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99-773 PDF 2005

ENFORCEMENT OF FEDERAL 

ANTI–FRAUD LAWS IN FORPROFIT 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 

(II)

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN A. BOEHNER, Ohio, Chairman

Thomas E. Petri, Wisconsin, Vice Chairman 

Howard P. ‘‘Buck’’ McKeon, California 

Michael N. Castle, Delaware 

Sam Johnson, Texas 

Mark E. Souder, Indiana 

Charlie Norwood, Georgia 

Vernon J. Ehlers, Michigan 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Patrick J. Tiberi, Ohio 

Ric Keller, Florida 

Tom Osborne, Nebraska 

Joe Wilson, South Carolina 

Jon C. Porter, Nevada 

John Kline, Minnesota 

Marilyn N. Musgrave, Colorado 

Bob Inglis, South Carolina 

Cathy McMorris, Washington 

Kenny Marchant, Texas 

Tom Price, Georgia 

Luis G. Fortun ̃ o, 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 

George Miller, California 

Dale E. Kildee, Michigan 

Major R. Owens, New York 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Ron Kind, Wisconsin 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Betty McCollum, Minnesota 

Danny K. Davis, Illinois 

Rau ́l M. Grijalva, Arizona 

Chris Van Hollen, Maryland 

Tim Ryan, Ohio 

Timothy H. Bishop, New York 

John Barrow, Georgia

Paula Nowakowski, Staff Director 

John Lawrence, Minority Staff Director 

(III)

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

(1)

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. 

2

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 middleincome 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 forprofit sector. I think what we want to know is what laws exist to 

3

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 fouryear 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 forprofit—to abide by this standard. When parents and students are misled, or willVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6621 H:\DOCS\99773 EDU1 PsN: NNIXON
4

fully 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. 

5

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. 

6

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 

7

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, jobrelevant 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. 

8

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 

9

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 forprofit 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’’ 

10

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). 2Proprietary 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 3 Id., page 3

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

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. 

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

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 selfreporting 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? 

11

4See General Accounting Office, ‘‘Proprietary Schools: Poorer Student Outcomes at Schools 

that Rely More on Federal Student Aid,’’ GAO/HEHS–97–103, June 1997 5OIG Report ACN:06–3004 dated May 8, 1995 ‘‘Looking Ahead’’ Managing for Results: Review 

of Performance–Bases Systems at Selected Accrediting Agencies. 6See transcript of Sixty Minutes expose, attached. 

7 Id. 

8 Emphasis in the original letter. 

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 selfreporting 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. 

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. 

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

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

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 

12

9 Excerpts from a letter from American Intercontinental University employee. 

10WASC report summary, page 13. 11See Sixty Minutes transcript, attached. 

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! 

... 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) 

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) 

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. 

13

12 see Sixty Minutes transcript, attached 13 Id. 14See discussion above, page 9 15 Evaluation Report of Brooks College by the Bureau of Private Postsecondary and Vocational 

Education (the California enforcement agency) 

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. 

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

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

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 

14

16See Sixty Minutes transcript, attached. 17See more complete discussion above, page 9 18See Sixty Minutes transcript, attached. 19 Career Education, the owner of these schools is a nationwide chain 20See December 1, 2004 report. 21See Sixty Minutes transcript, attached. 

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. 

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

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. 

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 rang- ing 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

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. 

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 

15

22See Sixty Minutes transcript, attached. 23 dated 12/1/04 to be discussed hereinafter 24OIG 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 

Continued

• 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

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. 

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. 

16

• 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) 25 Id. 26See Sixty Minutes transcript, attached (emphasis added). 27Outten, 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). 28The 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. 29See attached Sixty Minutes transcript, also available at CBS News Online 

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. 

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) 

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

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 

17

30OIG 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’ 31P. 18, online at http://www.goacta.org/publications/Reports/accrediting.pdf 32P. 4, Online at http://www.ed.gov/Speeches/03–1997/oig.html 

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. 

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: 

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: 

‘‘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. 

18

33 BPPVE report re Brooks College, 12/1/05 34 Id. 35 page 10, 12/1/04 report by BPPVE 

• 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 reason- able prospect of completing the program.’’ 33 (emphasis added) 

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

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

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 nontitle 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. 

19

36See page 6 of GAO Report to Congressional Register 99–135, ‘‘Default Rates Need To Be 

Computed More Adequately’’, July 1999 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’’. 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. 

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

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

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

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 

20

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 

21

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. 

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

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? 

22

40Proprietary 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

• 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. 

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 misrepreVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6621 H:\DOCS\99773 EDU1 PsN: NNIXON
23

42See GAO Report to Congressional Register 99–135, ‘‘Default Rates Need To Be Computed 

More Adequately’’, July 1999 43 Id., p. 7 44 Id., p. 10 45 34 C.F.R. Section 668.72 (b) 

sentations 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

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

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 reenrolling 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

• the probable starting salary 

24

46 34 C.F.R. Section 668.72 (c) 47 34 C.F.R. Section 668.72(h) 48 34 C.F.R. Section 668.72(g) 

• 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) 

• experience and quality of the teachers 47

• the availability of equipment, books, and supplies 48

• 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. 

25

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.’’

26

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 

27

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 ReVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6602 H:\DOCS\99773 EDU1 PsN: NNIXON
28

gents 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 governVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6602 H:\DOCS\99773 EDU1 PsN: NNIXON
29

ment. 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 notfor-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. 

30

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 forprofit 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 insufVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6621 H:\DOCS\99773 EDU1 PsN: NNIXON
31

ficient 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 

32

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 

33

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 

34

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 

35

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. 

36

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 

37

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. 

38

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 

39

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 

40

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 caVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6621 H:\DOCS\99773 EDU1 PsN: NNIXON
41

reers. 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 

42

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 onehalf 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, 

43

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 forprofit 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 

44

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. 

45

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; 

46

• 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. 

47

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, notfor-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. 

48

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. 

49

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 forprofit 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. 

50

In addition, over the past seven years CCA’s affiliate organization, the Career Col- lege 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 proVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6602 H:\DOCS\99773 EDU1 PsN: NNIXON
51

prietary 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 forprofit 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. 

52

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 

53

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, adVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00057 Fmt 6633 Sfmt 6602 H:\DOCS\99773 EDU1 PsN: NNIXON
54

ministrators, 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? 

55

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. 

56

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 appreVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00060 Fmt 6633 Sfmt 6602 H:\DOCS\99773 EDU1 PsN: NNIXON
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ciate 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 

58

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——

59

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 

60

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? 

61

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 

62

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 ComVerDate 0ct 09 2002 14:39 Apr 25, 2005 Jkt 000000 PO 00000 Frm 00066 Fmt 6633 Sfmt 6602 H:\DOCS\99773 EDU1 PsN: NNIXON
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mittee 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 

64

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 

65

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 

66

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, 

67

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.] 

68

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 communitybased 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 

69

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 

70

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 highpressure 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. 

71

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. 

72

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 forprofit 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 

73

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 

74

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 

75

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.

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