not enrolling ATB 
students and / or by changing to Sallie Mae private loans if the school 
exceeds the default ceiling for two years.
    Further, the change in the computation of default rates has helped 
the schools by lowering their default rates by not counting students 
who default after their deferment runs out. The new method of counting 
defaults protects schools from reaching the 25% threshold over three 
years, and being barred from receiving financial aid.\42\
---------------------------------------------------------------------------
    \42\ See GAO Report to Congressional Register 99-135, ``Default 
Rates Need To Be Computed More Adequately'', July 1999
---------------------------------------------------------------------------
    The new method of counting defaults looks at only the first two 
years of repayment, and counts those with a deferment as if they were 
repaying the loan. But the rules for deferment and forbearance were 
liberalized, so that the deferment for economic hardship is more easily 
obtained.
    So, low income students would most likely default after the two 
year period had elapsed, and their deferment ended. But since the 
default occurred after the first two years, it will no be counted 
against the school for purposes of computing the default rate.
    Between 1993 and 1996, the percentage of proprietary students whose 
loans were in deferment increased from3.7% to 9.1%.\43\ These new rules 
save schools from defaulting out of the financial aid program, (but it 
doesn't help the students or change the actual v. reported default 
rate). For example, 352 schools, rather than the 181 would exceed the 
25% threshold if those whose loans were in deferment or forbearance 
were excluded from the default calculation.\44\
---------------------------------------------------------------------------
    \43\ Id., p. 7
    \44\ Id., p. 10
---------------------------------------------------------------------------
    Nevertheless, proprietary schools count for an inordinate 
percentage of the defaults. Further, defaults at two-year proprietary 
institutions exceed that of two-year non-profit institutions.
    The satisfactory progress requirement can easily be avoided by 
giving the students the answers to the test (this is common) or simply 
changing the grades or re-enrolling the students. The Department is not 
sufficiently diligent in seeking refunds from problem schools or 
getting a large enough letter of credit. They often accommodate schools 
rather than protecting the students and the taxpayers.
    Further, the Department does not investigate charges made by 
students regarding misrepresentations made to influence students to 
enroll, such as:
      transferability of units \45\
---------------------------------------------------------------------------
    \45\ 34 C.F.R. Section 668.72 (b)
---------------------------------------------------------------------------
      the probable starting salary
      the percentage of students who completed and were placed 
in a job \46\ (even though federal regulations single these violations 
out as common, and only gives the Department, not private attorneys, 
the right to enforce these provisions)
---------------------------------------------------------------------------
    \46\ 34 C.F.R. Section 668.72 (c)
---------------------------------------------------------------------------
      experience and quality of the teachers \47\
---------------------------------------------------------------------------
    \47\ 34 C.F.R. Section 668.72(h)
---------------------------------------------------------------------------
      the availability of equipment, books, and supplies \48\
---------------------------------------------------------------------------
    \48\ 34 C.F.R. Section 668.72(g)
---------------------------------------------------------------------------
      the type of certification one can get upon graduation.
    This is very sad, because these federal regulations have no private 
right of action, and can only be enforced by the Department, which does 
not do its job.

SCHOOLS SHOULD HAVE A REPORTING REQUIREMENT
    The Federal regulations specifically prohibiting these practices 
listed above. But these prohibitions may as well not exist for all the 
(non-existent) enforcement that is done by the Department. We should 
not have to count on whistleblowers or private attorneys to do the 
Department's job. There should be specific laws and regulations which 
only apply to trade schools (those with no significant general 
education requirements).
    Such schools should be required to report all lawsuits filed by 
students and stockholders against the school and all lawsuits filed by 
former employees or stockholders that allege violations of financial 
aid or education laws and / or regulations. The Department should be 
required to investigate all such allegations. The Department should be 
given no discretion in this regard.
    All trade schools should also be required to give a copy of any 
confidential settlement of such a lawsuit to the Department, the OIG 
and the state enforcement agency. The Department should not simply 
ignore such suits which are a source of evidence, as is the case now.
    Furthermore, this committee should investigate why the Department 
does not sufficiently investigate schools that violate the law and hand 
out appropriate penalties when they show no mercy to defaulting 
students who have been defrauded and are having 15% of their paychecks 
or disability checks taken so they are not left with sufficient funds 
to support their families.
    The low income former students' earned income tax credits, which 
are to benefit low income children and tax refunds, are taken year 
after year from defrauded students who defaulted and did not get a job. 
The amount owed by the student never goes down because of added 
interest and huge collection fees which can add an additional 40% to 
the amount owing. These trade school students get zero priority from 
the department. This has simply got to change.

CONCLUSION
    For the reasons discussed, above it is essential that the 90/10 
rule be maintained and the fraction needs to be increased. To do 
anything else is to declare open season on low-income people and 
minorities. I am dead set against this.
    To eliminate the rule will cause a whole lot of heart ache and 
family disruption at the lower end of the economic ladder. These 
families will be squeezed to the breaking point when the Department of 
Education tries to collect on the $40,000 in loans, when the family 
member did not get a job and has barely enough to feed and house the 
family.
    I do not view these schools as offering opportunities to my 
constituents. These schools are using my mostly African-American and 
Latino constituents as mere ciphers to get the highest level of 
financial aid. They want my constituents merely to feed there bottom 
line without regard to the misery that most certainly will follow.

                TRANSCRIPT OF THE SIXTY MINUTES SEGMENT

For-Profit College: Costly Lesson
Jan. 30, 2005

    Are you interested in a new career? Are you looking for specialized 
training and a high-paying job in computers, fashion or health care?
    Well, a lot of people must be, because companies selling that 
dream, the for-profit career colleges, are one of the fastest growing 
area in the field of education.
    It's a multi-billion dollar business with most of the revenues 
guaranteed by the federal government, and until recently the industry 
was the darling of Wall Street.
    Now, it's under scrutiny, with one of the biggest players facing 
allegations that it deceived investors, the federal government, and 
students, who say they've been taught a very expensive lesson. 
Correspondent Steve Kroft reports.
            -----------------------------------------------------------
            ---------------------------------------------
    If you've ever watched daytime TV, you've probably seen one of 
Career Education Corporation's ads offering students a brand-new life.
    ``Ever think you could be part of this? With the right training, 
you can!
    That one was for the Katharine Gibbs schools, which were bought by 
Career Education Corporation in 1997, and make up just a small part of 
its scholastic empire.
    A year ago, CEC was one the hottest stocks on the NASDAQ exchange, 
with five years of record growth and $1 billion in annual revenue. It 
comes from nearly 100,000 students at 82 different campuses, taking 
classes in everything from computer animation to the culinary arts.
    Brooks College in Long Beach, Calif., offers training in fashion 
and design, but its graduates have a special nickname for their alma 
mater: ``Crooks College.''
    Why?
    ``Cuz they robbed us,'' says one graduate.
    ``Everything was a lie,'' says another.
    What was the biggest lie?
    ``Job placement--98 percent job placement,'' several graduates 
said. ``They said, like, starting $30,000 a year, $30,000 or more.''
    Brooke Shoelberg, Chanee Thurston, and Amanda Harris enrolled to 
study fashion merchandising after the school signed them up for tens of 
thousands of dollars in student loans, and showed them videos promising 
to help them get jobs with companies like Giorgio Armani.
    Did Brooks College find any of them a job? No, they said.
    Did it make an attempt to find them a job? Again, they said no.
    The school declined to comment, but 60 Minutes knows that all three 
women graduated near the top of their classes. A year later, none had 
been able to find the kind of job she was supposedly trained for.
    Brooke was managing a telephone store; Amanda was unemployed; and 
Chanee was selling T-shirts. All of them went heavily into debt to get 
a two-year degree they now believe has little value.
    ``The school has no credibility with the fashion industry, 
whatsoever,'' says Thurston.
    Complaints, laid out in a number of lawsuits against CEC by former 
students, investors, and employees, are now under investigation by the 
Justice Department and the Securities and Exchange Commission.
    The lawsuits and the investigations were cited by CEC as the reason 
for declining a request by 60 Minutes for an on-camera interview.
    But there were plenty of other people willing to talk on-camera. 
One man, who wore sunglasses and a visor, said, ``I am completely 
embarrassed that I ever worked at Brooks College or for CEC.''
    This man, along with two of his former colleagues, Barry Ross and 
Eric Shannon, used to work at Brooks College. They say there were some 
dedicated teachers there, but that the administration was more 
interested in making money than in educating students.
    Ross' title was admissions representative. But Shannon says ``we 
were really sales people.''
    ``Selling the dream, basically,'' says Ross.
    ``We're selling you that you're gonna have a 95 percent chance that 
you are gonna have a job paying $35,000 to $40,000 a year by the time 
they are done in 18 months,'' says Shannon. ``We later found out it's 
not true at all.''
    ``Yeah, it wasn't true at all,'' says Ross.
    According to an evaluation report from the Western Association of 
Schools and Colleges, ``Only about 38 percent of Brooks students ever 
finish the program,'' and the average starting salary for all graduates 
is ``less than $11 dollars per hour.''
    The admission counselors told 60 Minutes they were expected to 
enroll three high school graduates a week, regardless of their ability 
to complete the coursework. And if they didn't meet those quotas, they 
were out of a job, which is what the man in sunglasses says happened to 
him. They all say the pressure produced some very aggressive sales 
tactics.
    ``In that way, the job was a lot like a used-car lot, because if I 
couldn't close you, my boss would come in, try to close you,'' says 
Shannon.
    The enrollment fee was $50. ``You need three things,'' says the man 
in sunglasses. ``You need $50, a pulse, and you've got to be able to 
sign your name. That's about it.''
    You have to sign your name to a government loan form. The 
government-backed student loans are crucial to the entire industry.
    In 2003, they made up nearly 60 percent of CEC's revenues. And in 
order to be eligible for that money, CEC is required to provide 
students with accurate information about job placement.
    Would CEC exist if it weren't for government loans?
    ``I don't believe that they would be a $1 billion company in 10 
years, if it weren't for the federal government loan programs,'' says 
Tami Hanson, who was once the national manager in charge of student 
placement for all of Career Education Corporation's campuses in the 
United States.
    Hanson, who was fired a few months ago, was one of more than 50 
current or former employees with whom 60 Minutes spoke at more than a 
dozen schools. All had variations of the same story.
    What was the corporate culture like?
    ``All about the numbers, all about the numbers,'' says Hanson. 
``Getting students enrolled, getting students in the seats. Keeping 
students in the seats, getting them passed enough to graduate, and then 
trying to get them any job we could.''
    But getting students any job they could did not necessarily mean 
getting them jobs they were trained for. And she says a job placement 
could mean just about almost anything.
    ``It may be that, you know, they end up placing them folding T-
shirts at the Gap at a fashion, as a fashion grad--which is fine, but 
not what they were promised in the beginning,'' says Hanson.
    ``And a job they could've gotten without paying $15,000 or 
$30,000,'' says Kroft.
    Actually, it is more like $30,00 $60,000 and $80,000 depending on 
the program, says Hanson.
    Hanson says the quality of education varies from school to school, 
and that there are some very good programs and highly motivated 
students who find successful careers. But she says too many students 
simply don't have the aptitude or the skills necessary to succeed in 
class or the workplace.
    ``They were not prepared, but at the same time, the instructors 
were really pressured to pass them through that class to keep them in 
school,'' says Hanson.
    So CEC could keep collecting the government money? ``So they could 
keep the revenue,'' says Hanson.
    CEC has denied these and other allegations in response to various 
lawsuits, and it says it's made compliance with government regulations 
and investigating complaints a top priority.
    Chairman John Larson wrote 60 Minutes saying, ``We'll investigate 
the situations cited in your report and take appropriate corrective 
action as violations are identified.''
    And it did not take long to find a violation. To see how the 
admissions process works, 60 Minutes Associate Producer Jennifer 
MacDonald, armed with a hidden camera, went to a number of CEC schools 
in the New York area.
    At the Katharine Gibbs School, she began by asking about graduation 
rates. She was told that 89 percent graduated.
    But that wasn't even close. According to the Department of 
Education's most recent figures from 2003, this school's graduation 
rate was 29 percent not 89 percent, a difference of 60 points. Federal 
regulations require that prospective students be given the official 
statistics in writing prior to enrollment and the admission 
representative seemed ready to sign MacDonald up.
    When MacDonald wanted to know about a career in fashion, this is 
what she was told: ``These jobs pay a lot of money. You're looking at, 
if you take this craft and be very serious about it, you can make 
anywhere from hundreds of thousands to if you go up to be a designer.''
    But not everything at Career Education Corporation is fashion or 
business. Its Sanford Brown Institutes prepare students for careers in 
health care; training ultrasound and cardiovascular technicians; and 
medical and surgical assistants.
    The admission representative told the associate producer that the 
school was highly selective. So MacDonald did everything she could to 
disqualify herself for admission to become a medical assistant, a nine-
month program that costs almost $13,000 prepares students for entry-
level positions.
    When lousy grades and prior drug use weren't enough to get her 
rejected, she tried a different approach. She told them she had a 
``problem with blood.'' The representative told her that ``98 percent 
of our students have a problem with blood. The first day of the module, 
they don't hand you a syringe and say, 'Go for it.'
    The school did require the associate producer to take an admission 
test. She intentionally flunked it, getting just 7 out of 50 questions 
correct. But the school allowed her to take another test with different 
questions. This time, the admission representative said she had doubled 
her score to 14 out of 50, and that was just good enough to qualify for 
admission.
    Although it was easy to get in, all the counselors told MacDonald 
she would have to work hard and attend class to complete the course. 
But Hanson says what CEC is most interested in is tuition.
    ``They want to say that the student comes first, but I think it 
becomes obvious to anybody that works in the school, that the student 
does not come first,'' says Hanson.
    Where does the student come? ``The student comes with how many 
dollar signs are attached to them. And anything after that is 
secondary,'' says Hanson.
    CEC is not the only publicly traded career-school operator in 
trouble with the federal government. Last fall, the Department of 
Education handed out its largest fine ever--$9.8 million dollars to the 
Apollo Group and its University of Phoenix for admitting unqualified 
students to boost enrollment.
    And a year ago, federal agents raided the headquarters and 10 
campuses of ITT Educational Services, investigating charges of 
falsified grades and attendance records.
    Nick Glakas is president of the Career College Association, a 
Washington lobbying group that represents 1,100 career colleges in the 
United States.
    ``This is not an industrywide problem. And let me address the whole 
question of being under investigation,'' says Glakas. ``Allegations 
from a legal standpoint are not facts and are not evidence.''
    Glakas says career colleges are a passport into the middle class 
for millions of people, a gateway to the American dream.
    ``Twenty-five percent of our students are working adults. Fifty 
percent are minority. Seventy percent are the first in their family to 
go to college. This is an extraordinary success story,'' says Glakas.
    Rep. Maxine Waters, who represents the poorest district in Los 
Angeles, isn't so sure. For the past 15 years, she's been the 
industry's most persistent critic.
    ``I have seen young person after young person who simply wanted to 
get trained for a trade, for a job, get ripped off,'' says Waters.
    Why hasn't anything been done? ``These private post-secondary 
schools are very sophisticated in its politics, and they actually have 
members of Congress who protect them,'' she says.
    Over the past two years, career colleges and lending institutions 
that benefit from government-backed student loans handed out more than 
a million dollars in campaign contributions to members of the House 
Education Committee. Half of that money went to the committee's two 
ranking members: Chairman John Boehner of Ohio and Buck McKeon of 
California. Both declined requests for interviews.
    As for the sales reps whom 60 Minutes spoke with, Barry Ross has 
filed a discrimination lawsuit against CEC. Eric Shannon now works in 
finance, and the young man is the sunglasses is selling cars.
    And the Brooks College graduates? They feel betrayed. They were 
sold the idea that an investment in education would change their lives. 
This investment did, but not in the way they were promised.
    ``My mother told me to declare bankruptcy and I'm only 21,'' says 
Thurston. ``She said it'll go away in 10 years so when I'm 31 I can 
start my life all over.''
    ``But we are all students that did everything we were supposed to, 
we gave it our all,'' says Amanda Harris. ``And we're still jobless. 
You know, like, it doesn't make sense.''

    http://www.cbsnews.com/stories/2005/01/31/60minutes/
main670479.shtml
    CBS News Online
                                 ______
                                 
    Chairman Boehner. Mr. Rhodes.

  STATEMENT OF DAVID RHODES, PRESIDENT, THE SCHOOL OF VISUAL 
                       ARTS, NEW YORK, NY

    Mr. Rhodes. Chairman Boehner, Ranking Member Miller, 
Representative McCarthy, and Members of the Committee, I would 
like to thank you for providing me the opportunity to testify 
before you today.
    As you know, I am a Middle States Commissioner. I am also 
Vice Chair of the Regents Advisory Council, which is the body 
that evaluates and recommends actions to the New York State 
Board of Regents in its capacity as an accreditor recognized by 
the Secretary of Education for Title IV purposes. I am also a 
board member and Chair of the Federal Affairs Committee of the 
Association of Proprietary Colleges, APC, which is an 
organization that speaks for most of the proprietary colleges 
in the State of New York. Finally, I am the President of the 
School of Visual Arts, an independent college of art with an 
enrollment of 2,900 undergraduates and 350 graduate students, 
whose mission is to help educate the next generation of 
artists.
    A rigorous arts education is sufficiently costly that SVA, 
although a privately held, for-profit institution, has never 
paid dividends to its stockholders. All of SVA's surpluses are 
reinvested in the education of its students. For purposes of my 
testimony today, I am only representing SVA and APC, and I am 
not speaking on behalf of Middle States or the Regents.
    A word about my master's programs. We currently receive in 
excess of 1,200 applications for less than 200 spaces available 
in the graduate programs. Two of the programs are ranked in the 
top 10 in areas of specialization in the U.S. News and World 
Report issue of 2003 devoted to graduate programs in the arts.
    New York State is unusual in that as the draft of the 
statewide master plan points out, ``All colleges and 
universities in New York, public, nonprofit, and for-profit 
proprietary, are members of the University of the State of New 
York.'' the degree-granting institutions comprise two public 
university systems--the State University of New York with 64 
campuses, and the City University of New York with 19 
colleges--144 independent not-for-profit colleges and 
universities, and 441 proprietary, for-profit colleges. Plus, 
there are four sectors of higher education in the State of New 
York.
    Recognition as a member of the higher education community 
in the State of New York has always had significant advantages 
for the students who attend those institutions. One of the 
chief advantages is the eligibility of those students for the 
Tuition Assistance Program, TAP, the largest State grant 
program in the country. TAP provides grants of up to $5,000 per 
academic year to needy students based upon the student's or the 
student's parents' New York State net taxable income. The 
purpose of the TAP program is to both foster access to higher 
education and to permit students to choose the college best 
suited to their needs and interests with less concern for 
price.
    The equitable treatment of students and institutions has 
led to an enviable college-going rate in the State of New York 
of 68.7 percent, which is only exceeded by North Dakota at 73.7 
percent. It has also led to a vibrant mix of institutions whose 
desire to serve the students of New York is underscored by that 
college-going rate.
    Similarly, the State makes most other grant programs such 
as the Liberty Partnership Program, a program designed to 
increase high school graduation rates, available to all members 
of the higher education community. The State's inclusiveness 
even extends to the Dormitory Authority which issues bonds to 
build educational facilities throughout the State. All four 
sectors can receive funding through the Authority.
    What we seek today is the same recognition from the Federal 
Government that we already receive from our own State 
government. In fact, what we seek today is simply recognition 
of reality, the reality of the changes in higher education in 
the last 30 years, and the reality that an institution's 
corporate structure does not determine its status as a higher 
education institution. We understand that the notion of the 
single definition is controversial for some, because of the 
eligibility for titles other than Title IV.
    There is a notion sometimes expressed that for-profit 
institutions are somehow less worthy of government support than 
public or not-for-profit institutions. This is a deeply 
ingrained prejudice, but one I would hope you would agree, upon 
reflection, is incorrect. This prejudice would disappear if you 
were to think of these funds as contracts and not grants.
    The Federal Government contracts with for-profit 
institutions for all kinds of goods and services--the largest 
area, of course, being military procurement--almost all of 
which is done with for-profit entities, various departments of 
government, contractors, universities, public, private and 
proprietary, to provide services for a fixed number of 
students, usually at a fixed price. The various titles are no 
different. The institutions applying for and receiving these 
contracts and grants are obligated to spend the money and 
invest these monies only in ways that will benefit students. To 
use the monies in any other way would be to violate the terms 
of the contract.
    I see that my time is up, and I look forward to your 
questions. Thank you.
    Chairman Boehner. Thank you.
    [The prepared statement of Mr. Rhodes follows:]

 Statement of David Rhodes, President, The School of Visual Arts, New 
                                York, NY

    Chairman Boehner, members of the Committee, I would like to thank 
you for providing me the opportunity to testify before you today. My 
name is David Rhodes. I am a Commissioner serving as a member of the 
Commission on Higher Education of the Middle States Association of 
Colleges and Schools (MSA). Additionally I am the Vice Chair of the 
Regents Advisory Council, which is the body that evaluates and 
recommends actions to the New York State Board of Regents in its 
capacity as an accreditor recognized by the Secretary of Education for 
Title IV purposes. I am also a Board member and Chair of the Federal 
Affairs Committee of the Association of Proprietary College (APC), 
which is an organization that speaks for most of the proprietary 
colleges in the State of New York. Finally, I am the President of the 
School of Visual Arts (SVA), an independent college of art with an 
enrollment of 2900 undergraduates and 350 graduate students whose 
mission is to help educate the next generation of artists. A rigorous 
arts education is sufficiently costly that SVA, although a closely held 
for-profit institution, has never paid dividends to its stockholders. 
All of SVA's surpluses are reinvested in the education of its students. 
For purposes of my testimony today I am only representing APC and SVA. 
I will not be speaking on behalf of MSA and The Regents.
    The School of Visual Arts was founded in 1947 in the wake of the GI 
bill of rights. It was originally called the Cartoonist and 
Illustrator's School (C & I). Some of its earliest graduates went on to 
make their careers in the world of the arts, most prominently at Mad 
Magazine. In 1956 C & I changed its name to the School of Visual Arts 
(SVA). In 1972 the School was authorized by the New York State Board of 
Regents to confer degrees upon graduates of its four-year programs. At 
that point SVA became a member of the higher education community of the 
State of New York. In 1978 we were accredited by the Middle States 
Association of Colleges and Schools. During the 1980's we began 
offering degrees at the Master's level. We currently receive in excess 
of 1200 applications for the less than 200 spaces available in the 
graduate programs. Two of the programs were ranked in the top ten in 
their areas of specialization in the last US News and World Report 
issue devoted to graduate programs in the arts.
    New York State is unusual in that as the Draft of the Statewide 
Master Plan points out ``All colleges and universities in New York--
public, non-profit and for-profit proprietary--are members of the 
University of the State of New York, an entity established in the New 
York State Constitution that embraces all education in New York, public 
and private, from prekindergarten through postdoctoral. The University 
was created in 1784. It is governed by the Board of Regents of the 
University of the State of New York, an unpaid lay board of 16 members 
elected by the legislature to five-year terms.''
    ``The higher education portion of the University consists of 269 
public, independent and proprietary degree-granting institutions, 6.5 
percent of the nation's 4,121 colleges and universities. The degree-
granting institutions comprise two public university systems: the State 
University of New York with 64 campuses and The City University of New 
York with 19 colleges, 144 independent (not-for-profit) colleges and 
universities and 41 proprietary (for-profit) colleges... Thus, there 
are four sectors of higher education in the State of New York.
    Recognition as a member of the higher education community in New 
York has always had significant advantages for the students who attend 
those institutions. One of the chief advantages is the eligibility of 
those students for the Tuition Assistance Program (TAP), the largest 
State grant program in the country. TAP provides grants of up to $5,000 
per academic year to needy students based upon the student's or the 
student's parents New York State net taxable income. The purpose of the 
TAP program is to foster both access to higher education and to permit 
students to choose the college best suited to their needs and interests 
with less concern for price. The equitable treatment of students and 
institutions has led to an enviable college going rate in the State of 
New York of 68.7% which is only exceed by North Dakota's 73.7%. It has 
also led to a vibrant mix of institutions whose desire to serve the 
students of New York is underscored by the college going rate.
    Similarly the State makes most other grant programs such as the 
Liberty Partnership Program--a program designed to increase high school 
graduation rates available to all members of the higher education 
community. In fact, it appears that there is only one State program, 
which does not follow this model, what is called Bundy Aid, which is 
reserved for independent institutions only, and has been zeroed out in 
the Governor's budget. The State's inclusiveness even extends to the 
Dormitory Authority, which issues bonds to build educational facilities 
through out the State. All four sectors can receive funding through the 
Authority.
    What we seek today is the same recognition from the Federal 
Government that we already receive from our own State Government. In 
fact, what we seek today is simply recognition of reality--the reality 
of the changes in higher education in the last 30 years and the reality 
that an institution's corporate structure does not determine its status 
as an institution of higher education. Rather, it is the institution's 
programs, and their outcomes, which determine whether an institution is 
recognized as a member of the higher education community. It should be 
patently obvious to all that institutions which grant degrees at the 
Associate, Bachelor's, Master's or Doctoral level are accredited by 
those accrediting bodies, such as the Middle States Association and the 
New York State Board of Regents which are recognized by the Department 
of Education as accreditors of institutions of higher education, should 
be recognized as institutions of higher education by Congress. We 
understand that the notion of single definition is controversial for 
some because of the eligibility for titles other than Title IV. There 
is a notion sometimes expressed that for-profit institutions are 
somehow less worthy of governmental support than public or not-for-
profit institutions. This is a deeply ingrained prejudice, but one that 
I hope you would agree, upon reflection, is wrong. This prejudice would 
disappear if you were to think of these funds as contracts and not 
grants. The Federal Government contracts with for-profit institutions 
for all sorts of goods and services, the largest area, of course, being 
military procurement, almost all of which is done with for-profit 
entities. Various departments of government contract with universities, 
public, private and proprietary, to provide services for a fixed number 
of students, usually at a fixed price. The various titles are really no 
different. The institutions applying for and receiving these contracts 
(grants) are obligated to spend and invest these monies only in ways 
that will benefit students. To use the monies in any other way would be 
to violate the terms of the contract.
    Title IV has developed a set of quite specific regulations 
applicable to all institutions, which have helped ensure the program's 
integrity. There are four that I would like to specifically highlight. 
The program prohibits the payment of commissions to those who help 
enroll students, it penalizes institutions whose loan default rates are 
excessive, ensuring that those institutions whose placement rates are 
inadequate, those whose students cannot repay loans, are soon out of 
the program. Title IV standards of financial responsibility ensure that 
insubstantial operators, with insufficient assets, are not eligible to 
participate in Title IV programs. Finally, Title IV has defined the 
length of the semester so that the integrity of the credit hour is 
ensured. As long as state approving agencies, accreditors and the 
Education Department use the tools already at hand, the public and 
students can be assured that they will be protected from those abuses 
which occurred well over a decade ago.
                                 ______
                                 
    Chairman Boehner. Mr. Carter.

 STATEMENT OF THOMAS A. CARTER, DEPUTY INSPECTOR GENERAL, U.S. 
            DEPARTMENT OF EDUCATION, WASHINGTON, DC

    Mr. Carter. Mr. Chairman and Members of the Committee, 
thank you very much for the opportunity to appear before you 
today to discuss antifraud laws in proprietary higher education 
and the issue of fraud and abuse in the student financial aid 
program.
    The programs are growing in size. The total program dollars 
have doubled in the last 10 years and are evolving due, in 
part, to the different modes of education delivery and the move 
to electronic, paperless processing and delivery of funds. The 
oversight challenges to protect the integrity of the programs 
must also keep pace with innovation. Risk must be periodically 
identified, assessed, and managed.
    Today I would like to address three issues. First, our work 
continues to find fraud and abuse in all sectors of schools 
participating in the programs; second, the critical importance 
of oversight in protecting these programs; and third, actions 
Congress can take to help reduce fraud and abuse in these 
programs.
    With regard to my first point, through our audits and 
investigations, we find fraud and abuse in all postsecondary 
sectors. However, our investigatory resources devoted to 
institutions of higher education are still dominated by the 
proprietary sector. In my written testimony, I have given 
examples of the most serious types of problems we have found: 
refund violations, ineligible institutions, students, programs 
and locations; incentive compensation, professional judgment 
abuses, and the emerging issue of identity theft that can 
victimize everyone.
    These findings illustrate my second point, the need for 
diligent and effective oversight by each of the program 
integrity triad components established in the Higher Education 
Act--the State educational agencies, the accrediting agencies, 
and the Department of Education. Congress envisioned this triad 
working together to ensure that the participating schools meet 
and continue to meet the program requirements.
    In our work, we have found that these entities are not 
operating as effectively as they could be. For example, we have 
found that State policies for licensing and evaluating the 
schools vary significantly among the States. Some have 
stringent processes for assessing education, while others may 
be limited to just requiring a business license to operate.
    In our work in accrediting agencies, we found that the 
agencies we reviewed had not established consistent and clear 
standards for measuring program length or student achievement. 
These are important indicators because program length is the 
basis on which financial aid is awarded, and of course, student 
achievement is a measure of what the students and the taxpayers 
are getting for their investment in postsecondary education.
    We have found inconsistent oversight by the Department. Our 
recent audit found weaknesses in the program review process, 
use of technical assistance, and with the guidance and 
oversight that the Department provided its regional offices. 
The Office of Federal Student Aid agreed with our findings and 
is working to implement our recommendations.
    We are also in the planning phase of a joint project 
between my office and Federal Student Aid to take a proactive 
approach to identifying, assessing, and managing risks. Experts 
from both offices, working side by side, have identified the 
most significant risks to the programs. We are now establishing 
plans to drill down into existing data, using computerized 
techniques, to identify the patterns that allow fraud and abuse 
to occur and to recommend improvements to existing internal 
controls to address those risks.
    Finally, I want to highlight actions that the Congress can 
take to improve the integrity of the student financial aid 
program. The single most important step would be to amend the 
Internal Revenue Code to allow the Department to match the 
income information provided on a student's application with the 
same income data that was reported to the IRS. The Department 
estimated that $365 million in Pell grants was improperly 
disbursed in fiscal year 2003 because applicants for student 
financial aid understated their income. This lack of income 
verification also assists in the proliferation of identity 
theft. While the HEA has been amended to permit this match, a 
corresponding amendment to the Internal Revenue Code has not 
been enacted.
    The reauthorization of the HEA offers the opportunity for 
Congress to improve the accountability of program participants 
and the integrity of these programs. We submitted our 
reauthorization recommendations last year.
    In closing, I would like to thank the Committee for its 
interest in this topic and its continued work to protect these 
programs, students, parents, and taxpayers from fraud and 
abuse. We share your goal of making sure that these funds go to 
the intended recipients and are not wasted through inefficiency 
and ineffectiveness.
    This concludes my statement, and I would be happy to 
respond to your questions.
    Chairman Boehner. Thank you.
    [The prepared statement of Mr. Carter follows:]

     Statement of Thomas A. Carter, Deputy Inspector General, U.S. 
                        Department of Education

    Mr. Chairman and Members of the Committee:
    Thank you for the opportunity to testify about the effectiveness 
and enforcement of Federal anti-fraud laws at for-profit (proprietary) 
institutions of higher education. As you asked, I will provide recent 
examples of fraud and abuse that my office has identified at 
proprietary institutions, and I will provide examples of fraud and 
abuse that we found at nonprofit and public institutions. I will also 
comment on how receptive institutions are to our recommendations and 
discuss collaborative efforts between my office and the Department of 
Education (Department) to address the risks of fraud and abuse.
    First, I would like to take this opportunity to recognize the 
Department for its recent success. Since 1990, the student financial 
assistance programs have been included on the Governmental 
Accountability Office's high-risk list. Those programs were removed 
from the high-risk list in January 2005. However, as GAO cautioned when 
it removed these programs from its list, the Department must continue 
its progress and take additional steps to address remaining weaknesses 
in the administration of its programs. Because student financial 
assistance programs are complex and rely on numerous participants, they 
are inherently risky and continued oversight will be needed to 
identify, assess, and manage risks of fraud and abuse.
    Second, I want to continue to stress the need of Congress to enact 
an anti-fraud law, by amending the Internal Revenue Code, to allow the 
Department to match the information provided on student's applications 
with the income data that is maintained by the Internal Revenue Service 
(IRS). The Department currently estimates that $365 million in Pell 
grants was improperly disbursed because applicants understated their 
income in fiscal year 2003.
    This type of fraud is a long-standing problem, which we first 
estimated in 1997. The problems associated with applicants' 
understatement of income are not limited to the Pell program. This type 
of fraud may result in improper payments in student loan programs; 
create additional burdens for institutions, to verify applicant's 
income; and victimize unsuspecting students and parents who are advised 
by unscrupulous financial aid consultants to commit this type of fraud. 
A match of applicant income data with IRS data could also assist the 
Department in addressing a growing problem of identity theft, as I will 
discuss later in this statement.

I. Background on the Student Financial Assistance Programs
    The Department's student financial assistance programs are large 
and complex. The loan and grant programs rely upon over 6,000 
postsecondary institutions, more than 3,000 lenders, three dozen 
guaranty agencies, and a number of contractors and third-party servers. 
Last year the Department disbursed and guaranteed approximately $65 
billion and managed a loan portfolio exceeding $300 billion for these 
programs. The size and scope of the programs have increased greatly in 
recent years. The total program dollars has doubled in the last ten 
years alone. Increased variety in the delivery methods used to provide 
education to students (e.g., non-traditional terms or distance 
education), and virtually paperless electronic delivery of program 
funds, create new challenges to ensuring adequate oversight to 
identify, assess, and manage risks.
    To address the purpose of this hearing, it is important to note 
that the requirements in the Higher Education Act of 1965, as amended 
(HEA), are the same for all types of institutions, except for two 
requirements. One of these requirements applies only to proprietary 
institutions, and the second applies to both proprietary and 
postsecondary vocational institutions.
            A. Statutory Provisions for Participation in the Programs
    The HEA provides criteria for an institution to be eligible to 
participate in student financial assistance programs and mandates the 
joint responsibility of a program integrity triad made up of state 
educational agencies, accrediting agencies, and the Department. This 
triad was created to ensure that institutions meet, and continue to 
meet, requirements for program participation:
      States provide licensing or other authorization necessary 
for an institution of higher education to operate within a state. A 
state is required to notify the Secretary whenever it revokes an 
institution's license or other authority to operate, and must notify 
the Secretary whenever it has credible evidence that an institution has 
committed fraud in the administration of the student financial 
assistance programs.
      Accrediting agencies, recognized by the Secretary as 
reliable authorities on the quality of education or training offered, 
must establish, consistently apply, and enforce standards for eligible 
institutions. The standards are to ensure that the institution's 
courses, programs of training, or study (including distance education 
courses or programs) are of sufficient quality to achieve their stated 
objective. Within those standards, an agency must assess the 
institution's--
          Success, with respect to student achievement and the 
        institution's mission, based on course completion, state 
        licensing exams, and job placement rates, as appropriate.
          Measures of program length and the objectives of 
        degrees or credentials the institution offers.
          Compliance with its program responsibilities under 
        the HEA, by reviewing the institution's most recent cohort 
        default rate, financial or compliance audits, any program 
        reviews, and any other information the Secretary provides to 
        the agency.
      The Department assesses and certifies that an institution 
meets the HEA's eligibility criteria for administrative and financial 
responsibility. In making this determination, the Department relies on 
the approval of the applicable State and Accrediting agencies, annual 
independently audited financial statements, and compliance audits. 
Under the HEA, the Department must also conduct program reviews, on a 
systemic basis, designed to include all institutions of higher 
education participating in the student financial assistance programs. 
The Department also may rely on--
          Audits and investigations performed by the Office of 
        Inspector General (OIG), and
          Program reviews performed by guaranty agencies (for 
        institutions participating in the Federal Family Education Loan 
        (FFEL) Program only).
    All institutions that participate in student financial assistance 
programs under the HEA must meet the eligibility, certification, and 
oversight provisions described above.
            B. Additional Statutory Revenue Provision for the 
                    Proprietary Sector
    The HEA provides an eligibility criterion that is unique to 
proprietary institutions of higher education. Known as the ``90/10 
rule,'' the provision requires a proprietary institution to have--
        . . . at least 10 percent of the institution's revenues from 
        sources that are not derived from funds provided under the 
        student financial assistance programs, as determined in 
        accordance with regulations prescribed by the Secretary.
    Compliance with the ``90/10 rule'' must be calculated annually, 
based on the institution's fiscal year. The institution must report the 
calculation as a footnote to the institution's annual audited financial 
statements. The institution's independent certified public accountant 
is expected to test the accuracy of the institution's assertion as part 
of the audit of the financial statements.
            C. Additional Statutory Provision for Training Programs
    The HEA provides an eligibility criterion that is unique to 
proprietary institutions and postsecondary vocational institutions, 
programs of training. These institutions must--
        . . . provide an eligible program of training to prepare 
        students for gainful employment in a recognized occupation.
    This requirement does not apply to nonprofit and public sector 
institutions' associate, bachelors, or postgraduate degree-granting 
programs.

II. Role of the OIG in Program Oversight
    Under the Inspector General Act of 1978, the purpose of the OIG is 
to detect and prevent fraud, waste, and abuse, and to promote economy 
and efficiency in the Department's programs and operations. This 
testimony focuses on our efforts to detect and prevent fraud and abuse 
in the student financial assistance programs. We also discuss the 
adequacy of the Department's oversight of its programs.
    Usually, we open investigations as a result of complaints or other 
credible evidence of risk of a potentially serious nature that may 
indicate fraud. Audits are generally initiated to assess specific areas 
of compliance, but may also be initiated as a result of complaints.
    Historically, the majority of the OIG institutional audits and 
investigative cases have been in the proprietary sector. Over the last 
six completed fiscal years the majority--approximately 74 percent--of 
our institutional investigative cases involved proprietary 
institutions. So far this fiscal year, we have opened 19 institutional 
investigative cases, 11 of which involve proprietary institutions.
    Over the same period, we have issued 44 audit reports on 
proprietary institutions and 32 audit reports on nonprofit and public 
institutions. However, during the last three fiscal years, our office 
decided to conduct additional audits on nonprofit and public 
institutions, to assess potential risks in those sectors.
    You asked me to address the reception by institutions to the 
recommendations in our audit reports or the results of our 
investigations. The short answer to this question is that institutions 
are rarely, if ever, receptive. Our audits usually recommend the return 
of funds or other administrative actions, and our investigations 
identify violations that usually result in criminal or civil 
proceedings.
    The following two sections of my statement provide examples of 
fraud and abuse in the proprietary sector (Section III) and in the 
public and nonprofit sectors (Section IV). The examples I provide do 
not include all of the violations that our office has identified for 
each sector, nor are the examples for one sector necessarily unique.

III. Examples of Recent Fraud and Abuse in the Proprietary Sector
    Proprietary institutions have been eligible to participate in the 
student financial assistance programs since 1972. This sector has 
evolved from being predominately vocational trade institutions, and now 
includes degree-granting institutions. Proprietary institutions have 
also evolved into two classes of institutions: some are privately held 
and others are parts of much larger publicly traded corporations. Both 
are driven by profit and can also be driven by the need for growth. 
Over the years, we have come to identify a relationship between rapid 
growth and failure to maintain administrative capability. Several 
examples of recent fraud and abuse follow.
            A. Refund Violations
    Refund violations have been a longstanding problem in proprietary 
institutions. We continue to identify this problem in our audits and 
investigations. Refunds, which are referred to as ``Return of Title IV 
Funds'' under Section 484B of the HEA, are triggered when a student 
ceases to attend an institution. The institution must determine if 
refund is owed, calculate the amount of the unearned student financial 
aid funds, and it must return those funds to the Department, the FFEL 
loan holder, or to another applicable participant in the Title IV 
programs within a specified number of days. Violations of this 
requirement occur when refunds are not paid timely, when incorrect 
calculations result in returning insufficient funds, and when 
institutions fail to pay refunds at all. Failure to pay refunds is a 
criminal offense under the HEA. We have found all three types of refund 
violations in our audits, and these violations are the most frequent 
subject of our investigations.
            B. Manipulation of the ``90/10 Rule - Ineligible 
                    Institution
    Proprietary institutions must meet the ``90/10 Rule'' every fiscal 
year or they become ineligible to participate in Title IV programs. 
Since the institution itself performs this calculation, it is not 
surprising that we have identified proprietary institutions that 
miscalculate or devise other creative accounting schemes (e.g., fake 
institutional scholarship and loans) to make it appear they met this 
rule. When this occurs, ineligible institutions continue to participate 
in the Title IV programs.
            C. Ineligible Students, Programs, and Locations
    Our audits and investigations have identified schools that falsify 
student enrollment, attendance, high-school diplomas, GEDs, and 
ability-to-benefit exam results in order qualify the students for 
student financial aid. Schools also improperly received student 
financial assistance funds because they failed to perform (or 
falsified) the verification required under the Department's regulations 
for selected students. We have found schools that enrolled students in 
programs that do not meet the minimum program eligibility requirement, 
and infrequently but consistently, we find institutional locations that 
do not meet basic eligibility requirements.

IV. Examples of Recent Abuses in the Public/Nonprofit Sectors
    As I stated earlier, we have, over the last several years, devoted 
more resources to the nonprofit and public sectors. Following are three 
examples of fraud and abuse that we have found in those sectors.
            A. Ineligible Institutions, Programs, and Students
    We identified state postsecondary public institutions that were 
ineligible, because they were enrolling students under the age of 
compulsory high school attendance in the same programs as postsecondary 
students. We also recently issued audit reports that identified public 
institutions enrolling students in ineligible programs. Based on the 
course length, the programs were required to prepare students for 
employment in a recognized occupation, but the courses were not 
designed to do this. Our investigations have also identified ineligible 
students due to identification theft and other false information 
provided to public institutions.
            B. Incentive Compensation Abuses
    We issued a series of audits on nonprofit institutions where the 
schools had entered in into arrangements with an outside corporation, 
the terms of which violated the prohibition on the use of incentive 
compensation. Although the regulations governing this issue were 
amended subsequent to the audit reports, the corporation and 
institutions entered into settlement agreements with the Department.
            C. Professional Judgment Abuses
    Over the last several years, we have identified abuses in the use 
of professional judgment by financial aid administrators. Under the 
HEA, a financial aid administer may make changes to an applicant's 
income and expense information so that the applicant may qualify for 
additional funding based on unusual circumstances. We found excessive 
use of this exception and failure to document the decisions as required 
by law.

V. Important Oversight Challenges
    As we noted earlier, the student financial assistance programs are 
complex and have many participants, including lenders, schools, 
guaranty agencies, collection agencies, and financial aid consultants. 
Following are some examples where our work has documented the need for 
improved monitoring or other controls.
            A. Inconsistent Monitoring and Oversight by the Department
    We recently audited Federal Student Aid's (FSA) use of program 
reviews and technical assistance as a compliance tool, as well as its 
headquarters' management controls over regional offices' monitoring of 
postsecondary institutions. We identified the following significant 
weaknesses in FSA's oversight:
      Weaknesses in the regional office program review 
reporting process, retention of supporting documentation, and 
consistency in the review process placed FSA at risk of failing to 
adequately identify and report significant instances of noncompliance 
and of being inconsistent and inequitable in its conduct and resolution 
of program reviews.
      Problems with the regional offices' documentation of 
technical assistance and a lack of follow-up on the results of 
technical assistance prevented FSA management from having the ability 
to measure the effectiveness of technical assistance as a compliance 
tool.
      FSA headquarters did not 1) provide guidance for the 
selection of institutions for case management, 2) monitor regional 
offices' compliance with internal policies and procedures for program 
reviews and technical assistance, 3) evaluate the effectiveness of 
program reviews or technical assistance conducted or the consistency of 
regional offices' selection of institutions for program review or 
technical assistance, or 4) evaluate the effectiveness of the 
enforcement actions taken as a result of regional office program 
reviews. This created the potential for inconsistent treatment of 
institutions across the country.
            B. Accrediting Agencies Lack Meaningful Standards
    In 2002 and 2003, we issued four reports on accrediting agencies, 
two on regional agencies and two on national agencies. Our objectives 
were to evaluate their standards for program length (the basis on which 
students receive student financial aid) and student achievement (a 
measure of what the Federal government is getting for the student aid 
it is investing in postsecondary education).
      Program Length
          We found that neither regional agency had a 
        definition of a credit hour that it required its institutions 
        to follow. The standards these regional agencies applied to 
        program length were vague and without definition, effectively 
        allowing institutions to establish their own standards.
          The two national agencies reviewed both had a 
        definition of a credit hour in terms of the required hours of 
        instruction needed to equate to a credit hour. One of them, 
        however, did not include any requirement for outside 
        preparation in its definition.
      Student Achievement
          The regional agencies had not established minimum 
        graduation, placement, and licensure rates for any of their 
        institutions providing vocational education programs. For all 
        education programs, these regional agencies permitted 
        institutions to establish their own standards for student 
        achievement, without any specified minimum standard.
          The national agencies had established minimum 
        graduation, placement, and state licensure rates for the 
        institutions they accredited. However, at both we identified 
        problems in the methodology by which the rates were calculated 
        that caused the rates to be overstated.
            C. State Agencies' Inconsistent Standards
    Each postsecondary institution must be licensed to provide 
education by a state. The Department relies, in part, on the oversight 
of these state agencies to protect the students and the integrity of 
the programs offered by institutions within each state. We have found 
that state policies for licensing and evaluating institutions vary 
significantly. Some states have stringent processes for assessing 
education, while others may be limited to requiring a business license 
to operate. This variance in state oversight results in inconsistent 
monitoring at the state level.
            D. Limitations of Cohort Default Rate
    We issued an audit report in December 2003 in which we concluded 
that cohort default rates do not appear to provide decision makers with 
sufficient information about the rate of default in the student 
assistance programs. To identify defaults, cohort default rates track 
the cohort of borrowers entering repayment in a fiscal year, through 
the following fiscal year. After the second fiscal year, subsequent 
defaults by the borrowers in the base-year cohort are not included in 
cohort default rate calculations. We found that cohort default rates 
appear to have been materially reduced by--
      A change to HEA's definition of default, made by the 
Higher Education Amendments of 1998, from 180 days of delinquency to 
270 days of delinquency. This 90-day delay excludes a significant 
number of defaulters from the cohort default rate calculation.
      An increase in the use of deferments and forbearances. We 
found that deferments and forbearances more than doubled from fiscal 
year 1996 to fiscal year 1999 (from 10.1 percent to 21.7 percent, 
respectively). A previous GAO report found that deferments and 
forbearances more than doubled from fiscal year 1993 to fiscal year 
1996 (from 5.2 percent to 11.3 percent, respectively). Borrowers in 
deferment or forbearance do not make payments on their loans, so they 
cannot be counted as defaulters, but they continue to be counted with 
other students in the cohort. In effect, borrowers in deferments and 
forbearances reduce schools'' cohort default rates without establishing 
any intent to repay their loans.
    To estimate the effect of these factors, we calculated an 
alternative/adjusted default rate that excluded borrowers in deferment 
or forbearance status and also included defaults we identified in the 
90-day period following the two-year cohort period. For fiscal year 
1999, the reported cohort default rate was 5.7 percent. Our adjusted 
default rate for that period was 8.4 percent.
            E. The Department Needs Authority to Implement the IRS 
                    Income Match
    As I noted earlier, since 1997, we have recommended implementation 
of an IRS income data match. The Department has been working with the 
Office of Management and Budget and the Congress for additional 
authorizing legislation. While the HEA has been amended to permit this 
match, a corresponding amendment to the Internal Revenue Code has not 
been enacted.
    In the meanwhile, the estimate of Pell grants disbursed based upon 
understated income figures from the applicants is growing, from our 
$177 million estimate for award year 1995-96, to the Department's 
current $365 million estimate for fiscal year 2003. We urge Congress to 
enact this control necessary to address fraud and abuse by both 
applicants and institutions.
            F. Identity Theft Fraud by Ineligible Students
    Identity theft typically occurs on the application for student 
financial aid when a person intentionally uses someone else's name, 
Social Security number, and date of birth to fraudulently obtain 
student aid. People who obtain loans through identity theft almost 
always default on those loans.
    We have experienced an increase of identity theft cases in recent 
years. Several of our most successful investigative cases have resulted 
from referrals by alert institutional financial aid administrators, 
and, as I describe below, we are working to make all participants in 
the student financial aid programs aware of this growing problem. The 
income data match I discussed above could help prevent fraud through 
identity theft in those situations where the applicant has the 
identifying information of someone else, but lacks the potential 
victim's income information.

VI. Our Ongoing Efforts to Reduce Fraud, and Abuse
            A. OIG/FSA Joint Fraud Project
    Based upon our work, we conducted an analysis of patterns of fraud 
and abuse in the student financial aid programs. We supplied this 
analysis, and suggestions for preventive measures, to the Department in 
March 2003. Based on our continued concerns with fraud and abuse in the 
programs, and with the Department's estimates of erroneous payments 
under the Improper Payment Act of 2002 (consisting primarily of 
overpayments in the Federal Pell Grant program due to applicant income 
information), we planned a proactive effort to identify fraud and 
abuse.
    Together with FSA, in December 2004, we initiated a joint project 
to discover and prevent fraud in the student financial aid programs. We 
have identified risk categories and the following three categories as 
areas of high risk: 1) application falsification, 2) identity theft, 
and 3) school risk factors. We have established three working groups, 
comprising a mix of OIG and FSA personnel with audit, investigative, 
inspection, program, and system/data knowledge. Each group is drafting 
plans to perform risk assessments and to research existing data from 
external sources and from internal sources through the use of data 
mining techniques. Later this year, other work groups will address risk 
factors specific to the student loan programs.
            B. Identity Theft Outreach
    With FSA, we developed and continue a campaign to alert students to 
the threat of identity theft by updating our website, www.ed.gov/
misused, which contains information about preventing and reporting 
identity theft involving federal education dollars, as well as 
information concerning recent scams against the student financial aid 
programs. We also sent information about how to prevent identity theft 
to guaranty agencies and to over a thousand campus security websites 
and college newspapers. With the assistance of the Arizona Department 
of Public Safety, we produced a DVD, ``FSA Identity Theft: We Need Your 
Help,'' featuring an individual incarcerated for student aid fraud who 
describes the techniques he used to steal identities. We are using this 
DVD in our continuing outreach campaign and have provided copies to FSA 
and individuals in the IG community. We have written identity theft 
articles for various publications including the International Chiefs of 
Police magazine, the FBI Bulletin and the Federal Law Enforcement 
Officer's Association 1811 Newsletter. We continue to raise this issue 
with all participants in the student financial aid programs at every 
opportunity.
            C. Data Mining Efforts
    We have recently established a cyber group in our office that will 
have enhanced technical capacity and access to Department data systems. 
Working with our analysts, that group will assess the data maintained 
in the various Department and contractor systems in order to identify 
potential fraud schemes or patterns that can be addressed in a 
systematic way. We plan to develop standard parameters that will allow 
us to search, identify and analyze data for targeting areas of fraud 
for investigation and to improve the Department's programs.
            D. OIG HEA Reauthorization Proposals
    In January 2004, we submitted to this Committee 20 recommendations 
for changes we believe are needed in the reauthorization of the Higher 
Education Act. These recommendations are supported by our audit, 
inspection, and investigative work in the student financial aid 
programs. We urge you to consider each of the suggestions. Several of 
the most significant are
      Increase the validity of cohort default rates,
      Provide a statutory definition of a credit hour,
      Require accrediting agencies to have quantitative 
standards, and
      Make persons convicted of Title IV fraud no longer 
eligible to receive student financial aid.
    Implementation of these suggestions would increase accountability 
in postsecondary education and the student financial assistance 
programs, provide additional oversight tools for identifying risks, and 
assist in reducing fraud and abuse in the programs.
    We will continue to assist the Department in its efforts to 
identify and reduce fraud and abuse, to safeguard student financial 
assistance dollars, and to help ensure that these funds reach the 
intended recipients.
    This concludes my written statement. I would be happy to answer 
your questions.
                                 ______
                                 
    Chairman Boehner. Ms. Dorsey.

   STATEMENT OF PAULA DORSEY, FORMER DIRECTOR OF ADMISSIONS, 
                   BRYMAN COLLEGE, RESEDA, CA

    Ms. Dorsey. Thank you for this opportunity, Mr. Chairman, 
Ranking Member Miller, and Members of the Committee.
    My testimony addresses several key issues regarding the 
unethical practices that I witnessed. I was later terminated 
from my position as a result of my refusal to partake in such 
practices while serving as the Director of Admissions.
    Please allow me to give you a little background regarding 
my experience so that you may have a better understanding of 
the circumstances and situations that evolved over the 90-day 
employment period.
    From 1990 to 1994, I attended and earned my bachelor's 
degree from a private college in northeast Ohio, where I was 
employed as an Assistant to the Director of Admissions. I 
learned a great deal about the admissions process for 
prospective students and their families over this 4-year 
period.
    In June of 2004, I was induced to give up a successful 
career of 5 years as a District Sales Manager to become 
employed with Corinthian Colleges. More specifically, Lani 
Townsend, the President of the Reseda Campus, Bryman College, 
painted a picture of a wonderful opportunity to allow me to 
once again impact and assist prospective students to achieve 
their dreams of further education and careers.
    After becoming employed with Corinthian, I soon found out 
that its representations made to induce me to become employed 
there were incorrect. It was not until I stepped into the 
position and began learning the process by which Corinthian 
operated that I realized the extent of the unethical and 
underhanded proceedings that took place, all for the sake of 
mere admission enrollment numbers and quotas, regardless of the 
student's needs, desires, and hopes for a better future.
    I am still amazed at the great number of instances that 
occurred over this short period of time. It was my lack of 
cooperation to partake in these unethical practices that, in 
the end, resulted in my early termination. While I could list 
numerous instances and circumstances that were out of the realm 
of ethics, for the sake of this hearing I will focus on those 
instances that directly involved the admissions and financial 
aid mispractices.
    It quickly became very clear that the budget or admissions 
target number each month was the main priority on each of these 
campuses. A set number of enrollments was to occur that month, 
regardless of circumstances or lack of programs offered. For 
example, my team and I were to achieve a goal of over 100 
enrollments for a particular month, regardless of the fact that 
we were not able to enroll for four of the programs that were 
slated to be offered, but were not, at our campus.
    As each of the months came to a close, when the campuses 
were falling short of their numbers, certain corporate 
individuals would make the call to push the upcoming month's 
beginning enrollment dates into the previous month and babysit 
the new students until the actual term began. Many times, 
attendance records were adjusted and altered to suit the need 
of the school so that they could account for these 
``enrollments.'' in addition, prospective students would be 
enticed to visit the campus with the idea of attending one 
particular program, and if that program was not offered, they 
were strong-armed into attending another.
    The pressure to enroll students was so great that they even 
resorted to offering free uniforms and backpacks to students to 
lure them into a current admissions status versus allowing them 
to wait for another time when their desired program might be 
offered.
    Student financial aid was another gray area for several of 
the campuses. FAFSA forms were being filled out in the 
admissions departments with the assistance of admissions 
representatives. Encouragement of the forging of parent 
signatures was taking place. Enrollment and starting of classes 
for students without completed financial aid packages was 
taking place on a regular basis. I was then instructed to take 
the students out of class on a regular basis to get them to 
``finish'' their paperwork after they were already attending 
school.
    Furthermore, there were continued ethics issues with the 
entrance exams that were to take place for all students. There 
were students that had never taken the exams or failed the 
exams sitting in class. I was instructed to clean up the files 
by whatever means necessary, even if it meant backdating 
things. When I refused to partake in such practices, I would 
learn that these things were being done by my admissions staff 
with the urging of the campus president or a member of 
Corinthian's corporate staff without my knowledge or approval.
    When a prospective student was not awarded what they felt 
to be a suitable financial aid package, students were pushed to 
improperly obtain Social Security numbers and signatures of 
other family members by whatever means necessary for the hopes 
of getting a better financial aid package. One particular 
instance that I remember vividly was a young lady that left her 
home because of an abusive father. Her mother was an illegal 
alien, and the corporate person asked her to please go get her 
father's tax documents without his knowledge and then have her 
mother sign her father's name. For achieving this feat, she was 
given two uniforms and a rolling backpack for her troubles.
    Furthermore, the potential of having a ``60 Minutes'' 
reporter appear at one of our campuses sent the entire 
corporation into a tailspin of cover-up tactics that had to be 
prepped for with a 2-hour conference call followed by a 1-hour 
meeting. Certain students were to be taken to the financial aid 
office so that the media could not have access to them. Again, 
these are merely a few instances during my brief, but grueling 
time with Corinthian.
    In closing, I urge that further investigation and a higher 
standard of regulations be sought after in regards to the for-
profit career college sector.
    I welcome any additional questions the Committee may have.
    Chairman Boehner. Thank you.
    [The prepared statement of Ms. Dorsey follows:]

  Statement of Paula L. Dorsey, Former Director of Admissions, Bryman 
                          College, Reseda, CA

    Mr. Chairman, Ranking Member and Members of the Committee,
    My testimony addresses several key issues regarding the unethical 
practices that I witnessed. I was later terminated from my position as 
a result of my refusal to partake in such practices while serving as 
the Director of Admissions.
    Please allow me to give you a little background regarding my 
experience so that you may have a better understanding of the 
circumstances and situations that evolved over the 90 day employment 
period.
    From 1990-1994, I attended and earned my Bachelor's degree from a 
Private College in Northeast Ohio, where I was employed as an Assistant 
to the Director of Admission. I learned a great deal about the 
admission process for prospective students and their families over this 
four year period. Most importantly, I gained a great respect and 
understanding for the difference and impact I was able to have in 
helping students achieve their dreams and begin a successful journey of 
higher education.
    In June of 2004, I was induced to give up a successful career of 
five years as a District Sales Manager to become employed with 
Corinthian Colleges. More specifically, Lani Townsend, the President of 
the Reseda Campus, Bryman College, painted a picture of a wonderful 
opportunity to allow me to once again impact and assist prospective 
students to achieve their dreams of furthering their education and 
careers. After becoming employed with Corinthian, I soon found out that 
its representations, made to induce me to become employed there, were 
incorrect.
    It wasn't until I stepped into the position and began learning the 
process by which Corinthian operated that I realized the extent of the 
unethical and underhanded proceedings that took place all for the sake 
of mere admissions enrollment numbers and quotas...regardless of the 
student's needs, desires and hopes for a better future.
    I am still amazed at the great number of instances that occurred 
over this short period of time. It was my lack of cooperation to 
partake in these unethical practices that in the end resulted in my 
early termination. While I could list numerous instances and 
circumstances that were out of the realm of ethics, for the sake of 
this hearing, I will focus on those instances that directly involved 
the admissions and financial aid mis-practices.
    It quickly became very clear that the ``budget'' or admissions 
target number each month was the main priority on each of these 
campuses. A set number of enrollments was to occur during that month 
regardless of circumstances or lack of programs offered. For example, 
my team and I were to achieve a goal of over 100 enrollments for a 
particular month regardless of the fact that we were not able to enroll 
for four of the programs that were slated to be offered, but were not, 
at our campus. As each of the months came to a close, when the campuses 
were falling short of their numbers, certain corporate individuals 
would make the call to push the upcoming month's beginning enrollment 
dates into the previous month and ``babysit'' the new students until 
the actual term began. Many times, attendance records were adjusted and 
altered to suit the needs of the school so that they could account for 
these ``enrollments''. In addition, prospective students would be 
enticed to visit the campus with the idea of attending one particular 
program and if that program was not offered they were strong-armed into 
attending another program.
    The pressure to enroll students was so great that they even 
resorted to offering free uniforms and backpacks to students to lure 
them into a current admission status versus allowing them to wait for 
another time that their desired program might be offered. These were 
items that were supposed to be reserved for the students that 
recommended another student to the campus, however, they quickly became 
tools to entice students to begin schooling immediately.
    Student Financial Aid was another ``grey'' area for several of the 
campuses. FAFSA forms were being filled out in the admissions 
departments with the assistance of admissions representatives. 
Encouragement of the forging of parent signatures was taking place. 
Enrollment and starting of classes for students without completed 
financial aid packages was also taking place on a regular basis. I was 
then instructed to take the students out of class on a regular basis to 
get them to ``finish'' their paperwork after they were already 
attending school.
    Furthermore, there was continued ethics issues with the entrance 
exams that were to take place for all students. There were students 
that had never taken the exams or who had failed the exams, sitting in 
class. I was instructed to clean up the files by whatever means 
necessary even if it meant backdating things. When I refused to partake 
in such practices, I would learn that these things were being done by 
my admissions staff with the urging assistance of Lani Townsend or a 
member of Corinthian's Corporate staff, without my knowledge or 
approval.
    When a prospective student was not awarded what they felt to be a 
suitable financial aid package, students were pushed to improperly 
obtain social security numbers and signatures of other family members 
by whatever means necessary for the hopes of getting a ``better'' 
financial aid package. One particular instance that I remember vividly 
was a young lady that left her home because of an abusive father, 
however, was not considered an ``independent'' so to be assured that 
she could be packaged in financial aid, she was told, in my presence, 
by a corporate regional admissions director to have her illegal-alien 
mother take the father's tax documents without his knowledge and then 
have her mother sign her father's name. For achieving this feat, she 
was given two uniforms and a rolling backpack for her troubles.
    Furthermore, the potential of having a 60 Minutes reporter appear 
at one of our campuses sent the entire corporation into a tailspin of 
cover-up tactics that each of us had to be prepped for with a two hour 
conference call followed by another one hour meeting. As instructed by 
corporate, Lani Townsend concocted an entire scenario of possibilities 
that could occur and what action we were to take. She proceeded to 
arrange an entire committee of individuals that were to follow certain 
protocol should a reporter come to our campus. Members of this 
committee consisted of the Manager of Career Placement, two teachers, 
one of the receptionists, and several students that were basically 
given a script to follow that would alter the appearance of what 
activities were really going on at this campus. Should the media 
appear, a list was distributed of several disgruntled students that 
were to be pulled from class and called to the Financial Aid Office, so 
that they would be prevented from having contact with the media.
    Again, these are merely a few instances that occurred in my brief, 
but grueling time with Corinthian Colleges. I relocated my family and 
gave up a great deal to accept what seemed to be a dream career of 
helping prospective students, only to find it a living nightmare of 
half-truths and unethical dealings that I could not partake in.
    In closing, I urge that further investigation and a higher standard 
of regulations be sought after in regards to the For-Profit career 
college sector. Somewhere in the process of a need to provide citizens 
with quality education these corporations have found their only 
priority to be showcasing numbers for shareholders and turning an 
enormous profit.
    I welcome any additional questions that the Committee may have. 
Thank you for your time.
                                 ______
                                 
    Chairman Boehner. Mr. Glakas.

      STATEMENT OF NICK GLAKAS, PRESIDENT, CAREER COLLEGE 
                  ASSOCIATION, WASHINGTON, DC

    Mr. Glakas. Thank you, Mr. Chairman. My name is Nick 
Glakas, and I am President of the Career College Association. 
CCA is today one of the largest of the 50 higher education 
associations here in Washington, and represents over 1,250 
accredited colleges and universities and other institutions 
dedicated to educating and supporting students interested in 
career and professional education.
    Prior to becoming President of CCA, I was for 10 years 
Senior Vice President of a Fortune 50 company here in 
Washington, ITT; and before that was General Counsel of the 
Senate Appropriations Committee. Before that, I served as 
Assistant Director of Enforcement at a Federal regulatory 
agency here in Washington.
    I welcome your invitation to be here today to discuss the 
large, growing, and increasingly important for-profit sector of 
higher education.
    Our extraordinary success is premised on several factors. 
First, we have aligned ourselves with the public's expectation 
that a college education should result in employability. 
Second, we have met the insatiable desire for more education by 
the nontraditional college student who is older, married, 
employed, and more concerned with education as a means to 
economic security and professional success.
    Third, we have worked closely with employers of our 
graduates to tailor our programs to their needs. And finally, 
we have offered a new approach to higher education based on 
technology, flexibility, economy, and a commitment to both 
educational quality and student service. This is why the for-
profit sector of higher education is thriving and will continue 
to grow and expand.
    Career colleges and universities presently constitute 
almost one-half of the 10,000 postsecondary institutions of 
higher learning in this Nation. Of the more than 6,000 such 
institutions that are approved by the U.S. Department of 
Education to participate in Federal student aid programs, more 
than 2,500 are career colleges and universities, or 40 percent 
of all of the accredited institutions of higher learning. These 
colleges educate nearly 2 million students each year in more 
than 200 disciplines, including rapidly changing and growing 
fields such as health care, information technology, business 
administration, commercial art, and hospitality management. 
Career colleges cover the gamut of higher education from short-
term certificate and diploma programs to associate and 
bachelor's degrees to master's and doctoral programs.
    Our student body is diverse. Half of our students are 
minorities and a quarter are single parents. Seven in 10 are 
the first in their family to go to college. One-quarter of our 
students are working adults. Fifty percent are 30 years of age 
or older. Half have some type of previous postsecondary 
education. Two out of three are females, and three-quarters are 
employed while in school.
    Having said this, what does such a person really look like? 
I refer you to page 1 of the appendix of my written statement 
where the author says, a typical student pursuing a degree from 
a for-profit university fits the following demographic profile: 
27-year-old female, ethnic minority--that is, African American, 
Hispanic or Asian--U.S. citizen, married, with one or two 
dependents, holding a full-time or part-time job while going to 
school full-time, and having some prior college experience.
    This student did not excel academically in high school and 
had mixed success in prior college work, but has come to the 
realization that a college degree is the most sensible and 
effective route to a better job, a higher standard of living, 
and opportunities for career advancement. She is motivated and 
serious about education for perhaps the first time in her life. 
She sees higher education as a means to an end, a practical 
step toward a better future, greater economic security, and 
more options in life.
    In pursuing her degree, she is struggling to juggle the 
responsibility of school, work, and family. How long this will 
take and how much it will cost are all vital questions for her. 
She is financing her education the same way most students do, 
through a combination of financial aid grants and loans and 
personal savings.
    Mr. Chairman, many of the Nation's industries are dependent 
on these very graduates. For example, the health care industry, 
which comprises one-seventh of the U.S. economy, is heavily 
dependent on the education and training provided by career 
colleges. With the exception of the doctor, virtually everyone 
in the medical office, clinic or hospital is or can be trained 
at a career college. This includes the hospital administrator 
as well as the receptionist, the nurse as well as the x-ray 
technician, the file coding clerk as well as the EKG 
specialist.
    Similarly today, the Nation's Intelligence Community is 
heavily dependent on the many information technology graduates 
of career colleges and universities. Five years ago, at the 
request of the Director of Central Intelligence, a coalition of 
CCA member colleges and universities met with officials at CIA 
headquarters to prepare a program to address the lack of entry 
level IT professionals at that agency. Today, the various 
agencies of the Nation's Intelligence Community are the top 
employers of many of the IT graduates of these colleges and 
universities.
    CCA's award-winning foundation has several scholarship 
programs available for students attending participating member 
institutions. Why? Because our universities and colleges 
receive no Federal or State funding and have no endowments. We 
have awarded over 30 million in the past 7 years to high school 
graduates from 9,000 high schools around the country to attend 
career colleges and universities. The foundation's adult 
scholarship program is funded by Fortune 500 companies 
interested in hiring graduates of our colleges and universities 
like Lockheed Martin and Mercedes Benz. Our newest military 
scholarship program is for all active duty or honorably 
discharged veterans, but especially those serving in or 
returning from Iraq and Afghanistan.
    Let me now turn to the recent ``60 Minutes'' program which 
aired January 30. This program focused on Career Education 
Corporation and briefly mentioned two other companies in the 
for-profit sector. Since I was profiled as our sector's 
representative to provide some balance to this program, let me 
share with you some observations from the viewpoint of one who 
was interviewed on camera for 40 minutes by Steve Croft, but 
whose actual appearance was limited to 30 seconds.
    First, whatever description could be applied to the 
program, balanced it was not. This will not come as a surprise 
to anyone, since ``60 Minutes'' is not known for objective 
presentations. In fact, the very day I was being interviewed by 
Steve Croft in our conference room, every newspaper in America 
was carrying a front-page story about the four CBS executives 
who were fired because of errors in the ``60 Minutes'' piece on 
President Bush's military service in the National Guard.
    And speaking of errors, take, for example, Steve Croft's 
interview with the three graduates of Brooks College. All three 
women unequivocally stated that Brooks did not help them find a 
job. In point of fact, as I learned later, Career Education 
Corporation had documentary evidence and had brought it to the 
attention of ``60 Minutes'' that all three women were 
repeatedly offered assistance from CEC's career services 
office. Similarly, the allegations by former employee Tami 
Hanson were also misleading.
    In the program, Steve Croft introduced Ms. Hanson as ``The 
national manager in charge of student placement for all Career 
Education Corporation campuses in the United States.'' Ms. 
Hanson then went on to make a number of allegations with 
implications that she was fired for raising these concerns. 
Again, ``60 Minutes'' did not let the facts get in the way of a 
dramatic story. In fact, as I later learned, the position of 
National Vice President For Career Services was not held by Ms. 
Hanson; rather, she was one of just several people who worked 
for that person. Nor was Ms. Hanson fired.
    Second, in the 39 minutes and 30 seconds of my on-camera 
interview which remained on the cutting room floor, I 
repeatedly pointed out to Steve Croft that this investigation 
could never be considered an industry-wide problem, as he 
repeatedly intimated, since there are currently 4,500 career 
colleges and universities in this country, 2,500 of them which 
are accredited; and that if even 15 or 20 campuses were under 
investigation, this would be still less than 1 percent.
    Please remember, this program was about one public 
education company, two of its 82 branches, three students out 
of 100,000, and four employees out of 18,000. Any campus in 
America could find itself on the receiving end of this kind of 
a program.
    Third, I repeatedly stressed to Mr. Croft from my own 6 
years' experience as a senior enforcement official with a 
Federal agency here in Washington that this program was both 
unfair and premature. Federal investigations are always 
confidential. Subjects of those investigations are usually 
precluded from responding based on the advice of counsel, and 
80 percent of such investigations are closed with no findings 
of violations or illegality.
    Chairman Boehner. The gentleman's time has expired.
    Mr. Glakas. This was an unfair portrait of a corporation 
that was not in a position to defend itself.
    Mr. Chairman, one last point.
    Chairman Boehner. Quickly.
    Mr. Glakas. If I may. I would like everyone to know that 
our association and our 1,250 members are committed to and 
focused on compliance with the laws and regulations governing 
higher education. Why? Because we have to because of our past. 
We simply cannot and will not allow what happened 15 years ago 
to happen again.
    As I told Steve Croft in the portion of my interview that 
was omitted from the broadcast, education and compliance is job 
one for the career colleges of America. Our compliance 
initiatives are set out at page 7 of my written statement, and 
at page 8 you will find a description of some of the policies 
and procedures undertaken by our colleges and universities to 
ensure they are in compliance.
    [The prepared statement of Mr. Glakas follows:]

   Statement of Nick Glakas, President, Career College Association, 
                             Washington, DC

Introduction
    You may have seen or heard about the recent 60 Minutes program 
which aired January 30th and focused on Career Education Corporation 
and tangentially mentioned two other companies in the for-profit sector 
of higher education. If you have, then you may know that I was briefly 
profiled as our sector's representative to provide some ``balance'' to 
this program.
    In the light of this, I thought I might share with you some 
observations about this program from the unique viewpoint of one who 
was interviewed on camera for 40 minutes by Steve Kroft, but whose 
actual appearance on the program was limited to 30 seconds.
    First, whatever description could be applied to this program, 
``balanced'' it was not. This will not come as a surprise to anyone 
since 60 Minutes is not known for an objective presentation. In fact, 
the very day I was being interviewed by Steve Kroft in our conference 
room, every newspaper in America was carrying a front-page story about 
the four CBS executives who were fired because of the errors in the 60 
Minutes piece on President Bush's military service in the National 
Guard.
    Second, 60 Minutes permitted the three Brooks College graduates to 
misrepresent the efforts of Brooks College to assist them in their 
efforts to find employment. In addition, the person identified as the 
``national manager in charge of student placement for all Career 
Education Corporation's campuses in the United States'' did not hold 
that position nor was she fired for raising the concerns she mentioned 
on the program.
    Third, in the 39 minutes and 30 seconds of my on-camera interview 
which remained on the cutting room floor, I pointed out to Steve Kroft 
that this investigation could never be considered an ``industry-wide'' 
problem since:
      There are currently over 4,500 career colleges and 
universities in the U.S.;
      Of these, 2,500 are Title IV eligible; and
      That even if 15-20 campuses were under investigation, 
this would still be less than 1%.
    Finally, I repeatedly stressed, from my own six years experience as 
a senior enforcement official with a federal agency here in Washington, 
that:
      Federal investigations are always confidential;
      Subjects of an investigation are usually precluded from 
responding based on the advice of counsel; and
      80% of such investigations are closed with no further 
action.
    As such, until an investigation has been concluded, no conclusions 
should be drawn since no charges have been made. Of course, the entire 
thrust of the 60 Minutes program was that Career Education Corporation 
was engaged in misleading students when this is the very issue under 
investigation.
    As if this were not bad enough, recent press coverage now alludes 
to this being a question of whether the for-profit higher education 
sector is engaged in this kind of activity. Nothing could be further 
from the truth.
    As Winston Churchill once noted, ``A lie is half way around the 
world before the truth can get its pants on.''

Very respectfully,

Nicholas J. Glakas

    March 1, 2005
Executive Summary

The Career College Sector
    Career colleges comprise 46% of the approximately 10,000 
postsecondary institutions in the United States. Of the colleges and 
universities participating in Title IV programs, private career 
colleges account for 38% or over 2,500 higher education institutions. 
These institutions annually enroll 1.8 million of the 23 million 
college students in the U.S. The majority of students enrolled in 
private career colleges attend less-than-2-year institutions. However, 
the largest area of growth is in 2-year and 4-year degree-granting 
institutions, where enrollment has increased 52% from 1995 to 2000.
    While more than a quarter of our dependent students come from 
families with incomes over $60,000, this sector is more likely than the 
non-profit sector to serve students who are independent, have incomes 
in the lower quartile, have parents with education below the high 
school level, and are racial or ethnic minorities. Seventy five percent 
of the students attending career colleges are employed, 70% are the 
first in their families to attend college, 48% percent are minorities 
and 27% are single parents.
    For-profit institutions are pioneering a wide array of innovative 
program delivery methodologies such as on-line, modular, and weekend 
programs to complement their traditional classroom offerings. Students 
choose to attend for-profit colleges because these delivery methods 
meet their time and geographical needs, allowing them to achieve their 
postsecondary education goals while continuing to meet the demands of 
their every day lives. On average, students attending career colleges 
earn their associates degree eleven months sooner than students at 
community colleges.
    Career colleges work closely with employers to determine what 
skills students will need to enter the workforce. According to 
Department of Labor projections, growth in health care services and 
computer support will generate many new jobs through 2010, most of 
which will require postsecondary training or an associates degree. A 
24% job growth by 2010 is projected for occupations requiring 
postsecondary career training or an associates degree. This compares to 
the 21.6% growth projected for occupations requiring a bachelors 
degree.
    Career college programs meet the market needs of high growth 
occupations such as computer support; information systems; business; 
nursing, dental and medical assisting; occupational and physical 
therapy; health technology; and legal assisting. With this marketable 
educational training, career college graduates will earn on average 38% 
more than high school graduates.

The Evolving Higher Education Industry
    The United States spends more on education than any other country 
in the world: $750 billion annually. Higher education alone is a $250 
billion market. More money is spent in the U.S. on education than on 
any other industry with the exception of health care. In fact, annual 
education expenditures exceed both Social Security and Defense spending 
combined.
    Without a doubt, the U.S. higher education system is the envy of 
the world and draws more foreign students than any other country. 
India, China and South Korea alone sent over 180,000 of the 500,000 
foreign students who came to study in the U.S. in 2002. Future domestic 
demographic trends indicate that over the next 50 years the U.S. 
population will grow from 290 million to 395 million, immigration will 
increase by 80 million and the under 17 population will constitute 1 
out of every 4 U.S. citizens or 100 million.
    The U.S. is only one of 10 countries where one-third or more of the 
college-age population attends college. There are a total of 23 million 
students attending nearly 10,000 colleges and universities in the 
United States in programs ranging from short-term certificates to 
graduate and professional degrees. Domestic undergraduate enrollments 
alone are predicted to increase 13% by 2010. The global demand for 
higher education is forecasted to reach 160 million students in 2025.
    Today's economy demands more skilled workers. However, as fewer 
than a quarter of U.S. adults 25 and older have a bachelor's degree, 
there is a significant need for specialized training. This is 
underscored by the salary gap of college graduates vs. high school 
graduates. In 1971, male high school graduates earned only 47% of what 
male college graduates earned. This gap has jumped significantly over 
the past 30 years. As of 2000, male college graduates earned 112% more 
than male high school graduates.
    Sixty-six million adults and more than 50% of all employed persons 
participate in some form of continuing education. The number of 
``corporate'' universities skyrocketed from 400 in 1988 to more than 
2,000 today, including 40% of the Fortune 500 companies. It is 
estimated that 85% of corporate universities have alliances with 
institutions of higher education.
    There are more than 500,000 foreign students who study in the U.S., 
spending $13 billion each year. For every foreign student who studies 
in the U.S., there are three to five students who would consume U.S. 
education online, if they had the access or the resources. This is a 
potential of 1.6 million international distance learning candidates. 
Conservative estimates indicate that there will be 45 million users of 
online higher education in the next 20 years.

The Postsecondary For-Profit Sector
    Two of the most important issues facing the U.S. higher education 
community are the high cost of college and the increasing amount of 
time required to obtain a postsecondary degree. For decades, tuition 
rates at public and private colleges and universities have escalated 
dramatically increasing at a rate significantly higher than inflation. 
Tuition at four year public colleges increased 47% over the past 10 
years. During the same period, tuition at private colleges and 
universities rose 42%.
    Statistics from the Department of Education also show that although 
more than 70% of high school graduates will attend some type of 
college, fewer than half of them will graduate within 6 years. And of 
those who enroll in a four-year degree program as full-time students, 
only 37% will graduate within four years. One out of two college 
students will transfer and attend two or more institutions during the 
course of their college years.
    The for-profit sector provides an important addition for career-
focused students, with graduation rates that meet or exceed those 
posted by public and private, not-for-profit colleges. For-profit 
colleges do not simply enroll large numbers of minority students; they 
provide a much higher level of student services to help these students 
persist and succeed in their studies. As a result, the completion and 
graduation rate posted by for-profit colleges is high in comparison to 
other sectors of higher education. Not only do students at for-profit 
institutions graduate at higher rates, they do so more quickly than 
students at public institutions.
    For-profit colleges account for 25% of associate degrees and 7% of 
bachelor degrees earned by Hispanic students. Six percent of masters 
degrees earned by Hispanic students are earned at for-profit 
institutions. A recent survey published by the magazine ``Black Issues 
in Higher Education'' stated that Walden University, an on-line 
subsidiary of Laureate Education, Inc., is among the top ten producers 
of doctoral degrees for African American students in the United States. 
It ranked 8th among both Historically Black Colleges and Universities 
and traditionally white colleges in granting doctorates in all 
disciplines, and ranked 2nd in psychology, 3rd in business and 
management, and 3rd in the health professions.
    A National Center for Education Statistics study showed that 
students who attained their degree at a for-profit college reported 
that they were more likely to earn higher salaries and have better job 
opportunities than those who graduated from community colleges. Three 
quarters of students who obtained a certificate or degree from a for-
profit college reported that they were able to earn a higher salary, 
compared to 56% of those who attended a community college. Similarly, 
78% percent of career college graduates reported that they had better 
job opportunities, compared to 70% of community college graduates.
CCA Compliance Activities
    General Counsel Hotline--CCA members are encouraged to call our 
general counsel and our regulatory analyst whenever they have questions 
or issues of a legal, regulatory or compliance nature.
    Periodic Membership Workshops--CCA holds periodic workshops around 
the country for members on a variety of subjects. The most recent 
compliance workshop was held for our 34 colleges in Puerto Rico on 
Wednesday, February 16, 2005, in San Juan.
    Senior Executive Seminars--Presentations were recently made on the 
compliance requirements of the new Sentencing Commission Guidelines at 
CCA senior executive member meetings in Cabo San Lucas, December 1--4, 
2004, and in Beaver Creek, CO, on January 30--February 2, 2005.
    Corporate Compliance Roundtable--A conference call is held each 
month with our general counsel, regulatory analyst and the compliance 
officers of our member institutions to discuss various aspects of 
compliance programs as well as to share information on emerging issues.
    Public Company Compliance Roundtable--A similar conference call is 
held each month by our general counsel and regulatory analyst with the 
senior compliance and enforcement executives of our public education 
companies to discuss issues and recent developments of importance.
    Member ``Issue of the Month'' Conferences--These are held for the 
general membership on various topics of interest. Presentations are 
made by conference call and webcast on topics such as satisfactory 
academic progress, verification, and FERPA.
    Leadership Institute--Once a year CCA holds a six-day program for 
rising managers and executives. Programs are presented by experienced 
college presidents and directors on all aspects of college operations, 
including compliance and enforcement.
    CCA Library--All meeting material regarding compliance and ethics 
training are available on the CCA web site for members only. The 
library includes model ethics and compliance policies, audit 
checklists, employee training materials and other helpful information.
    CCA Institute--Recently created by the CCA Board of Directors, the 
Institute will develop training materials and compliance programs to be 
offered to our member colleges to ensure that their faculty and staff 
understand that compliance is everyone's job.
Compliance Activities of CCA Members
    CCA members use a variety of methods to ensure compliance with law, 
regulations, accrediting criteria, and institutional policies. Examples 
of such methods include:
    Code of Business Ethics and Conduct--These codes clearly inform 
employees of the importance of ensuring compliance and instruct 
employees on how to report possible violations. The Codes also 
reinforce the importance to top management of all employees complying 
with the highest business standards.
    Corporate Compliance Officer--Larger CCA members often have a full-
time corporate compliance officer, with a reporting relationship to the 
Board audit committee. Smaller members often designate a corporate 
manager to perform the functions of the compliance officer.
    Employee Helpline or Hotline--Many of our larger members use an 
independent contractor to provide a system that is available 24/7/365 
to receive anonymous reports from any employee of suspected unethical 
or illegal conduct. CCA is working with several of these firms to 
establish an affordable group rate for our smaller institutions.
    Internal Audit--In addition to the required annual compliance 
audit, colleges use an internal audit process to closely monitor 
compliance at the campus level. The internal audits may be performed by 
corporate officials or independent contractors.
    Employee Training--CCA members train employees in the admissions, 
career services, and financial aid departments when they are initially 
hired and on an ongoing basis to ensure that they understand the legal 
and regulatory issues relating to their jobs. Methods for training may 
include videotapes, webcasts, conference calls, as well as in-person 
sessions.
    Sarbanes-Oxley Compliance--CCA members that are publicly traded are 
fully engaged in the process of compliance with Sarbanes-Oxley, 
including the provisions relating to certification of internal 
controls.
    Compliance with Sentencing Commission Guidelines--CCA members, both 
privately held and publicly traded, are working to strengthen their 
compliance programs in accordance with the recent changes to the 
Sentencing Commission Guidelines.
    Third Party Shopping--Some of the firms that work with CCA members 
will pose as potential students to evaluate the accuracy and 
appropriateness of statements made on the telephone by admissions 
representatives.
    Ensuring Accurate Information to Students--CCA members provide 
catalogs and enrollment agreements to prospective students to ensure 
that they are given accurate information about the institution and its 
policies.

Scholarships and Financial Assistance
    The Career College Foundation (CCF), established in 1982, provides 
for a number of scholarship awards and financial assistance programs 
for high school graduates, adults and military personnel attending 
career colleges and universities.
            Imagine America Scholarship Program
    This award-winning scholarship program annually provides 
scholarship support to graduating high school seniors attending 
participating member colleges. Since its creation in 1998, Imagine 
America has become the premier and most recognized high school 
scholarship program of its kind. With more than 30,000 scholarships 
awarded to high school students in more than 9,000 high schools, 
Imagine America has provided more than $30 million in tuition 
assistance.
            Imagine America II Adult Scholarship Program
    Building on the success of the high school program, the Foundation 
in 2002 created the Imagine America II adult scholarship program. This 
important program works with corporate and private funding sources to 
secure additional aid for adult students attending career colleges 
throughout the United States and Puerto Rico. To date, the Foundation 
has secured more than $200,000 in grants, which have supported more 
than 300 career college students. Imagine America II supporters include 
Lockheed Martin, the Sallie Mae Fund, Northrop Grumman Litton, Dell 
Computer Corporation, the Bridgestone/Firestone Trust, the Fields 
Foundation, Mercedes Benz USA and the Spirit of America Endowment Fund.
            Imagine America Military Award Program
    In 2004, the Foundation launched its third awards program, Imagine 
America Military Award Program (MAP). This innovative military awards 
program targets assistance to active duty and honorably discharged 
veterans attending participating career colleges. With 225 career 
colleges participating in the program, MAP operates through the 
assistance of our strategic partners, Military.com and PlattForm 
Advertising. To date, MAP awards have provided assistance to more than 
200 present and former servicemen and women.
            Imagine America LDRSHIP Award Program
    Unveiled in 2004, the Foundation's newest program, the Imagine 
America LDRSHIP Award, annually honors a select group of recently 
discharged veterans currently attending CCA member colleges. LDRSHIP 
Award recipients receive a one-time grant of up to $5,000 to assist in 
their education at CCA member institutions. The Foundation awarded five 
LDRSHIP Awards in 2004 and expects to increase the awards to seven in 
2005. Funding support for this program is provided by CCA members, 
Lockheed Martin and the Spirit of America Endowment Fund.

Important Facts about the Career College Association
    The Career College Association is a voluntary membership 
organization of private postsecondary schools, institutes, colleges and 
universities that comprise the for-profit sector of higher education. 
CCA's 1,270 members educate and support more than 1.8 million students 
each year for employment in over 200 occupational fields. Career 
colleges and universities graduate approximately one-half of the 
technically trained workers who enter the U.S. workforce each year and 
also provide retraining for displaced workers as well as skills 
upgrading for a wide variety of public and private employers.
    CCA member institutions cover the full range of postsecondary 
education: from short-term certificate and diploma programs, to two- 
and four-year associate and baccalaureate degrees, to masters and 
doctoral programs. Some of the occupational fields for which CCA 
institutions provide programs include: accounting; allied medical; 
automotive technology; business administration; commercial art; 
culinary and hospitality management; information technology; mechanical 
engineering; and radio and television broadcasting.
    Almost all CCA member institutions participate in federal student 
financial assistance programs under Title IV of the Higher Education 
Act. In order to participate, they must be licensed by the state in 
which they are located, accredited by a national or regional 
accrediting body, and approved by the U.S. Department of Education. 
Many CCA member schools and colleges also participate in other federal, 
state and local education and workforce-training programs.
    In addition, over the past seven years CCA's affiliate 
organization, the Career College Foundation, has provided more than $30 
million in scholarships to high school graduates attending 
participating schools, institutes, colleges and universities through 
its Imagine America scholarship program. Imagine America has received 
several awards from the American Society of Association Executives, 
including the Award of Excellence and the Summit Award for innovative 
education and training initiatives.
    The Foundation has also created an adult scholarship program funded 
through partnerships with key industry leaders such as Northrop 
Grumman, Litton, Bridgestone/Firestone Trust, Dell Computer 
Corporation, Lockheed Martin and Sallie Mae. Last year, the Foundation 
unveiled a third and fourth scholarship program to support military 
veterans attending CCA member institutions.
    In January 2006, the Foundation plans to unveil its fifth 
scholarship program, Imagine America On-Line. This new award program 
will target financial assistance to the growing number of on-line 
students attending participating career colleges and universities.
                                 ______
                                 
    Chairman Boehner. I would like to thank all of the 
witnesses for their testimony.
    Mr. Carter, the Department has a big job in keeping close 
tabs on how Title IV funds are being used. You have two 
witnesses that are at the table with you that made rather 
sweeping accusations about how some schools have used these 
resources.
    And Ms. Waters, if I am correct, at one point said that the 
Department has done little to nothing over the last decade to 
protect America's students.
    Can you give us a picture of the activities of the 
Department over the last 10 years in terms of better 
identifying these problem areas?
    Mr. Carter. Well, a 10-year period, of course, is quite a 
long time, and we generally like to speak more about our recent 
work. In our recent work, the last few years, we have looked at 
each of the components of this triad that the HEA put together. 
We had concerns about the accrediting agencies and how they 
were doing their function; we had concerns about the State 
licensing agencies and how they were doing their function; and 
we also had some concerns about the way the Department of 
Education was doing its activities.
    In fact, the GAO, of course, had them on the high-risk 
list, which they were recently removed from. We have them on 
what we consider our significant challenge list, and at this 
point don't anticipate taking them off that list.
    I think that the work that we have done--if you look at our 
compliance work over the last 5 or 6 years, it has probably 
leaned more toward the proprietary industry. A couple of years 
ago we made some changes in the way we select the work we do, 
primarily in the nonproprietary area. We have gone from a 
reactive approach in that kind of work; in other words, we 
would do a compliance audit when we got an allegation or 
referral to now taking a more proactive look at the 
nonproprietary industry. What this will do is bring more 
balance, if you will, to our work in the compliance area, or 
compliance audit area.
    In the investigative area, over the last 6 years, it has 
been pretty constant that about 75 percent of our work is in 
the proprietary area. But even in the last 10 years, that has 
changed in that area. That was just an average, the 75 percent; 
back about 10 years ago, we were spending about--almost 80 
percent of our time in the proprietary area, and now that is 
down to--I am sorry, it was up around the 90 percent level and 
now it is down around the 75 percent level.
    Chairman Boehner. Mr. Rhodes, what is your response to 
those who assert that by virtue of your institution's for-
profit status, the school has a different mission than a not-
for-profit, or public, institution and, therefore, you do not 
have students and education as your first priority?
    Mr. Rhodes. It doesn't strike me that that is true. All 
institutions need to live within the confines of a budget, and 
that includes public institutions, not-for-profit institutions, 
and proprietary institutions. It is the nature of the 
institution's commitment to its students which indicates 
whether or not they are placed first, and that can vary in any 
of those sectors, and there are tales of woe in all of them.
    Mr. Rhodes. And that can vary in any of those sectors; and 
there are tales of woe in all of them.
    If I could, I would like to second something that Mr. 
Carter said earlier about the verification of incomes with 
respect to Pell. In New York State our Higher Education 
Services Corporation already does that with respect to TAP. And 
in the first year it did it, it found a 30 percent error rate. 
Interestingly enough, that was comprised of 15 percent of the 
errors where people underreported their income, and the other 
15 percent overreported their income and, in fact, were 
shortchanging themselves. So I would certainly recommend what 
Mr. Carter has proposed. I think it may save a lot of money, 
but it also may, in fact, give people grants where they have 
simply made an error.
    But I think, to get back to your question, Mr. Chairman, I 
don't think that the fact that I have to show a surplus--and 
incidentally, the size of the surplus I have to show is 
dictated by the Department and its regulations on financial 
responsibility. I would prefer to show lower surpluses than I 
am required to do and invest those monies in programs, but I 
have to show a certain percentage surplus in order to meet the 
standards of financial responsibility.
    Chairman Boehner. Mr. Rhodes, under the regulations for 
for-profit schools, are you required to find placement, job 
placement, for a certain percentage of your graduates?
    Mr. Rhodes. I am required to have placement services 
available; I am required to tell those incoming students what 
my past experience has been and the kinds of jobs that are 
available. We survey alumni at 6 months after graduation, at 1 
year after graduation, and we are now doing them at 5 years 
after graduation, 10 and 20 years. And it is those later 
surveys that are actually, I think, more interesting in that 
they show that there has been--actually, much to my surprise, 
frankly--that my graduates are doing better than would be 
expected, given the nature of the arts community. They are, in 
fact, earning more than the average bachelor's degree 
candidate--bachelor's graduate in the United States 10 and 20 
years out.
    We intend to continue that sort of thing. We find it very, 
very useful and very, very helpful.
    Chairman Boehner. The Chair recognizes the gentleman from 
California Mr. Miller for 5 minutes.
    Mr. Miller. Thank you, Mr. Chairman.
    It seems to me, Congresswoman Waters, that you and Mr. 
Carter have something in common here, and that is there is a 
sense that oversight is not as well structured as it might be. 
Is that fair to say, just for openers here, when I read both of 
your testimonies?
    Maxine?
    Ms. Waters. Yes. First of all, Mr. Miller, let me just say 
that what is happening with the rip-off of poor students, 
minorities in particular, is a scandal in this country. And I 
do not want the Committee to get off focus about the 60 Minutes 
piece. You have been given some discussion from 60 Minutes 
about how they did their investigation. The fact of the matter 
is if I had the resources I could bring you from southern 
California alone, thousands of students who come to the Maxine 
Waters Employment Preparation Center, some of the other 
programs that we have, where we try and get young people 
mainstreamed who have already been through these schools and 
who have received little or no education, they now are saddled 
with having to pay back loans. But worse than that, if they 
cannot pay these loans back, they cannot get into public 
housing, and they are prevented from access to a lot of things 
simply because they owe these loans.
    Now having said that, I would like to refer you to page 34 
of my testimony that talks about a lack of enforcement by the 
Department of Education. And the problem is not that there are 
people applying who have incomes higher than they indicate on 
the applications. That is not the problem.
    There are changes which can be made to existent law which 
would curb much of the abuse in the for-profit sector. This 
could be accomplished by, yes, some mandatory completion and 
placement requirements, as well as strict liability provisions 
barring fraud and misrepresentation in the enrollment process. 
Further, the schools should be required to disclose, chapter 
and verse, the jobs previous graduates obtain, the name of the 
employer, and their starting salaries.
    The Chairman asked Mr. Rhodes whether or not he was 
required to give information or to do job placement, and he 
gave him an answer, but it did not really answer the question. 
No, there is no requirement that these schools have to do a 
certain amount of placement, and that is where the problem is, 
they are recruiting; I mean, they are in welfare lines, 
unemployment offices, they are in public housing projects 
talking to gang members, they are everywhere recruiting and 
holding out that people are going to get jobs paying 30- and 
$40,000 per year; and they go through these programs and they 
don't get any jobs, and they are left holding the bag.
    So I could go on and on and on, but the Department is 
pitiful in its enforcement. As a matter of fact, there are many 
student complaints right now against Corinthian----
    Mr. Miller. I would just like to match this up.
    Mr. Carter, if you might respond, because you have outlined 
a number of areas where either the information is not 
forthcoming, not properly organized, whether--in a whole range 
of areas in your testimony in terms of oversight challenges, 
and I just wonder if you might elaborate on that, because 
obviously this is--this is not a question of whether these 
schools, in my mind--at this point whether they are for-profit 
or not-for-profit, and not whether or not they are recruiting 
disadvantaged young students or adults or what have you, 
because that is the opportunity you would like to be offered.
    The question is are the facts as they are represented in 
whether or not people are fully informed of the situation as it 
is? And you raised some troubling aspects in terms of the 
ability to do oversight here.
    Mr. Carter. As I understand your question, obviously I am 
not going to speak or can't speak about any particular 
investigation or audit we have under way----
    Mr. Miller. I am more troubled by the generic nature of the 
problem you cite, with all due respect.
    Mr. Carter. And some of those, I think, are difficult to 
talk about at a micro level. But at the higher level, we have 
been reporting and are concerned that the institutions that are 
placed with responsibilities to oversee the industry--and that 
is the entire industry, and not just the proprietary industry--
could be doing a better job--well, everybody could be doing a 
better job, I guess you could say. But we are very concerned 
that we are relying on these institutions to do their work, and 
we just don't think that they are quite measuring up.
    Mr. Miller. How do we improve that?
    Mr. Carter. Well, I think at the bottom line what you are 
interested in is a program that will create a well-educated 
student who can get a good job, or a job that they are trained 
to do. And if you look at the outcome that you are looking for, 
then that would seem to argue toward what I have heard 
discussed earlier today, toward placement goals or completion 
rate types of goals. I think those could be quite effective, 
and we have recommended them.
    Mr. Miller. So you would provide additional safeguards to 
what are currently in the law.
    Mr. Carter. I think you have to look at the whole package 
of what is out there. I know there has been discussion about 
doing away with this rule or that rule, and the question I 
would always ask when you are doing away with a rule is what 
abuse was it designed to stop? And then if you are eliminating 
a rule, if there is a concern that the abuse will return, then 
what alternative would you offer for that rule? And that is 
sort of the line of questioning that I would take.
    Mr. Miller. Thank you.
    Chairman Boehner. The Chair recognizes the gentleman from 
California Mr. McKeon for 5 minutes.
    Mr. McKeon. Thank you, Mr. Chairman.
    I was first elected to Congress in 1992, and I was put on 
the Education and Workforce Committee, and 2 years later I 
became Chairman of the Subcommittee Over Higher Education. And 
in that 12 years I have learned a lot, and there is a whole lot 
more I still need to learn. But one of the things that I have 
learned is in 1965 we passed the Higher Education Act, and it 
was to expand accessibility and give people an opportunity to 
get a higher education, to improve their individual life, which 
collectively improves the country. And I visit lots of schools, 
talk to lots of teachers, administrators, school presidents, 
board members, and I see lots of good things happening around 
the country in the proprietary and in the public and in the 
private school system.
    It really somewhat grieves me to hear about people that are 
taking advantage of that and taking advantage of students. And 
I am convinced, with my visits and my investigation, that this 
is a small percentage, but I would like to see that small 
percentage eliminated both from proprietary and from public and 
private schools because they take advantage of resources that 
should be going toward the students, and I think we should do 
everything we can in our power to eliminate that.
    Having said that, I also feel badly that this seems to be 
focused on just proprietary schools, because I see problems in 
both sectors. I mean, when we talked about people that can't 
get jobs, I see the same thing with people that are 4-year 
graduates of very good universities--maybe they pick a subject 
to get their degree in that doesn't have a lot of job demand.
    So I do see it across the board. But we could spend a whole 
lot of time talking about education and philosophy. I would 
like to just ask a couple of questions.
    Mr. Rhodes, your testimony speaks passionately about your 
institutions being treated equally with other degree-granting 
institutions. What do you say to those on this Committee that 
say you should not have the right to compete for funds provided 
in the Higher Education Act?
    Mr. Rhodes. I cannot see any reason why we shouldn't. All 
of those funds, even when they go to the institution, 
ultimately improve the life, welfare and program of students. 
So even though they are called institutional funds, they are 
really all about making students' lives better.
    Most of those funds are competitive in nature, and we 
either write reasonable and decent proposals and are eligible 
for the funds, or we don't and we are not. And that is a level 
playing field, and that is really all we are asking for. And it 
seems to me that that is both reasonable and a recognition of 
the changes in higher education that have occurred in the last 
three or four--three decades.
    Mr. McKeon. Several years ago I visited your school, some 
others in New York, and I have been back there since and 
visited your schools, and I think--it looks to me like you are 
doing an outstanding job. At the same time, I have a school 
right within a mile of my home that is a private art school, 
and they are doing an excellent job. And it seems to me that we 
have too many students being turned away from education, and we 
would much better, I think, do a better job of focusing on how 
we could all support each other rather than the traditional 
schools condemning the for-profit schools or private schools 
condemning the public schools, you know, this kind of thing. I 
think we should work together to try to see how we can improve 
education for this country.
    Mr. Carter, have you seen any improvement in the--you do 
say that it seems to be less of a problem in the last few 
years, fraud and abuse. Is that a trend that you think is 
heading down? Are we doing a better job, or do we need to do--
continue to do more in the oversight area?
    Mr. Carter. Well, keep in mind it is almost impossible to 
calculate what the total amount of fraud and waste would be.
    Mr. McKeon. So it affects other parts of the government, 
also.
    Mr. Carter. Yes.
    Mr. McKeon. And private industry.
    Mr. Carter. Yes. I guess the way I would answer that 
question is, in talking to people who were around in the early 
1980's and heard many of these stories, some of which have been 
repeated this morning, or this afternoon, I don't think there 
is any doubt that the rules have worked. How much they have 
worked, how much fraud they have saved over the years, it would 
be impossible to say. And I would like to think they would keep 
working, or other rules like them would work.
    Mr. McKeon. I see my time has expired, Mr. Chairman. I 
would like to come back to this if we have time later and find 
out what rules specifically you are talking about have worked.
    Chairman Boehner. The Chair recognizes the gentleman from 
New Jersey Mr. Andrews for 5 minutes.
    Mr. Andrews. Thank you, Mr. Chairman. I thank the witnesses 
for their testimony. It is especially good to see my colleague 
Ms. Waters, who I came here with in 1990.
    We have a very serious responsibility that whenever there 
is fraud committed against a student, against taxpayers, to 
root it out and stop it; and I think everyone up here takes 
that responsibility very seriously.
    I agree with Mr. Miller's comment, that in my eyes it is 
not a matter of for-profit versus nonprofit, it is a matter of 
legitimate versus illegitimate, and I think we have a very 
important responsibility to focus on evidence of illegitimacy.
    We also have a responsibility not to legislate based on 
anecdote, but based on record. In instances of specific 
grievances, there are institutions and agencies set up to hear 
those grievances and reach a conclusion. It is our job to look 
at the systemic record; and with that in mind, I wanted to ask 
Mr. Carter a couple of questions based upon the work that his 
office has done.
    Did I read your testimony correctly that in the last 6 
fiscal years there were 44 audit reports in the proprietary 
sector and 32 in the nonprofit or public sector?
    Mr. Carter. That is correct.
    Mr. Andrews. And am I to understand that investigations are 
a larger universe than audit reports; in other words, you 
conduct some investigations where there is not an audit report 
issued?
    Mr. Carter. That is correct.
    Mr. Andrews. So there were 76 audit reports in the last 
fiscal years. How many investigations were there from which 
those 76 audit reports were generated?
    Mr. Carter. We don't have a way to determine that, sir. If 
we are doing a compliance audit and we find fraud, then we open 
an investigation, but we don't capture that piece of data, how 
many audits become an investigation. But I----
    Mr. Andrews. You don't know it, or you don't have it?
    Mr. Carter. I don't have it, and our data base doesn't 
capture that.
    Mr. Andrews. Wow. I mean, one thing I would suggest is that 
we find a way to make your data base capture that so we can get 
a bigger picture of what the complete picture looks like.
    Of the 44 audit reports that were issued on proprietaries, 
how many of those resulted in criminal prosecutions?
    Mr. Carter. An audit report would never result in a 
criminal prosecution; it might end up being an investigation 
which, of course, would be a criminal prosecution. But again, I 
don't have a count of how many audits might have led to an 
investigation.
    Mr. Andrews. Is there a way to know that number or not?
    Mr. Carter. I can give----
    Mr. Andrews. I know the Department doesn't do a criminal 
investigation; presumably the Justice Department might pick up 
the evidence and lead to that. Is there a way of knowing how 
many criminal investigations and prosecutions there were?
    Mr. Carter. I think what we would have to do is to go back 
through the investigations of that time period and look to 
exactly what the source of that investigation was.
    Mr. Andrews. I would ask for the record for the Committee 
if you could do that, and also tell us how many of the audit 
reports, both for the for-profit and nonprofit, resulted in a 
civil action being filed by the Department or any other party--
Justice Department, I assume, would be a part of it as well.
    Mr. Carter. We would be glad to do that for you.
    Mr. Andrews. I would appreciate that very much.
    [The information referred to has been retained in the 
Committee's official files.]
    Mr. Andrews. I understand that the office made several 
legislative recommendations that you want us to consider that 
flow off the work you have done in the last 6 years; is that 
correct?
    Mr. Carter. Correct.
    Mr. Andrews. And if I read them correctly, they deal with 
the following areas: One is to come up with a better measure of 
cohort default rates. If I read your testimony correctly, it is 
relatively easy to hide people that may have defaulted on their 
loans through deferments and other practices, and you would 
like to see us sharpenup that definition; is that right?
    Mr. Carter. Well, we do have some concerns about the way 
the current calculation treats forbearances and deferments.
    Mr. Andrews. Have you made specific recommendations as to 
how you would like the calculation modified?
    Mr. Carter. Yes, we have.
    Mr. Andrews. I would like to see those as well.
    Second is you recommend changing--creating a statutory 
definition of a credit hour. Now, what is the rationale for 
that change; why do you want us to do that?
    Mr. Carter. Well, basically the accrediting agencies are--
well, let me go back a step. The credit hour is the way of 
measuring the quantity of education that we are getting, and 
right now we don't have a good definition of the quantity.
    Mr. Andrews. I would very much appreciate further 
extrapolation on the other legislative proposals. I think it is 
very important that we distinguish between anecdote and 
systemic problems, and I think you would be very helpful to us 
in doing that. I appreciate the specific recommendation, since 
I would note very often go to the way we write the rules, not 
the way the providers of education are treating those rules. I 
think some of the weaknesses you have identified emanate with 
us, and what we ought to do is take a very hard look at 
correcting those definitions.
    Thank you, Mr. Chairman.
    Mr. McKeon. [Presiding.] Thank you.
    Mr. Castle.
    Mr. Castle. Thank you, Mr. Chairman.
    I, first of all, agree with Mr. Andrews on a lot of--- in 
that I do think we need to understand our facts as well, better 
than we do. I think it has been an interesting hearing, but it 
has been a disappointing hearing to me to a degree in that we 
have had very few recommendations other than some want to 
protect the 90/10 rule and the 50 percent rule and the single 
definition; but I am not sure if a case has really been made 
for that here, nor has the case been made about what we might 
do alternatively to make sure that enforcement is in place.
    The Chairman--not Mr. McKeon, but Mr. Boehner--was talking 
earlier, casually, and mentioned, you know, any time you are 
dealing with that much money, you are obviously going to have 
some issues to worry about. He is right; it is $250 billion, as 
I recall, that we are dealing with in higher education. And 
there are probably problems in the not-for-profits as well as 
the for-profits, but I have had some serious doubts about this 
legislation that we considered last year. I have some doubts 
about it this year.
    On the other hand, I think the for-profit institution can 
serve a very valid purpose if done correctly, particularly 
because I think the characterization of what the typical 
student is like by Mr. Glakas is probably accurate in terms of 
people who have been out of school for a while, who want to 
advance themselves, are probably reasonably ambitious; but on 
the other hand, if indeed they are being lured into an 
education that is not going to be profitable for them, if it is 
not a substantive education, and they are not going to get a 
substantive job on the other end, then frankly I am not 
interested in seeing that institution get 1 penny of Federal 
dollars, to be very candid. And that concerns me a great deal 
in terms of where we are going.
    We are dealing with, I think, 4,500-plus of these 
institutions, and I do not know this, but I bet there is a 
range in terms of who does it correctly and who does not, just 
as there is generally in any field, and I worry about what that 
range is and what we don't know about it; and I think we have 
to learn that as well.
    I do think for-profits are different because each student 
registered represents dollars, and when you represent dollars, 
you are going to have people who are going to go out there, and 
they are going to multiply by a number, then you get to a 
higher number, and that is your revenues. And then you have got 
to subtract the cost of running your school, and that is a 
profit.
    And I do not agree with what Mr. Rhodes said earlier, as a 
matter of fact, when he said all the funds improve the life and 
welfare of the students. Well, they also improve the bottom 
line. I mean, I am looking at some bottom lines right here of 
these institutions that were pretty nice just for the last 
quarter, as well as the last 5 years in some instances. So we 
are dealing with something different.
    Is that necessarily evil or bad? No, it is not. But we have 
got to put it on the table, and I just don't think a discussion 
has been on the table--not just here, but in general--with 
respect to what we are doing.
    I am very interested in what Mr. Carter said about 
enforcement, and I would like to--I would actually have liked 
to have heard more from him about that. And I like the concept 
of matching up; and maybe it would be beneficial one way or the 
other of matching up tax returns put on student applications as 
an example, but I did not hear other suggestions today of what 
else it is that we might do in order to make sure that the 
enforcement mechanisms are in place so that everybody can feel 
more comfortable that we are getting a good education for the 
dollars which are involved.
    I will go a little broader than this. I believe the cost of 
higher education is too high on this country. As one who has 
been on this Committee and has served in other governmental 
capacities over the years, I have got to tell you, we need to 
educate young people in America today. And I am surprised, 
quite frankly, at the cost of higher education. It is the 
fastest-growing cost in this country; at least it was a year 
ago, even more than healthcare. It is just out of hand. And I 
think the for-profit institutions are out of hand, too, as well 
as the not-for-profits, and that is something else that we have 
to deal with in a general way. So anything that is going to 
encourage that I find to be a bit of a negative. We have fraud, 
waste and abuse, then I think that is a problem in terms of 
what we are doing.
    So I think we need to look at this very carefully. And I 
think this piece of legislation we are looking at is very, very 
important in terms of what we are doing. And I hope if we are 
going to eliminate any of this, then we are going to tighten it 
up someplace else; and if we aren't, then perhaps we shouldn't 
eliminate it in terms of the various rules that exist out there 
now, and we ought to go forward with doing all that we possibly 
can do to make absolutely sure that these students are getting 
their money's worth, and that certainly nobody is ripping off 
the Federal Government or anybody else in this particular area.
    My question to anyone who wishes to try it is do you have 
any other specific suggestions other than what we have already 
heard about any enforcement mechanisms or anything else that we 
could do to make sure that we are giving everybody out there a 
comfort level with respect to the enforcement mechanisms and 
just the oversight, if you will, of the Federal dollars which 
are going out to various institutions, in this case, because of 
the nature of the hearing, for-profit institutions? I am 
looking for volunteers.
    Mr. Glakas. Mr. Castle, I would be happy to begin this 
discussion.
    Mr. Castle. Well, don't begin it too long, be very quick.
    Mr. Glakas. I will be very quick.
    There has been a sea change in this country over the last 
several years with regard to the fact that we have seen major 
corporations come under serious scrutiny, and this Congress has 
responded. Sarbanes-Oxley now applies to all corporations----
    Mr. Castle. I understand all that--I don't mean to cut you 
off, but we don't have much time. Can you address what we are 
discussing here, higher education? I understand there has been 
a sea change in other areas----
    Mr. Glakas. The Sentencing Commission guidelines now apply 
to all higher education associations in this country. They 
don't apply just to the for-profit sector. The for-profit 
sector has both Sarbanes-Oxley and Sentencing Commission 
guidelines. Now we are going to see whether the entire panoply 
of 10,000 colleges and universities understands that compliance 
is job one for the higher education community.
    The president of Drexel University in Philadelphia last 
week in The Wall Street Journal said, ``Higher education is a 
business"--this is a not-for-profit university--"Higher 
education is a business; we must learn to provide education the 
way business provides products. We live in a capitalistic 
society where every single industry"----
    Mr. Castle. Wait a minute. I am going to cut you off, if 
you don't mind, because I just want to--I know the Chairman 
wants to move on, but is there anyone who has any specific 
suggestions?
    Ms. Waters. Yes.
    Mr. Castle. Ms. Waters.
    Ms. Waters. Mr. Chairman, I said this, and I will say it 
again; first of all, the centerpiece of this legislation is 
about whether or not there will be a requirement that these 
schools have at least 10 percent paying students. I started, 
when I came here, with an 85/15----
    Mr. Castle. That is the 90/10 rule.
    Ms. Waters. 90/10 rule. And they are here basically to tell 
you that, no, they should not have a 90/10 rule, there should 
be no requirement----
    Mr. Castle. And what is your recommendation; that we keep 
it in place?
    Ms. Waters. Absolutely. As a matter of fact, I advocate 85/
15.
    Mr. Castle. OK. It has been 85/15 before, hasn't it?
    Ms. Waters. That is what my amendment was some years ago. 
The compromise, I guess, was 90/10, and now they want to wipe 
out the 90/10 because they don't want any requirement they have 
paying students. And I suggest that you hold them to having 
some paying students. If they are as good as they say they are, 
then somebody ought to be paying other than the Federal 
Government, student loans.
    Secondly, I do think that there should be some mandatory 
completion and placement requirements, as well as strict 
liability provisions barring fraud and misrepresentation in the 
enrollment process.
    And further, the schools should be required to disclose 
chapter and verse the jobs previous graduates obtained, the 
name of the employer, and the starting salaries. You were told 
here today, for example, that the CIA came to these private 
postsecondary----
    Mr. Castle. You have to be brief because my time is waning, 
and Mr. McKeon is starting to look at me.
    Ms. Waters. OK. And asked them to train--make somebody show 
you where those minority students are working in the CIA and 
what they are doing; don't just let them come here and tell you 
any old thing.
    Mr. Castle. My time is up, so I, unfortunately, can't call 
on others, But if you have any specific suggestions and you 
want to submit them in writing, I would like to see them; or 
perhaps you can answer them later in the hearing at some point. 
I am going to have to go on, unfortunately, to another 
appointment. But I am interested in how we can make this the 
best act possible.
    I yield back, Mr. Chairman.
    Mr. McKeon. Mr. Kildee.
    Mr. Kildee. Thank you, Mr. Chairman.
    For the record, Ms. Waters, it was 85/15 from 1992 to 1998. 
During your first term in Congress we enacted the 85/15 rule. 
Then in 1998 we changed that to 90/10.
    However, H.R. 609, which is the bill before this Committee, 
would completely eliminate the 90/10 rule.
    Mr. Carter, would you comment on the wisdom, or lack of 
wisdom, on the total elimination of the 90/10 rule?
    Mr. Carter. I guess the way I would answer that is I would 
go slowly in eliminating any rule before I knew what the effect 
of eliminating that rule is, or would be.
    Mr. Kildee. You stated earlier that when you eliminate a 
rule, you should go back and find out why the rule came into 
being.
    Mr. Carter. Yes.
    Mr. Kildee. This fits into what you are saying, and I am 
sorry to interrupt you.
    Mr. Carter. Right. And that is why I say I think we would 
have to go slow. I am not arguing for 10 or 15 years going 
slow, I am just talking about giving due consideration to what 
the rule was intended to do.
    If there is another rule that would work better, and I am 
not in a position to say what that rule is, then I think that 
should be considered. The concern I would have is if you just 
keep adding one rule on top of another, that just makes the 
program more complex, and that leads to another set of 
problems.
    Mr. Kildee. But you would be skeptical, then, on having no 
rule, especially since the 90/10 rule was brought into being to 
address the problem.
    Mr. Carter. As I understand it, the rule was put in to stop 
some of the abuses of schools that were offering poor programs. 
Ms. Waters described them very well. I would be looking to keep 
something that would avoid those abuses from occurring again. I 
have even heard the industry argue they don't want to go back 
to those days, and I guess everybody would agree they don't 
want to go back to those days.
    So again, I would just argue that we consider the effect of 
eliminating the rule and what substitutes there would be.
    Mr. Kildee. Another question. The Committee in the 107th 
Congress, two Congresses back, voted to eliminate the 50 
percent rules on distance learning. I remain concerned that 
straight elimination of the 50 percent rule could lead to 
increased fraud and abuse. If we do eliminate the 50 percent 
rule, shouldn't we ensure that there is upgraded fiscal and 
accreditation-based accountability?
    Mr. Carter. Well, again, eliminating a rule like that 
without considering an alternative, I think that would not be 
something that we would recommend. If you wish to eliminate 
that rule, then I think you have to consider what substitute 
there might be out there. And again, the end goal is a student 
has received a good education and is gainfully employed as a 
result of that education.
    Mr. Kildee. One other question. Your testimony mentions the 
fact that GAO recently removed financial assistance programs 
from their high-risk list. You may be aware that the GAO issued 
a report of the School As Lender Program only a few days before 
these programs were removed from the high-risk list. This 
report scolded the Department of Education for a complete lack 
of oversight over the School As Lender Program. Don't you find 
it curious that a few days after such a report, the GAO says 
that the Department's financial assistance programs are on 
sound footing?
    Mr. Carter. I really wish to not comment on why GAO made 
their decisions. I was not a part of that decisionmaking.
    As I said, we decided to keep the Federal Student Aid 
Programs under what we consider our significant management 
challenge list.
    Mr. Kildee. Well, it would seem to me, and I know you have 
to be cautious when criticizing another agency, but when they 
remove them from the high-risk list and then report that the 
programs are not on sound footing, it would seem to me that 
they haven't read their own report.
    Mr. Carter. Again, I have no comment on what the GAO was 
thinking about when they made their decision. I think they were 
looking at a number of issues, and on balance they decided that 
they had made enough changes or had plans to make enough 
changes that it warranted taking them off the list.
    Mr. Kildee. Let me put it another way: Do you think they 
were warranted in taking them off the list, regardless of the 
status of the School As Lender Program.
    Mr. Carter. Again, not knowing exactly--I am not familiar 
with their rationale, so it is hard for me to judge whether it 
was warranted or not. What I can say is that, for our purposes, 
we consider the program to be a significant challenge.
    Mr. Kildee. Thank you very much.
    Mr. McKeon. Mr. Kline.
    Mr. Kline. Thank you, Mr. Chairman. And thank you, all the 
witnesses, for being here today.
    I love these hearings. It is always amazing to me, as we 
sort of try to get to the bottom of something, to find out 
where we really are, and I want to take a minute to see if I 
can do that.
    We have had some anecdotal reports today, and, frankly, I 
agree with Ms. Waters that it is probably a good thing that we 
are not focusing on just the 60 Minutes report because that 
itself is anecdotal. And if my own experience with the show is 
any example, it is probably not complete and probably not fair 
and not balanced, and misleading.
    And then we have had anecdotes here. Mr. Rhodes tells a 
wonderful story about the system in New York. Ms. Dorsey gives 
us a pretty critical anecdotal story of her experiences. Ms. 
Waters has said that there are tens of thousands, perhaps more, 
of students that are being cheated, and the taxpayers 
consequently being cheated. And Mr. Glakas has given us a story 
that says that perhaps the problem of abuse and fraud in the 
for-profits is very small; I think your testimony, sir, was it 
may be possibly 1 percent, 15 or 20 out of 2,500.
    Somewhere in here there is an answer that gives us the 
extent of the problem. And I think that Mr. Andrews was working 
down that road a while ago trying to get some measurement of 
how wide, how deep, how broad is this claim of fraud and abuse 
in higher education, and specifically in the for-profits. And I 
am sort of scanning the five of you here looking for that 
answer might come, but I have the whole gamut.
    So, Mr. Carter, because you are with the Department, you 
are sitting in the middle, let me try again to see if you can 
give for us some idea of the scope of the problem of fraud and 
abuse in the for-profit in higher education. Are you willing to 
just take a stab?
    Mr. Carter. If you are asking me for a number, sir, I would 
not be willing to take that stab. If you want to talk about the 
breadth of the problem, I will try to relate to the breadth of 
the work we have done.
    We are not only looking--we haven't really looked at just 
schools, we have looked at students, we have looked at lenders, 
we have looked at guarantee agencies, we have looked at 
servicers, we have looked at contractors, we have looked at the 
Department, we have looked at the accrediting agencies, we have 
looked at a great deal of the program, and I would say there is 
a great need for improvement.
    Now does the need for improvement equate to fraud? In some 
cases it does. How much that is, I can't answer. But I would 
say that in the program--it is a very complex program, I am 
sure everybody knows that. It is 3,000 lenders, $65 billion, 
6,000 schools. All the statistics aren't coming to the top of 
my head. It is an extremely complex program with a lot of 
rules. And I would say that there are a number of abuses or 
wastes or inefficiencies, and, yes, there is some fraud, but I 
just can't tell you how much that fraud is.
    Mr. Kline. Mr. Glakas.
    Mr. Glakas. Mr. Kline, I am not privy to the information 
that the Inspector General has, but I would submit over the 
last 4 or 5 years, no one has been charged, no one has been 
convicted. I know of no instance where a Federal agency like 
the Securities and Exchange Commission or an assistant U.S. 
Attorney around the country has indicted anyone from a for-
profit school, institute, college or university and that person 
has been convicted. I may be wrong. I may not be privy to that 
kind of information; it may be out there. I do not know of any 
instance.
    Mr. Kline. OK. Thank you.
    Ms. Waters, you had some large numbers, tens of thousands. 
Do you want to, with the few seconds we have left----
    Ms. Waters. Well, I don't know if I can--I am trying to 
communicate to this Committee that it is our responsibility to 
know. We should not attack those who are bringing to the 
attention of the Congress of the United States that something 
is drastically wrong. I don't suspect that 60 Minutes or 
anybody else can give us all of the information that we need; 
hopefully it will trigger this Committee to find out. When you 
have someone sitting before you from the Department of 
Education that can't tell you whether or not they have done an 
investigation triggered by audits, you ought to be concerned. 
You have a scandal on your hands, as indicated by the number of 
class action lawsuits, a lot of FBI investigations going on, 
stories in newspapers.
    No, we do not have the numbers, and we shouldn't have to, 
or they shouldn't have to. The Department of Education should 
have it, and you should make them get it for you. There should 
be investigations. The idea that someone can sit here and tell 
you nobody has been indicted ought to tell you something based 
on all of the publicity----
    Mr. Kline. If I could just--I know my time is up, But I am 
pretty sure, Ms. Waters, that you indicated tens of thousands 
of students have been cheated, and I just wondered where you 
may have gotten those----
    Ms. Waters. What I said to you is I could bring to this 
Committee thousands----
    Mr. Kline. Thousands.
    Ms. Waters.--of students that I have experienced alone just 
in my district. And I am saying to you that I think it is 
symptomatic or representative of what is going on all over the 
country. Now this Committee needs to find out.
    Mr. Kline. Thank you.
    Mr. McKeon. Mrs. McCarthy.
    Mrs. McCarthy. Thank you, Mr. Chairman.
    This has been a very interesting hearing, to say the least. 
And I guess when we started really dealing with this issue, I 
looked to New York. That is where I live. I look to the schools 
in New York. I look to the Department of Education in New York. 
And I know with how we run things in New York, we are not 
having these problems that apparently other areas of the 
country are having.
    Now, Mr. Rhodes, President Rhodes, you run a very 
prestigious career college; you are on different boards that go 
around for the Middle States to look at colleges and 
universities. Are you seeing the problems outside of New York, 
or should we be looking here on the Committee on what we do in 
New York to prevent these kind of abuses? Because to me if 
these abuses are going on, it seems to me we should be going to 
two track. Somewhere the State educational system is not 
serving their students either with the money that we are 
possibly giving to those students. I would appreciate if you 
would answer that.
    Mr. Rhodes. Most of my visits have been outside of New York 
State. That is just the nature of my expertise and where 
colleges are located. I have served on teams for the Western 
Association and also for the National Association of Schools of 
Art and Design. So I have been in the north central region, I 
have been in the west region, and I have done a couple, 
actually, in Middle States. And I also have done some work for 
the Regents, and the Regents is also a recognized accreditor, 
and it is one of the accreditors that actually has definitions 
of what satisfactory graduation rates are. Unfortunately they 
are kind of low. In New York State the median graduation rate 
for all 2-year institutions, public, private and nonprofit, is 
20 percent within 2 years, and 25 percent within 3. If you are 
accredited by the Regents and you do not meet those yardsticks, 
those requirements, your degree powers are in jeopardy.
    The most recent institution that lost its degree powers did 
not meet those requirements, did not meet other requirements, 
and the Regents pulled their ability to offer programs at all, 
essentially closed the institution. It was a not-for-profit 
institution. I imagine we may find a proprietary institution in 
a similar position in the State of New York, but on the whole, 
because New York has a program registration, we seem to have 
less of these difficulties. In other words, you can't just walk 
in and decide to teach any other old thing; you have got to 
register the entire program with the State, the State must 
approve it before you can even advertise it, and then 
afterwards there is follow-up from the State education 
department. There are visits to see that it is of some 
substance.
    Also, the State has imposed rules designed to ensure that 
programs which lead to licensure have minimum pass rates. For 
example, teacher ed programs--I have one of those--the minimum 
pass rate is 80 percent. If you fall below that, your program 
is in jeopardy. It works as a way to sharpen the mind. CUNY for 
quite some time was below that rate. They are now well above 
it; they have changed their procedures. It has made things 
better. Unfortunately some of the regional accreditors are not 
yet prepared to have these kinds of fixed targets in terms of 
graduation.
    One of the things that I wanted to respond to Mr. Castle 
was even in the 60 Minutes piece, it was quite obvious that the 
kind of information that students need is actually readily 
available, it is up on the--in New York State at least it is up 
on the New York State Websites.
    Mrs. McCarthy. Well, again--I guess we have got to take New 
York out of it.
    What would you think, then, if by taking some of the 
regulations that we have in New York State and try to put them 
on the Federal level so that there would be more of an even 
playing field in those States that don't have higher standards?
    Mr. Rhodes. One of Mr. Carter's recommendations, which is 
to define a credit hour, is something that is already done in 
New York State. It is done at both the undergraduate and the 
graduate level. And I think--New York State never had a casino 
dealing program of 12 weeks long that was 2 semesters, because 
a semester in New York State is defined as 15 or 16 weeks. And 
I think having something along those lines would be very 
helpful in ensuring that programs that are short in some way or 
another, either 51 weeks for an associate's degree or 2 years 
for a bachelor's degree--which is really an impossibility--
would just not be approved in any way, shape or form, either 
for Federal purposes or by the local State approving agencies 
which should have these kinds of regulations in mind.
    Mrs. McCarthy. Thank you, Mr. Rhodes.
    Chairman Boehner. [Presiding.] The Chair recognizes the 
gentleman from Georgia Mr. Price.
    Mr. Price. Thank you, Mr. Chairman.
    I want to echo some of my colleagues who have thanked each 
of you for coming. I especially want to thank Ms. Dorsey for 
coming and for your testimony. I was moved by your comments, 
and know how difficult it must be to stand up and say some of 
the things you said, and I want to thank you for coming and 
sharing those with us.
    By way of disclosure, I am a product of a family that is 
replete with folks who have completed their education at State 
institutions and not-for-profit institutions, and until I got 
out of that setting, I can honestly say that I didn't know that 
folks were educated where they didn't play football. So this 
industry is relatively new to me.
    However, I also represent a district that has three--at 
least three institutions, for-profit institutions, in the 
higher ed area that are extremely successful, and they are 
successful both for the institution and for the students. I can 
bring you student after student after student that I have 
spoken to personally who have had an incredible experience 
there and have bettered their lives and might not have been 
able to do so otherwise.
    That being said, I also share Mr. Andrews' and Mr. Castle's 
concerns about facts, and making certain that we have 
appropriate facts going forward if we are going to make any 
changes.
    So, Mr. Carter, I have a couple of questions that I think 
it would be most appropriate for you to answer, and I know you 
have been responding to most of the questions; but you 
mentioned that there was, quote, need for improvement. And if 
one recognizes that there is need for improvement, it appears 
to me that one also has identified a specific problem. 
Therefore, my question to you is, if you have identified a 
specific problem, is there a common denominator that you have 
been able to determine at the proprietary institutions that 
seem to have that common problem within them?
    Mr. Carter. I think the most frequent problem we run into 
in our compliance work and also in our investigative work has 
to do with the handling of the cash, you know, making refunds, 
making proper calculations of refunds, making sure those 
refunds are paid, that sort of thing, that does pop up fairly 
frequently.
    Mr. Price. That is a new point to be discussed this 
afternoon.
    Are there changes in law or regulation that you believe 
would be appropriate to address that, or do you have all of the 
current rules that you need in order to take care of that?
    Mr. Carter. I think the rules on refunds are pretty clear, 
and we haven't recommended any changes in that area.
    Mr. Price. Which brings me to my second question, and that 
is that you also stated that there is inconsistent oversight by 
the Department. I have two questions specifically. One: Why? 
And two: Is the same true for your oversight of nonprofit or 
public institutions?
    Mr. Carter. When you say ``your,'' you mean the Department?
    Mr. Price. Yes.
    Mr. Carter. When we looked at the Department, we found that 
they operate through their regional offices, and we found there 
was inconsistent guidance going out to those regional offices, 
what types of schools to look at, when to look at them, how to 
deal with the findings they have found, how to document their 
work. Those were the types of problems we have found. Those are 
all correctable, and, in fact, they are working on correcting 
them right now. We will have to wait and see if the plan they 
have come up with to correct those problems does, in fact, 
work. And we generally would give them 2 to 3 years to get--
perhaps not that long if they get the changes in. We would be 
going back and taking a look and see if they are more effective 
now.
    Mr. Price. Is that lack of guidance and investigation true 
in both the proprietary and nonproprietary area?
    Mr. Carter. In our work, when we were looking at how the 
Department was managing its oversight roll, we did not 
distinguish between proprietary and nonproprietary schools; we 
just looked at how they were doing their work, how they were 
identifying who they would go look at, what they were looking 
at on a timely basis over some sort of systematic way, that 
sort of thing. I don't believe that whether it was a 
proprietary school or not ever entered into the equation.
    Mr. Price. And they both seem to have the same kinds of 
challenges or problems or lack of guidance at the Department 
level.
    Mr. Carter. Well, again, we didn't even look at whether 
there was a difference, so I don't know if there was a 
difference or not. The process is the same for all the types of 
schools.
    Mr. Price. My time has expired. Thank you, Mr. Chairman.
    Chairman Boehner. The Chair recognizes the gentleman from 
New York Mr. Bishop for 5 minutes.
    Mr. Bishop. Thank you, Mr. Chairman. And I want to thank 
all the panelists for their testimony.
    I also want to just thank and commend Mr. Rhodes. I was an 
administrator at a college in New York for 29 years, and I have 
long been an admirer for the work at your school, and I want to 
commend you for that.
    I want to go back to a discussion of the 90/10 rule. And I 
will just say at the outset that its proposed elimination 
troubles me greatly. The whole issue of access and 
affordability historically has been a partnership, a 
partnership shared in by the Federal Government, in some cases 
the State government, in some cases the family if they are up 
to that partnership, and in some cases the institution. And, in 
fact, for 7 of the 29 years that I was a college administrator, 
I was a director of financial aid, and I remember very clearly 
receiving formal directives from the Department of Education 
telling us that we were to administer Title IV funds in a 
fashion that, quote, supplemented and did not supplant existing 
institutional effort--I think I am quoting it exactly.
    So my question is if we were to eliminate the 90/10 rule--
and I guess this is for Mr. Glakas--what does that say about 
existing institutional effort in the proprietary sector?
    Mr. Glakas. If we eliminate the 90/10 rule, what other 
protections are there?
    Mr. Bishop. No, that is not my question. My question is 
that--I guess the core of my question is do we not, each of us 
as institutions, have a responsibility to assist in 
affordability and access? And if we were to eliminate 90/10, we 
would be placing 100 percent of the responsibility for access 
on the Federal Government in the case of this sector; is that 
not true?
    Mr. Glakas. I am not sure I understand the implications, 
but let me give you a practical example, Mr. Bishop. I am a 
native Washingtonian, lived here all my life, seen the city 
grow. I now see the suburbs having for-profits universities 
established everywhere, DCPI Technical, ITT, Strayer growing, 
now having 32 campuses around, Stratford University, University 
of Phoenix. Nobody is moving into Anacostia. Why is that? Why 
isn't anybody moving into Anacostia? And the reason why is the 
90/10 rule. They will not take a chance on educating students 
in Anacostia, all of whom could qualify, for example, for a 
Pell and a Stafford loan that would put the school out of 
business.
    Let me give you a very specific example, and I apologize 
for the simplicity of it.
    Mr. Bishop. I generally do well with simplicity.
    Mr. Glakas. Let's just say we were to talk ITT into moving 
into Anacostia, and they said they wanted to go slow; small 
building, 10 students, tuition $3,000. Each of the 10 students 
gets their 1,500 Pell and their 1,500 Stafford loan. The school 
is not in violation of the 90/10 rule. They push two students 
out in order to bring two other students in----
    Mr. Bishop. Let me put the other side of the coin. Let us 
look at Long Island University, the Brooklyn campus, in the 
heart of downtown Brooklyn, Flatbush. That is an area that I 
would suggest to you is similar to Anacostia. It is a school 
that discounts its tuition from its own resources in the 
neighborhood of 20 to 25 percent. They are stepping up to their 
responsibility to encourage access.
    And so my question is why is that a responsibility that is 
uniquely held by the not-for-profit sector, but under the terms 
of the elimination of 90/10 would not be held by the profit-
making sector?
    Mr. Glakas. That might change, that might change.
    You know, Mr. Bishop, I will give you, to me, the real 
issue here, the nub of what we are talking about.
    I came back from Vietnam in 1969. I went to Georgetown Law 
School on the GI bill. At that time it was only $2,500. GI bill 
paid for everything. It didn't say, we will pay for 90 percent 
of it; you come up with 10 percent to show us that Georgetown 
Law School is a good school. GI bill is the greatest piece of 
legislation this Congress ever came up with, and the Higher 
Education Act was the second, because it is trying to put 
students who need financial assistance through school.
    Mr. Bishop. Let me ask this question directly. In terms of 
the sector in general, what level of tuition is discounted by 
the institution? I mean, I come from an institution that 
discounted tuition at the rate of 35 percent. So what is the 
average discount rate within the for-profit sector?
    Mr. Glakas. I don't have the answer to that. I do know that 
the Education Department doesn't let institutional scholarships 
count under 90/10.
    Mr. Bishop. My question is what level of--if a school has a 
budget of $30 million, or their tuition revenue is 25 million 
for the year, what level of that is discounted by the 
institution as a way of creating access?
    Mr. Glakas. I can only tell you that I will have to come 
back with a written response, but I will.
    Mr. Bishop. Thank you; I appreciate that.
    [The information referred to has been retained in the 
Committee's official files.]
    Mr. Bishop. My time is up. Chairman, thank you.
    Chairman Boehner. The Chair recognizes the gentleman from 
Texas Mr. Hinojosa for 5 minutes.
    Mr. Hinojosa. Thank you, Mr. Chairman.
    I want to thank the panelists for coming in to speak and to 
answer questions on this legislation.
    My first question is directed to Mr. Nick Glakas and to 
David Rhodes. The proposed single definition of institution of 
higher education will radically alter our institutional aid 
programs. Instead of a capacity-building program for public or 
not-for-profit community-based institutions, they could be used 
for business development and enhancing returns to shareholders. 
Why should we shift the long-standing policy in this area? 
Discuss with me the effects that the shifting of focus and 
resources will have on the communities that are supposed to be 
served by these programs.
    Mr. Glakas. Mr. Hinojosa, the example that I would give you 
would be a Hispanic-serving institution, community college, on 
one side of the street and a small for-profit institution on 
the other side of the street which has 100 percent Hispanic 
students. Why would you ever want to have a different playing 
field for those same students even though they have each chosen 
to go to different kinds of institutions?
    I think there is a great deal of misinformation being put 
out about Title III and Title V. The June 16th hearing that was 
held here in this room, David Moore of Corinthian and Andy 
Worthin of Capital University both came out and told this 
Committee that they, as public company CEOs, were not 
interested in Title III and Title V. I don't know that all of 
our schools feel that way. But I think the critical question on 
single definition is very simple, and that is----
    And that is the ability for the for-profit sector to offer 
liberal arts courses to its students. If we constitute 47 
percent of the colleges and universities in this country, we 
have only 8 percent of the students. Why is that? We are not 
able to offer liberal arts. Community colleges can offer both 
liberal arts and the sort of technical courses that we offer, 
but it is not a 2-way street, and that is why single definition 
is probably critical to the level playing field that this 
Committee is looking at right now.
    Mr. Hinojosa. Let me tell you that I have to say that you 
are entitled to your opinion, but let me tell you some real 
facts and experiences that I have had in Texas. Not just my 
congressional district, but in Texas. We had to go to Federal 
court and to State court to fight for equitable funding for 
colleges and universities in Texas because they were not giving 
us enough money to be able to create masters and Ph.D. 
programs. The reason being that they did not have enough money 
is what we were told. We won. We won that litigation, and as a 
result of that, we had to create some colleges of engineering 
and other types of professional schools and colleges, but it 
took, it took that kind of fight to be able to make it happen.
    Why would I want competition from the same pocket of money 
that they are competing for in Texas to be able to give us more 
professional schools, higher level postgraduate studies, and so 
forth? And my experience with proprietary schools when I was on 
the State Board of Education for 10 years was, one, that they 
were not doing what they said they were going to do, and many 
of the students went through the program, they got the Federal 
money, came out and could not get the jobs.
    So I do not have a good view of what is being proposed in 
this legislation, because of what it does, not only to the 
Hispanics and African-American students, many minority 
students, but for all that go through the program and then 
cannot find the job. I honestly believe that there is a lack of 
investment by both the State and the Federal Government, and to 
see a new group of colleges for-profit come in and be able to 
tap the resources that are available today, which are scarce, I 
think that is a serious mistake.
    I would like to hear from Nick Glakas on my question. I am 
sorry, forgive me, from David Rhodes.
    Mr. Rhodes. I am sorry that your experiences with 
proprietary institutions in Texas has not been salutary. But it 
seems to me that if resources are scarce, then the best way to 
allocate them is by competition so that those with the 
strongest proposals, the most robust proposals are the ones who 
receive the funds, because they will use it best. They will use 
those funds best. If that turns out to be a proprietary 
institution that has an unusual idea about how to spend money, 
well, then that is the way it should be. If, on the other hand, 
it is the local or the local 4-year, public institution that 
has a great idea for a law school and writes a remarkable 
proposal to have that funded, then that is the way the money 
should go.
    It is not a question of--I do not think we are asking for a 
specified percentage of the monies or monies earmarked by head 
count. We are only asking for the opportunity to compete, and 
if we do well, we do well. If we do badly, then that is where 
the chips fall, and that is fine with me.
    Mr. Hinojosa. I thank you for your response.
    My last question goes to Paula Dorsey. In your testimony, 
you mentioned that you had other specific examples of unethical 
practices at Bryman College. Can you elaborate, please?
    Ms. Dorsey. During the time--I was trying to get everything 
in 5 minutes. There is so much that occurred in my short time 
there specifically dealing with the students, the overall 
atmosphere of not benefiting the students. One of the things 
that I did not get to get into specifically, when the 
possibility for the 60 Minutes interview came up, we were all 
briefed and debriefed over and over. A scenario and a cover-up 
was made, and basically, they were to follow that scenario. I 
was told not to be a part of it because they knew that at this 
point I was bucking up against things, and they did not want me 
to be--they did not want to worry about me facing the media. 
One of the things that I had the biggest challenge with was 
that the students that they knew that had discrepancies at that 
campus were to be whisked away into the Financial Aid Office 
for whatever purpose so that they would not have access to the 
media, because they did not want these disgruntled students--
maybe they were having trouble out in their internships or 
finding careers as they neared graduation, or had instances on 
the campuses--they did not want them to have access to the 
media.
    To me, when you are trying to kind of put a gag order on 
your students, something is seriously wrong. When you do not 
want your students to be able to talk about their experience 
and all you want is this rosy experience that everything is 
great, something is greatly wrong with that campus.
    Mr. Hinojosa. Thank you for your response.
    With that, Mr. Chairman, I yield back.
    Chairman Boehner. The Chair recognizes the gentleman from 
California, Mr. Miller.
    Mr. Miller. Mr. Chairman, I ask unanimous consent that a 
statement or a letter to you and to me from Mr. Jeff Fager who 
is the executive producer of 60 Minutes be included in the 
record at this point, if there is no objection.
    [The information referred to follows:]

 Letter from Jeff Fager, Executive Producer, 60 Minutes, Submitted for 
                               the Record

Mr. Chairman, Ranking Member and Members of the Committee:

    I am writing in response to testimony offered by Mr. Nick Glakas 
before your committee in which he attacks our 60 MINUTES report 
entitled ``An Expensive Lesson.'' He claims that the report, which 
focused on the business practices of for-profit schools, was unbalanced 
and misleading in presenting critical facts.
    Please know, that our team spent four months reporting this story. 
The producers spoke to 102 students, former employees and teachers. All 
but two confirmed the thrust of our report. Students told us admission 
counselors subjected them to high-pressure sales tactics in order to 
get them to enroll and sign up for tens of thousands of dollars in 
student loans to pay for tuition. They also said they were misled about 
job placement and employment opportunities upon graduation. The 
``admissions counselors/sales representatives'' told us they were 
pressured to admit as many students as possible and teachers said they 
were pressured to pass unqualified students in order to maximize 
revenue. We found evidence to back up these allegations when we sent 
our associate producer to go through the enrollment process.
    We made every effort to speak with representatives from Career 
Education Corporation (CEC) on-camera. They denied those repeated 
requests. Therefore, we sought out Nick Glakas to respond to some of 
the allegations. He told us that he was unaware of the allegations and 
assured us that any unethical behavior on the part or CEC or other for 
profit educational entities was isolated and not indicative of the 
industry as a whole. Those comments were included in our report.
    In CBS's view, the accusations set forth by Mr. Glakas are without 
merit. In fact, you should be aware that in the days following our 
report, the team who reported this story, received hundreds of e-mails 
and phone calls from current and former students and employees of for-
profit schools, including Brooks College, which corroborated our 
reporting.

Sincerely,

Jeff Fager
                                 ______
                                 
    Chairman Boehner. Without objection.
    Mr. Miller. Finally, Mr. Chairman, I want to again thank 
you for having this hearing.
    And, Ms. Dorsey, I want to thank you for your testimony 
here. I became a fan, actually, of the proprietary schools when 
I read a long piece in the Wall Street Journal a number of 
years ago about one of the more successful proprietary schools, 
and when they interviewed everybody from the traditional 
education establishments, they were all very critical of it. 
They all suggested this was not a real education. The only 
people who liked the school were the people who were attending 
it. I actually went down and met and tried to figure out what 
was going on in that situation, because the question of how 
this opportunity was going to be measured, obviously, some did 
not like the competition.
    But I have to tell you this, that the statements that you 
have made here before the Committee and the examples that you 
have cited and that Ms. Waters has cited and I think, to some 
extent, that have been found in some of the work of the 
inspector general, when I talked to many, many people in this 
field who run all different kinds of schools, all different 
kinds of careers in the health field, technology field, people 
who are rolling up these institutions and becoming larger 
corporations than the rest of them, none of them deny that the 
examples that you mentioned are taking place, and all of them 
suggested, some of them suggested flat out that these schools 
should be closed. Whether or not we will get to the bottom of 
it or not or whether or not the industry will police itself or 
whether or not this Congress will decide that there has to be 
some new set of standards here, obviously, most people have 
told us before we had this hearing that the New York Department 
of Education, how they run their education from top to bottom 
is far different than what is going on in other areas of the 
country. In some cases, you just file a business plan; you do 
not file an education plan. You get a business license, and you 
open your doors.
    What I worry about is that there is--each one of these 
students is worth something. And we saw when we went into the 
first iteration of health care, HMOs, and the business pages 
were full of whether or not people could get cachement area, 
could they expand their cachement area? Could they get enough 
senior citizens to come in? Some were promised hearing aids and 
prescription drugs and free eyeglasses and all of the rest of 
it. Many of them went bankrupt. Many senior citizens did not 
get health care. Many got stuck with the bill in many 
instances, and I just think we ought to avoid that wherever we 
can.
    Because I believe that in fact we need this sort of multi-
layered approach to educational opportunity in this country. 
But I believe whether it is at the community college or whether 
it is at USC in Los Angeles or Cal Berkeley or it is a 
proprietary school, a nonprofit, however, you want to classify 
them, that it ought to be on the level for that person walking 
through the door. Because, in many instances, they are walking 
through the door with a loan and not much else in their hand, 
and there ought to be some assurances that this institution is 
on the level. And we ought to set down that criteria. It is not 
that everybody who graduates from a school of higher education 
gets a job, because that just does not happen no matter where 
you graduate from. But there ought to be some matching between 
the representations made and your prospects of reaching those.
    And I just have to tell you that I have talked to enough 
people in this field and, again, in all different types of 
career offerings and educational offerings, that leads me to 
suggest that this is not all foreign, this is not a surprise; 
nobody in the industry was surprised by 60 Minutes. Nobody in 
the industry likes 60 Minutes. Nobody in politics likes 60 
Minutes when they turn their guys on the Congress. None of us, 
you know, have said, ``Well, that was a good story.'' but not a 
lot of Members are surprised sometimes when we see stories 
about the Congress or one of our programs or whatever else; we 
are not surprised. Most of us were damn glad it did not happen 
to us, and that is what I sense is going on here.
    We have an opportunity in the Higher Education Act, I 
think, to make some improvements. Some of them have been 
recommended by the IG; some of them will be recommended by 
Members of the Congress. What deeply concerns me is that we 
appear to be on kind of a wholesale track here to get rid of 
the existing protections that were put there for very valid 
reasons. So anybody who would like to go back and read the 
record of the witnesses in those hearings, they were put there 
for a reason, and I think the IG is suggesting to us they have 
had some positive impact. Maybe he cannot measure it down to 
how many cases, and we ought to be very careful before we 
eliminate them or even replace them with something else, we 
ought to understand what we are trying to do.
    I want to thank all of you for your participation in this 
hearing. I think we have some additional work to do. Otherwise, 
I think we are going to be back here revisiting this subject 
more often than we would like and more often certainly than the 
taxpayers or those students would like us to be revisiting it.
    Thank you, Mr. Chairman. I thank you for responding to this 
hearing in a very timely fashion.
    Ms. Waters. Mr. Chairman, may I make a request of you?
    Chairman Boehner. Yes.
    Ms. Waters. We have a whole host of students who have filed 
complaints against Corinthian, and I guess they are the owners 
of the Bryman chain. And they have declarations under penalty 
of perjury that they have filed with the department, and they 
cannot get an answer or an investigation going. I would like to 
ask this Committee to request of the department to please 
respond to those declarations that have been filed by a host of 
students against Corinthian.
    Chairman Boehner. We will look into it.
    Mr. Hinojosa. Mr. Chairman?
    Chairman Boehner. Mr. Hinojosa.
    Mr. Hinojosa. I ask for unanimous consent that my official 
statement for the record be accepted. I came in a bit late.
    [The prepared statement of Mr. Hinojosa follows:]

Statement of Hon. Ruben Hinojosa, a Representative in Congress from the 
                             State of Texas

    I would like to thank the Chairman for calling this hearing. We 
must not be complacent when it comes to the integrity of our system of 
higher education and student financial assistance. We have an 
obligation to safeguard the federal investment in postsecondary 
education as well as protect students from unscrupulous practices that 
can result in personal and financial devastation.
    In the Financial Services Committee, we often discuss ways to 
eliminate the practice of predatory lending. In the Education and the 
Workforce Committee, we have worked to eliminate the practice of 
``predatory student lending.'' We did this by putting safeguards in our 
student aid programs that banned practices such as incentive 
compensation, required institutions to have diversified sources of 
funding outside of the student programs, and put in place rules and 
definitions that recognize that for-profit corporations operate under a 
different set of business goals and practices than not-for profit and 
public institutions. As we have learned from the 60 Minutes report and 
recent federal investigations of the for-profit sector, the need for 
these safeguards has not passed.
    I am concerned that H.R. 609 moves us away from protecting the 
integrity of our student aid programs.
    Not only does H.R. 609 retreat from integrity protections against 
fraud and abuse in the student aid programs, it also opens up all of 
the grant programs in the Higher Education Act to proprietary 
institutions. In particular, it would make private businesses eligible 
for developing institutions grants, such as those designated for 
Hispanic-Serving Institutions (HSIs). Opening the developing 
institutions program to private businesses would further dilute the 
small funding stream designated to serve a growing pool of colleges and 
universities. HSI grants should be reserved for institutions that have 
a long-term commitment to serving the community and not to those whose 
primary responsibility is to shareholders or individual owners. Private 
businesses can move at any time to an area that is deemed to be more 
profitable. HSIs build capacity for the entire Hispanic community.
    In closing, it is my hope that this Committee will move forward 
with great caution and not fall prey to a glitzy sales pitch to remove 
the protections that have served the nation well. We must not confuse 
certain companies' goals to maximize enrollment and increase the bottom 
line, with our goal of expanding access to higher education and 
safeguarding the integrity of our student aid programs.
                                 ______
                                 
    Chairman Boehner. Without objection.
    Mr. Andrews.
    Mr. Andrews. Mr. Chairman, I would just ask the Chairman's 
permission to just ask one more thing from the IG witness, that 
he might provide us with some data. Would that be OK, Mr. 
Chairman?
    Chairman Boehner. That would be fine.
    Mr. Andrews. With respect to the impact of the 90/10 rule, 
I think--I am hearing a consensus today that we want the most 
effective anti-fraud measures available. What we do need to 
do--I also heard you, Mr. Carter, talk about being careful to 
understand the impact of rules, and I would ask you to provide 
us with data on two questions about the 90/10 rule.
    The first is that the department has compiled data about 
loan defaults, the aggregate number, the types of schools the 
students went to and so forth. I would be interested as to 
whether there is any correlation between high loan defaults and 
schools that are close to the 90/10 border. In other words, if 
a school is deriving, you know, 12 percent of its revenue other 
than from Federal financial aid, are the students from that 
school more or less likely to have loan defaults? What do the 
data show?
    And then, second, if you could, I would like to know any 
data on the types, the profiles of students, the demographic 
profiles of students who are turned away, not accepted, not 
enrolled in schools as a result of the 90/10 rule, any 
information we could have about what that subset of student 
applicants looks like.
    Mr. Chairman, I appreciate that very much.
    Chairman Boehner. Thank you.
    Mr. Carter. Mr. Chairman, if I may, earlier, Mr. Glakas 
made a comment about the lack of any information on any 
convictions or indictments and so on of school officials or 
their owners. And I just would request permission when I am 
providing the other information to Mr. Andrews to provide that 
information. It is published every 6 months in our semi-annual 
report, and we would be glad to summarize the last few years 
and provide it for the record.
    Chairman Boehner. Great.
    I just want to thank the witnesses for your willingness to 
come today. The Higher Education Act was enacted in the mid-
1960's to provide access for low- to moderate-income students. 
And you know, in 1990, aggregate spending was probably about 
$10 billion a year. As Mr. Miller noted earlier today, the 
Federal Government spends almost $80 billion a year to try to 
provide access to low- and moderate-income students.
    There has been some question about some of the provisions 
in our proposal for the reauthorization of the Higher Education 
Act. When it comes to the definition of institution, we, in our 
effort to try to provide access, if the student qualifies for a 
Pell grant, we allow that student to choose where they want to 
go to school, whether it be a private university, a public 
university, or a for-profit university. When we provide access 
to a student loan, that student can take that loan amount that 
they are entitled to borrow to a private university, a public 
university, or to a for-profit university. And when it comes to 
programs that primarily benefit students, they should not be 
discriminated against regardless of the institution they want 
to go to.
    Again, for programs that primarily benefit students, we 
should not deny them the access to make the same choice that we 
do with Pell grants and with student loans.
    Now, when it comes to the issue of 90/10, I think all of us 
realize, in the early 1990's, there were a host of 
accountability provisions put in place. One of the most 
important provisions put in place was not 90/10. It was the 
fact that if a school were to be qualified for the Title IV 
programs, the loan programs and for Pell grants, that they had 
to be accredited by an accrediting organization as recognized 
by the Secretary of Education. That, I think, in and of itself, 
has done more to eliminate many of the abuses that we used to 
see in the industry. And while 90/10 is an accountability tool, 
I am not sure in and of itself it is meeting the requirements 
that we intended it to make.
    Furthermore, I think it actually penalizes, penalizes low-
income students in inner cities all across America who do not 
have access to postsecondary education or training.
    Now, I am interested in what Mr. Carter will provide to the 
Committee, but if 90/10, in my view, is not working and 
penalizing access to institutions, I am open to what other 
types of accountability provisions that we can replace it with 
that will not hurt students, but will help keep bad operators 
out of the loan programs.
    So there is an awful lot that I think we can accomplish, 
but our goal here is access. Access for American students who 
need more access to postsecondary education and training 
because if they are going to be all they can be and have a shot 
at the American dream, they ought to have the opportunity to do 
so at an institution where they are going to get a high-quality 
education.
    I might make one more point. I have a daughter; I have two 
daughters. But one of my daughters went for 2 years at a State 
University in Ohio, decided it was not her thing, came home, 
worked for a little while and decided to go to a for-profit 
school and went there for 2 years. I can tell you this 
happened, I guess, about a year-and-a-half ago. She graduated. 
She is gainfully employed. I am very happy about that. And she 
owns her own condo. She owns her own car. She has a very good 
job that she was trained for.
    So while there are all of these horror stories or some 
horror stories that might exist, we should not paint the entire 
industry with a broad brush that they are not getting the job 
done. And when we look at the training that is being done for 
the workforce of the 21st century, I think a lot of our schools 
in a profit and not-for-profit sector are doing a good job for 
our country.
    Mr. Miller. Mr. Chairman, if I just might, we share a 
common experience. I have recommended a number of my dearest 
friends and my neighbors, for their young, for their young 
adults to go to a number of for-profit, nonprofit 
organizations--excuse me, proprietary organizations for their 
education, and it has turned out to be wildly successful for 
those individuals, and that is exactly the point. That is the 
experience we would like all of these young people to have.
    Now, unless these schools are wildly in violation of 90/10, 
they are not having any trouble getting students out of Maxine 
Waters' district or out of my district or out of many other 
areas, so there is some inconsistency here about what this 
limitation is in terms of the denial of opportunity to poor and 
minority students, because the evidence seems to be otherwise.
    Chairman Boehner. As the debate continues, with the 
reauthorization of the Higher Education Act, I want to thank 
all of you for coming today. This hearing is adjourned.
    [Whereupon, at 4:25 p.m., the Committee was adjourned.]
    [Additional material submitted for the record follows:]

Statement of Hon. Jon C. Porter, a Representative in Congress from the 
                            State of Nevada

    Thank you, Mr. Chairman, for holding this important hearing on the 
enforcement of anti-fraud laws in for-profit education. I appreciate 
the opportunity to hear more about the situation facing our students 
and educators in the for-profit education field. I thank our 
distinguished panel of witnesses for appearing today and look forward 
to their expert testimony.
    Because of the dynamic nature of our economy today, we must provide 
the students of this nation with the resources they require to actively 
engage what has become known as the knowledge based economy. Our higher 
education system must adapt as we seek to provide workers with the 
tools and knowledge they need to compete with our ever-changing 
economy. One important tool in this adaptation is the for-profit post-
secondary school. These institutions provide America's workforce with 
the necessary tools to improve their career potential.
    Recently, the institutions have come under attack for the improper 
actions of some in this field. Our committee, and this Congress, have a 
responsibility to protect the nation's students from groups that would 
seek to take advantage of those individuals seeking to improve 
themselves. I am glad that our committee has provided a forum for us to 
better understand current laws that protect our students, and the 
ability of government to enforce those laws.
    As we seek to provide the best opportunities for post-secondary 
education in this nation, we must ensure that the finances of our 
students and governments are protected as soundly as possible. I look 
forward to the testimony of our witnesses today, and wish to again 
thank the Chairman for providing this opportunity to better educate 
ourselves as we look forward to reauthorization of the Higher Education 
Act.

                                 

```