For-Profit Colleges: Undercover Testing Finds Colleges Encouraged Fraud and Engaged in Deceptive and Questionable Marketing Practices
Published: 2010-08-04T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Enrollment in for-profit colleges has grown from about 365,000 students to almost 1.8 million in the last several years. These colleges offer degrees and certifications in programs ranging from business administration to cosmetology. In 2009, students at for-profit colleges received more than $4 billion in Pell Grants and more than $20 billion in federal loans provided by the Department of Education (Education). GAO was asked to 1) conduct undercover testing to determine if for-profit colleges' representatives engaged in fraudulent, deceptive, or otherwise questionable marketing practices, and 2) compare the tuitions of the for-profit colleges tested with those of other colleges in the same geographic region. To conduct this investigation, GAO investigators posing as prospective students applied for admissions at 15 for-profit colleges in 6 states and Washington, D.C.. The colleges were selected based on several factors, including those that the Department of Education reported received 89 percent or more of their revenue from federal student aid. GAO also entered information on four fictitious prospective students into education search Web sites to determine what type of follow-up contact resulted from an inquiry. GAO compared tuition for the 15 for-profit colleges tested with tuition for the same programs at other colleges located in the same geographic areas. Results of the undercover tests and tuition comparisons cannot be projected to all for-profit colleges.
section_title: What GAO Found
paragraphs: Undercover tests at 15 for-profit colleges found that 4 colleges encouraged fraudulent practices and that all 15 made deceptive or otherwise questionable statements to GAO's undercover applicants. Four undercover applicants were encouraged by college personnel to falsify their financial aid forms to qualify for federal aid--for example, one admissions representative told an applicant to fraudulently remove $250,000 in savings. Other college representatives exaggerated undercover applicants' potential salary after graduation and failed to provide clear information about the college's program duration, costs, or graduation rate despite federal regulations requiring them to do so. For example, staff commonly told GAO's applicants they would attend classes for 12 months a year, but stated the annual cost of attendance for 9 months of classes, misleading applicants about the total cost of tuition. Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options. However, in some instances, undercover applicants were provided accurate and helpful information by college personnel, such as not to borrow more money than necessary. In addition, GAO's four fictitious prospective students received numerous, repetitive calls from for-profit colleges attempting to recruit the students when they registered with Web sites designed to link for-profit colleges with prospective students. Once registered, GAO's prospective students began receiving calls within 5 minutes. One fictitious prospective student received more than 180 phone calls in a month. Calls were received at all hours of the day, as late as 11 p.m. To see video clips of undercover applications and to hear voicemail messages from for-profit college recruiters, see http://www.gao.gov/products/GAO-10-948T . Programs at the for-profit colleges GAO tested cost substantially more for associate's degrees and certificates than comparable degrees and certificates at public colleges nearby. A student interested in a massage therapy certificate costing $14,000 at a for-profit college was told that the program was a good value. However the same certificate from a local community college cost $520. Costs at private nonprofit colleges were more comparable when similar degrees were offered.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss our investigation into fraudulent,  deceptive, or otherwise questionable sales and marketing practices in the  for-profit college industry. Across the nation, about 2,000 for-profit  colleges eligible to receive federal student aid offer certifications and  degrees in subjects such as business administration, medical billing,  psychology, and cosmetology. Enrollment in such colleges has grown far  faster than traditional higher-education institutions. The for-profit colleges  range from small, privately owned colleges to colleges owned and  operated by publicly traded corporations. Fourteen such corporations,  worth more than $26 billion as of July 2010, have a total enrollment of 1.4  million students. With 443,000 students, one for-profit college is one of the  largest higher-education systems in the country—enrolling only 20,000  students fewer than the State University of New York.
The Department of Education’s Office of Federal Student Aid manages and  administers billions of dollars in student financial assistance programs  under Title IV of the Higher Education Act of 1965, as amended. These  programs include, among others, the William D. Ford Federal Direct Loan  Program (Direct Loans), the Federal Pell Grant Program, and campus- based aid programs. Grants do not have to be repaid by students, while  loans must be repaid whether or not a student completes a degree  program. Students may be eligible for “subsidized” loans or “unsubsidized”  loans. For unsubsidized loans, interest begins to accrue on the loan as  soon as the loan is taken out by the student (i.e. while attending classes).
For subsidized loans, interest does not accrue while a student is in college.  Colleges received $105 billion in Title IV funding for the 2008-2009 school  year—of which approximately 23 percent or $24 billion went to for-profit  colleges. Because of the billions of dollars in federal grants and loans  utilized by students attending for-profit colleges, you asked us to (1)  conduct undercover testing to determine if for-profit college  representatives engaged in fraudulent, deceptive, or otherwise  questionable marketing practices, and (2) compare the cost of attending  for-profit colleges tested with the cost of attending nonprofit colleges in  the same geographic region.
To determine whether for-profit college representatives engaged in  fraudulent, deceptive, or otherwise questionable sales and marketing  practices, we investigated a nonrepresentative selection of 15 for-profit  colleges located in Arizona, California, Florida, Illinois, Pennsylvania,  Texas, and Washington, D.C. We chose colleges based on several factors in  order to test for-profit colleges offering a variety of educational services  with varying corporate sizes and structures located across the country.  Factors included whether a college received 89 percent or more of total  revenue from federal student aid according to Department of Education  (Education) data or was located in a state that was among the top 10  recipients of Title IV funding. We also chose a mix of privately held or  publicly traded for-profit colleges. We reviewed Federal Trade  Commission (FTC) statutes and regulations regarding unfair and deceptive  marketing practices and Education statutes and regulations regarding  what information postsecondary colleges are required to provide to  students upon request and what constitutes substantial misrepresentation  of services. During our undercover tests we attempted to identify whether  colleges met these regulatory requirements, but we were not able to test  all regulatory requirements in all tests.
Using fictitious identities, we posed as potential students to meet with the  colleges’ admissions and financial aid representatives and inquire about  certificate programs, associate’s degrees, and bachelor’s degrees. We  inquired about one degree type and one major—such as cosmetology,  massage therapy, construction management, or elementary education—at  each college. We tested each college twice—once posing as a prospective  student with an income low enough to qualify for federal grants and  subsidized student loans, and once as a prospective student with higher  income and assets to qualify the student only for certain unsubsidized  loans. Our undercover applicants were ineligible for other types of federal  postsecondary education assistance programs such as benefits available  under the Post-9/11 Veterans Educational Assistance Act of 2008  (commonly referred to as “the Post-9/11 G.I. Bill”). We used fabricated  documentation, such as tax returns, created with publicly available  hardware, software and materials, and the Free Application for Federal  Student Aid (FAFSA)—the form used by virtually all 2- and 4-year colleges,  universities, and career colleges for awarding federal student aid—during  our in-person meetings. In addition, using additional bogus identities,  investigators posing as four prospective students filled out forms on two  Web sites that ask questions about students’ academic interests, match  them to colleges with relevant programs, and provide the students’  information to colleges or the colleges’ outsourced calling center for  follow-up about enrollment. Two students expressed interest in a culinary  arts degree, and two other students expressed interest in a business  administration degree. We filled out information on two Web sites with  these fictitious prospective students’ contact information and educational  interests in order to document the type and frequency of contact the  fictitious prospective students would receive. We then monitored the  phone calls and voicemails received.
To compare the cost of attending for-profit colleges with that of nonprofit  colleges, we used Education information to select public and private  nonprofit colleges located in the same geographic areas as the 15 for-profit  colleges we visited. We compared tuition rates for the same type of degree  or certificate between the for-profit and nonprofit colleges. For the 15 for- profit colleges we visited, we used information obtained from campus  representatives to determine tuition at these programs. For the nonprofit  colleges, we obtained information from their Web sites or, when not  available publicly, from campus representatives. Not all nonprofit colleges  offered similar degrees, specifically when comparing associate’s degrees  and certificate programs. We cannot project the results of our undercover  tests or cost comparisons to other for-profit colleges.
We plan to refer cases of school officials encouraging fraud and engaging  in deceptive practices to Education’s Office of Inspector General, where  appropriate. Our investigative work, conducted from May 2010 through  July 2010, was performed in accordance with standards prescribed by the  Council of the Inspectors General on Integrity and Efficiency.
subsections: section_title: Background
paragraphs: In recent years, the scale and scope of for-profit colleges have changed  considerably. Traditionally focused on certificate and programs ranging  from cosmetology to medical assistance and business administration, for- profit institutions have expanded their offerings to include bachelor’s,  master’s, and doctoral level programs. Both the certificate and degree  programs provide students with training for careers in a variety of fields.  Proponents of for-profit colleges argue that they offer certain flexibilities  that traditional universities cannot, such as, online courses, flexible  meeting times, and year-round courses. Moreover, for-profit colleges often  have open admissions policies to accept any student who applies.
Currently, according to Education about 2,000 for-profit colleges  participate in Title IV programs and in the 2008–2009 school year, for- profit colleges received approximately $24 billion in Title IV funds.  Students can only receive Title IV funds when they attend colleges  approved by Education to participate in the Title IV program.
subsections: section_title: Title IV Program Eligibility Criteria
paragraphs: The Higher Education Act of 1965, as amended, provides that a variety of  institutions of higher education are eligible to participate in Title IV  programs, including:    Public institutions—Institutions operated and funded by state or local  governments, which include state universities and community colleges.
Private nonprofit institutions—Institutions owned and operated by  nonprofit organizations whose net earnings do not benefit any  shareholder or individual. These institutions are eligible for tax- deductible contributions in accordance with the Internal Revenue code  (26 U.S.C. § 501(c)(3)).
For-profit institutions—Institutions that are privately owned or owned  by a publicly traded company and whose net earnings can benefit a  shareholder or individual.
Colleges must meet certain requirements to receive Title IV funds. While  full requirements differ depending on the type of college, most colleges are  required to: be authorized or licensed by the state in which it is located to  provide higher education; provide at least one eligible program that  provides an associate’s degree or higher, or provides training to students  for employment in a recognized occupation; and be accredited by an  accrediting agency recognized by the Secretary of Education. Moreover,  for-profit colleges must enter a “program participation agreement” with  Education that requires the school to derive not less than 10 percent of  revenues from sources other than Title IV funds and certain other federal  programs (known as the “90/10 Rule”). Student eligibility for grants and  subsidized student loans is based on student financial need. In addition, in  order for a student to be eligible for Title IV funds, the college must ensure  that the student meets the following requirements, among others: has a  high school diploma, a General Education Development certification, or  passes an ability-to-benefit test approved by Education, or completes a  secondary school education in a home school setting recognized as such  under state law; is working toward a degree or certificate in an eligible  program; and is maintaining satisfactory academic progress once in  college.
section_title: Defaults on Student Loans
paragraphs: In August 2009, GAO reported that in the repayment period, students who  attended for-profit colleges were more likely to default on federal student  loans than were students from other colleges.  When students do not  make payments on their federal loans and the loans are in default, the  federal government and taxpayers assume nearly all the risk and are left  with the costs. For example, in the Direct Loan program, the federal  government and taxpayers pick up 100 percent of the unpaid principal on  defaulted loans. In addition, students who default are also at risk of facing  a number of personal and financial burdens. For example, defaulted loans  will appear on the student’s credit record, which may make it more  difficult to obtain an auto loan, mortgage, or credit card. Students will also  be ineligible for assistance under most federal loan programs and may not  receive any additional Title IV federal student aid until the loan is repaid in  full. Furthermore, Education can refer defaulted student loan debts to the  Department of Treasury to offset any federal or state income tax refunds  due to the borrower to repay the defaulted loan. In addition, Education  may require employers who employ individuals who have defaulted on a  student loan to deduct 15 percent of the borrower’s disposable pay toward  repayment of the debt. Garnishment may continue until the entire balance  of the outstanding loan is paid.
section_title: College Disclosure Requirements
paragraphs: In order to be an educational institution that is eligible to receive Title IV  funds, Education statutes and regulations require that each institution  make certain information readily available upon request to enrolled and  prospective students. Institutions may satisfy their disclosure  requirements by posting the information on their Internet Web sites.  Information to be provided includes: tuition, fees, and other estimated  costs; the institution’s refund policy; the requirements and procedures for  withdrawing from the institution; a summary of the requirements for the  return of Title IV grant or loan assistance funds; the institution’s  accreditation information; and the institution’s completion or graduation  rate. If a college substantially misrepresents information to students, a fine  of no more than $25,000 may be imposed for each violation or  misrepresentation and their Title IV eligibility status may be suspended or  terminated. In addition, the FTC prohibits “unfair methods of  competition” and “unfair or deceptive acts or practices” that affect  interstate commerce.
section_title: For-Profit Colleges Encouraged Fraud and Engaged in Deceptive and Otherwise Questionable Sales and Marketing Practices
paragraphs: Our covert testing at 15 for-profit colleges found that four colleges  encouraged fraudulent practices, such as encouraging students to submit  false information about their financial status. In addition all 15 colleges  made some type of deceptive or otherwise questionable statement to  undercover applicants, such as misrepresenting the applicant’s likely  salary after graduation and not providing clear information about the  college’s graduation rate. Other times our undercover applicants were  provided accurate or helpful information by campus admissions and  financial aid representatives. Selected video clips of our undercover tests  can be seen at http://www.gao.gov/products/GAO-10-948T.
subsections: section_title: Fraudulent Practices Encouraged by For-Profit Colleges
paragraphs: Four of the 15 colleges we visited encouraged our undercover applicants  to falsify their FAFSA in order to qualify for financial aid. A financial aid  officer at a privately owned college in Texas told our undercover applicant  not to report $250,000 in savings, stating that it was not the government’s  business how much money the undercover applicant had in a bank  account. However, Education requires students to report such assets,  which along with income, are used to determine how much and what type  of financial aid for which a student is eligible. The admissions  representative at this same school encouraged the undercover applicant to  change the FAFSA to falsely add dependents in order to qualify for grants.  The admissions representative attempted to ease the undercover  applicant’s concerns about committing fraud by stating that information  about the reported dependents, such as Social Security numbers, was not  required. An admissions representative at another college told our  undercover applicant that changing the FAFSA to indicate that he  supported three dependents instead of being a single-person household  might drop his income enough to qualify for a Pell Grant. In all four  situations when college representatives encouraged our undercover  applicants to commit fraud, the applicants indicated on their FAFSA, as  well as to the for-profit college staff, that they had just come into an  inheritance worth approximately $250,000. This inheritance was sufficient  to pay for the entire cost of the undercover applicant’s tuition. However, in  all four cases, campus representatives encouraged the undercover  applicants to take out loans and assisted them in becoming eligible either  for grants or subsidized loans. It was unclear what incentive these colleges  had to encourage our undercover applicants to fraudulently fill out  financial aid forms given the applicants’ ability to pay for college. The  following table provides more details on the four colleges involved in  encouraging fraudulent activity.
The undercover applicant suggested to the representative that by the time the  college would be required by Education to verify any information about the  applicant, the applicant would have already graduated from the 7-month  program. The representative acknowledged this was true.
This undercover applicant indicated to the financial aid representative that he  had $250,000 in the bank, and was therefore capable of paying the program’s  $15,000 cost. The fraud would have made the applicant eligible for grants and  subsidized loans.
Admissions representative suggested to the undercover applicant that he not  report $250,000 in savings reported on the FAFSA. The representative told the  applicant to come back once the fraudulent financial information changes had  been processed.
This change would not have made the applicant eligible for grants because his  income would have been too high, but it would have made him eligible for loans  subsidized by the government. However, this undercover applicant indicated that  he had $250,000 in savings—more than enough to pay for the program’s  $39,000 costs.
Financial aid representative told the undercover applicant that he should have  answered “zero” when asked about money he had in savings—the applicant had  reported a $250,000 inheritance.
The financial aid representative told the undercover applicant that she would  “correct” his FAFSA form by reducing the reported assets to zero. She later  confirmed by email and voicemail that she had made the change.
This change would not have made the applicant eligible for grants, but it would  have made him eligible for loans subsidized by the government. However, this  applicant indicated that he had about $250,000 in savings—more than enough to  pay for the program’s $21,000 costs.
Admissions representative encouraged applicant to change the FAFSA to falsely  add dependents in order to qualify for Pell Grants.
Admissions representative assured the undercover applicant that he did not have  to identify anything about the dependents, such as their Social Security numbers,  nor did he have to prove to the college with a tax return that he had previously  claimed them as dependents.
Financial aid representative told the undercover applicant that he should not  report the $250,000 in cash he had in savings.
This applicant indicated to the financial aid representative that he had $250,000  in the bank, and was therefore capable of paying the program’s $68,000 cost.  The fraud would have made the undercover applicant eligible for more than  $2,000 in grants per year.
section_title: Deceptive or Questionable Statements
paragraphs: Admissions or financial aid representatives at all 15 for-profit colleges  provided our undercover applicants with deceptive or otherwise  questionable statements. These deceptive and questionable statements  included information about the college’s accreditation, graduation rates  and its student’s prospective employment and salary qualifications,  duration and cost of the program, or financial aid. Representatives at  schools also employed hard-sell sales and marketing techniques to  encourage students to enroll.
subsections: section_title: Accreditation Information
paragraphs: Admissions representatives at four colleges either misidentified or failed  to identify their colleges’ accrediting organizations. While all the for-profit  colleges we visited were accredited according to information available  from Education, federal regulations state that institutions may not provide  students with false, erroneous, or misleading statements concerning the  particular type, specific source, or the nature and extent of its  accreditation. Examples include:    A representative at a college in Florida owned by a publicly traded  company told an undercover applicant that the college was accredited  by the same organization that accredits Harvard and the University of  Florida when in fact it was not. The representative told the undercover  applicant: “It’s the top accrediting agency—Harvard, University of  Florida—they all use that accrediting agency….All schools are the  same; you never read the papers from the schools.”
A representative of a small beauty college in Washington, D.C. told an  undercover applicant that the college was accredited by “an agency  affiliated with the government,” but did not specifically name the  accrediting body. Federal and state government agencies do not  accredit educational institutions.
A representative of a college in California owned by a private  corporation told an undercover applicant that this college was the only  one to receive its accrediting organization’s “School of Excellence”  award. The accrediting organization’s Web site listed 35 colleges as  having received that award.
section_title: Graduation Rate, Employment and Expected Salaries
paragraphs: Representatives from 13 colleges gave our applicants deceptive or  otherwise questionable information about graduation rates, guaranteed  applicants jobs upon graduation, or exaggerated likely earnings. Federal  statutes and regulations require that colleges disclose the graduation rate  to applicants upon request, although this requirement can be satisfied by  posting the information on their Web site. Thirteen colleges did not  provide applicants with accurate or complete information about  graduation rates. Of these thirteen, four provided graduation rate  information in some form on their Web site, although it required a  considerable amount of searching to locate the information. Nine schools  did not provide graduation rates either during our in person visit or on  their Web sites. For example, when asked for the graduation rate, a  representative at a college in Arizona owned by a publicly traded company  said that last year 90 students graduated, but did not disclose the actual  graduation rate. When our undercover applicant asked about graduation  rates at a college in Pennsylvania owned by a publicly traded company, he  was told that if all work was completed, then the applicant should  successfully complete the program—again the representative failed to  disclose the college’s graduation rate when asked. However, because  graduation rate information was available at both these colleges’ Web  sites, the colleges were in compliance with Education regulations.
In addition, according to federal regulations, a college may not  misrepresent the employability of its graduates, including the college’s  ability to secure its graduates employment. However, representatives at  two colleges told our undercover applicants that they were guaranteed or  virtually guaranteed employment upon completion of the program. At five  colleges, our undercover applicants were given potentially deceptive  information about prospective salaries. Examples of deceptive or  otherwise questionable information told to our undercover applicants  included:    A college owned by a publicly traded company told our applicant that,  after completing an associate’s degree in criminal justice, he could try  to go work for the Federal Bureau of Investigation or the Central  Intelligence Agency. While other careers within those agencies may be  possible, positions as a FBI Special Agent or CIA Clandestine Officer,  require a bachelor’s degree at a minimum.
A small beauty college told our applicant that barbers can earn  $150,000 to $250,000 a year. While this may be true in exceptional  circumstances, the Bureau of Labor Statistics (BLS) reports that 90  percent of barbers make less than $43,000 a year.
A college owned by a publicly traded company told our applicant that  instead of obtaining a criminal justice associate’s degree, she should  consider a medical assisting certificate and that after only 9 months of  college, she could earn up to $68,000 a year. A salary this high would be  extremely unusual; 90 percent of all people working in this field make  less than $40,000 a year, according to the BLS.
section_title: Program Duration and Cost
paragraphs: Representatives from nine colleges gave our undercover applicants  deceptive or otherwise questionable information about the duration or  cost of their colleges’ programs. According to federal regulations, a college  may not substantially misrepresent the total cost of an academic program.  Representatives at these colleges used two different methods to calculate  program duration and cost of attendance. Colleges described the duration  of the program as if students would attend classes for 12 months per year,  but reported the annual cost of attendance for only 9 months of classes  per year. This disguises the program’s total cost. Examples include:    A representative at one college said it would take 3.5–4 years to obtain  a bachelor’s degree by taking classes year round, but quoted the  applicant an annual cost for attending classes for 9 months of the year.  She did not explain that attending classes for only 9 months out of the  year would require an additional year to complete the program. If the  applicant did complete the degree in 4 years, the annual cost would be  higher than quoted to reflect the extra class time required per year.
At another college, the representative quoted our undercover applicant  an annual cost of around $12,000 per year and said it would take 2  years to graduate without breaks, but when asked about the total cost,  the representative told our undercover applicant it would cost $30,000  to complete the program—equivalent to more than two and a half years  of the previously quoted amount. If the undercover applicant had not  inquired about the total cost of the program, she would have been led  to believe that the total cost to obtain the associate’s degree would  have been $24,000.
section_title: Financial Aid
paragraphs: Eleven colleges denied undercover applicants access to their financial aid  eligibility or provided questionable financial advice. According to federal  statutes and regulations, colleges must make information on financial  assistance programs available to all current and prospective students.
Six colleges in four states told our undercover applicants that they  could not speak with financial aid representatives or find out what  grants and loans they were eligible to receive until they completed the  college’s enrollment forms agreeing to become a student and paid a  small application fee to enroll.
A representative at one college in Florida owned by a publicly traded  company advised our undercover applicant not to concern himself with  loan repayment because his future salary—he was assured—would be  sufficient to repay loans.
A representative at one college in Florida owned by a private company  told our undercover applicant that student loans were not like car  loans because “no one will come after you if you don’t pay.” In reality,  students who cannot pay their loans face fees, may damage their credit,  have difficulty taking out future loans, and in most cases, bankruptcy  law prohibits a student borrower from discharging a student loan.
A representative at a college owned by a publicly traded corporation  told our undercover applicant that she could take out the maximum  amount of federal loans, even if she did not need all the money. She  told the applicant she could put the extra money in a high-interest  savings account. While subsidized loans do not accrue interest while a  student is in college, unsubsidized loans do accrue interest. The  representative did not disclose this distinction to the applicant when  explaining that she could put the money in a savings account.
section_title: Other Sales and Marketing Tactics
paragraphs: Six colleges engaged in other questionable sales and marketing tactics  such as employing hard-sell sales and marketing techniques and requiring  enrolled students to pay monthly installments to the college during their  education.
At one Florida college owned by a publicly traded company, a  representative told our undercover applicant she needed to answer 18  questions correctly on a 50 question test to be accepted to the college.  The test proctor sat with her in the room and coached her during the  test.
At two other colleges, our undercover applicants were allowed 20  minutes to complete a 12-minute test or took the test twice to get a  higher score.
At the same Florida college, multiple representatives used high  pressure marketing techniques, becoming argumentative, and scolding  our undercover applicants for refusing to enroll before speaking with  financial aid.
A representative at this Florida college encouraged our undercover  applicant to sign an enrollment agreement while assuring her that the  contract was not legally binding.
A representative at another college in Florida owned by a publicly  traded company said that he personally had taken out over $85,000 in  loans to pay for his degree, but he told our undercover applicant that  he probably would not pay it back because he had a “tomorrow’s never  promised” philosophy.
Three colleges required undercover applicants to make $20–$150  monthly payments once enrolled, despite the fact that students are  typically not required to repay loans until after the student finishes or  drops out of the program. These colleges gave different reasons for  why students were required to make these payments and were  sometimes unclear exactly what these payments were for. At one  college, the applicant would have been eligible for enough grants and  loans to cover the annual cost of tuition, but was told that she needed  to make progress payments toward the cost of the degree separate  from the money she would receive from loans and grants. A  representative from this college told the undercover applicant that the  federal government’s “90/10 Rule” required the applicant to make these  payments. However, the “90/10 Rule” does not place any requirements  on students, only on the college.
At two colleges, our undercover applicants were told that if they  recruited other students, they could earn rewards, such as an MP3  player or a gift card to a local store.
section_title: Accurate and Helpful Information Provided
paragraphs: In some instances our undercover applicants were provided accurate or  helpful information by campus admissions and financial aid  representatives. In line with federal regulations, undercover applicants at  several colleges were provided accurate information about the  transferability of credits to other postsecondary institutions, for example:    A representative at a college owned by a publicly traded company in  Pennsylvania told our applicant that with regard to the transfer of  credits, “different schools treat it differently; you have to roll the dice  and hope it transfers.”
A representative at a privately owned for-profit college in Washington,  D.C. told our undercover applicant that the transfer of credits depends  on the college the applicant wanted to transfer to.
Some financial aid counselors cautioned undercover applicants not to take  out more loans than necessary or provided accurate information about  what the applicant was required to report on his FAFSA, for example:    One financial aid counselor at a privately owned college in Washington  D.C. told an applicant that because the money had to be paid back, the  applicant should be cautious about taking out more debt than  necessary.
A financial aid counselor at a college in Arizona owned by a publicly  traded company had the undercover applicant call the FAFSA help line  to have him ask whether he was required to report his $250,000  inheritance. When the FAFSA help line representative told the  undercover applicant that it had to be reported, the college financial  aid representative did not encourage the applicant not to report the  money.
In addition, some admissions or career placement staff gave undercover  applicants reasonable information about prospective salaries and potential  for employment, for example:    Several undercover applicants were provided salary information  obtained from the BLS or were encouraged to research salaries in their  prospective fields using the BLS Web site.
A career services representative at a privately owned for-profit college  in Pennsylvania told an applicant that as an entry level graphic  designer, he could expect to earn $10–$15 per hour. According to the  BLS only 25 percent of graphic designers earn less than $15 per hour in  Pennsylvania.
section_title: Web Site Inquiries Result in Hundreds of Calls
paragraphs: Some Web sites that claim to match students with colleges are in reality  lead generators used by many for-profit colleges to market to prospective  students. Though such Web sites may be useful for students searching for  schools in some cases, our undercover tests involving four fictitious  prospective students led to a flood of calls—about five a day. Four of our  prospective students filled out forms on two Web sites, which ask  questions about students’ interests, match them to for-profit colleges with  relevant programs, and provide the students’ information to the  appropriate college or the college’s outsourced calling center for follow-up  about enrollment. Two fictitious prospective students expressed interest  in a culinary arts certificate, one on Web site A and one on Web site B.  Two other prospective students expressed interest in a bachelor’s in  business administration degree, one on each Web site.
Within minutes of filling out forms, three prospective students received  numerous phone calls from colleges. One fictitious prospective student  received a phone call about enrollment within 5 minutes of registering and  another 5 phone calls within the hour. Another prospective student  received 2 phone calls separated only by seconds within the first 5 minutes  of registering and another 3 phone calls within the hour. Within a month of  using the Web sites, one student interested in business management  received 182 phone calls and another student also interested in business  management received 179 phone calls. The two students interested in  culinary arts programs received fewer calls—one student received only a  handful, while the other received 72. In total, the four students received  436 phone calls in the first 30 days after using the Web sites. Of these, only  six calls—all from the same college—came from a public college. The  table below provides information about the calls these students received  within the first 30 days of registering at the Web site.
section_title: Tuition at For-Profit Colleges Is Sometimes Higher Than Tuition at Nearby Public and Private Nonprofit Colleges
paragraphs: During the course of our undercover applications, some college  representatives told our applicants that their programs were a good value.  For example, a representative of a privately owned for-profit college in  California told our undercover applicant that the $14,495 cost of tuition for  a computer-aided drafting certificate was “really low.” A representative at  a for-profit college in Florida owned by a publicly traded company told our  undercover applicant that the cost of their associate’s degree in criminal  justice was definitely “worth the investment”. However, based on  information we obtained from for-profit colleges we tested, and public and  private nonprofit colleges in the same geographic region, we found that  most certificate or associate’s degree programs at the for-profit colleges  we tested cost more than similar degrees at public or private nonprofit  colleges. We found that bachelor’s degrees obtained at the for-profit  colleges we tested frequently cost more than similar degrees at public  colleges in the area; however, bachelor’s degrees obtained at private  nonprofit colleges nearby are often more expensive than at the for-profit  colleges.
We compared the cost of tuition at the 15 for-profit colleges we visited,  with public and private non-profit colleges located in the same geographic  area as the for-profit college. We found that tuition in 14 out of 15 cases,  regardless of degree, was more expensive at the for-profit college than at  the closest public colleges. For 6 of the 15 for-profit colleges tested, we  could not find a private nonprofit college located within 250 miles that  offered a similar degree. For 1 of the 15, representatives from the private  nonprofit college were unwilling to disclose their tuition rates when we  inquired. At eight of the private nonprofit colleges for which we were able  to obtain tuition information on a comparable degree, four of the for-profit  colleges were more expensive than the private nonprofit college. In the  other four cases, the private nonprofit college was more expensive than  the for-profit college.
We found that tuition for certificates at for-profit colleges were often  significantly more expensive than at a nearby public college. For example,  our undercover applicant would have paid $13,945 for a certificate in  computer aided drafting program—a certification for a 7-month program  obtained by those interested in computer-aided drafting, architecture, and  engineering—at the for-profit college we visited. To obtain a certificate in  computed-aided drafting at a nearby public college would have cost a  student $520. However, for two of the five colleges we visited with  certificate programs, we could not locate a private nonprofit college  within a 250 mile radius and another one of them would not disclose its  tuition rate to us. We were able to determine that in Illinois, a student  would spend $11,995 on a medical assisting certificate at a for-profit  college, $9,307 on the same certificate at the closest private nonprofit  college, and $3,990 at the closest public college. We were also able to  determine that in Pennsylvania, a student would spend $21,250 on a  certificate in Web page design at a for-profit college, $4,750 on the same  certificate at the closest private nonprofit college, and $2,037 at the closest  public college.
We also found that for the five associate’s degrees we were interested in,  tuition at a for-profit college was significantly more than tuition at the  closest public college. On average, for the five colleges we visited, it cost  between 6 and 13 times more to attend the for-profit college to obtain an  associate’s degree than a public college. For example, in Texas, our  undercover applicant was interested in an associate’s degree in respiratory  therapy which would have cost $38,995 in tuition at the for-profit college  and $2,952 at the closest public college. For three of the associate’s  degrees we were interested in, there was not a private nonprofit college  located within 250 miles of the for-profit we visited. We found that in  Florida the associate’s degree in Criminal Justice that would have cost a  student $4,448 at a public college, would have cost the student $26,936 at a  for-profit college or $27,600 at a private nonprofit college—roughly the  same amount. In Texas, the associate’s degree in Business Administration  would have cost a student $2,870 at a public college, $32,665 at the for- profit college we visited, and $28,830 at the closest private nonprofit  college.
We found that with respect to the bachelor’s degrees we were interested  in, four out of five times, the degree was more expensive to obtain at the  for-profit college than the public college. For example in Washington, D.C.,  the bachelor’s degree in Management Information Systems would have  cost $53,400 at the for-profit college, and $51,544 at the closest public  college. The same bachelor’s degree would have cost $144,720 at the  closest private nonprofit college. For one bachelor’s degree, there was no  private nonprofit college offering the degree within a 250 mile radius.  Three of the four private nonprofit colleges were more expensive than  their for-profit counterparts.
Mr. Chairman, this concludes my statement. I would be pleased to answer  any questions that you or other members of the committee may have at  this time.
section_title: Contacts and Acknowledgments
paragraphs: For additional information about this testimony, please contact Gregory D.  Kutz at (202) 512-6722 or kutzg@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this statement.
section_title: Appendix I: Detailed Results of Undercover Tests
paragraphs: The following table provides details on each of the 15 for-profit colleges  visited by undercover applicants. We visited each school twice, posing  once as an applicant who was eligible to receive both grants and loans  (Scenario 1), and once as an applicant with a salary and savings that  would qualify the undercover applicant only for unsubsidized loans  (Scenario 2).
Encouragement of fraud, and engagement in deceptive, or  otherwise questionable behavior  Scenario 1
Admissions representative compares the college to the University  of Arizona and Arizona State University.
Admissions representative did not disclose the graduation rate  after being directly asked. He provided information on how many  students graduated. This information was available on the  college’s Web site; however, it required significant effort to find the  college’s graduation rate, and the college did not provide separate  graduation rates for its multiple campuses nationwide.
Admissions representative says that he does not know the job  placement rate because a lot of students moved out of the area.
Admissions representative encourages undercover applicant to  continue on with a master’s degree after finishing with the  bachelor’s. He stated that some countries pay teachers more than  they do doctors and lawyers.
Scenario 2
Admissions representative said the bachelor’s degree would take  a maximum of 4 years to complete, but she provided a 1-year cost  estimate equal to 1/5 of the required credit hours.
According to the admissions representative the undercover  applicant was qualified for $9,500 in student loans, and the  representative indicated that the applicant could take out the full  amount even though the applicant indicated that he had $250,000  in savings.
Admissions representative told the undercover applicant that the  graduation rate is 20 percent. Education reports that it is 15  percent.
Encouragement of fraud, and engagement in deceptive, or  otherwise questionable behavior  Scenario 2
Upon request by applicant, the financial aid representative  estimated federal aid eligibility without the undercover applicant’s  reported $250,000 in savings to see if applicant qualified for more  financial aid. The representative informed the applicant he was  ineligible for any grants.
Admissions representative misrepresented the length of the  program by telling the undercover applicant that the 96 credit hour  program would take 2 years to complete. However, she only  provided the applicant a first year cost estimate for 36 credit hours.  At this rate it would take more than 2.5 years to complete.
Scenario 1
College representative told the undercover applicant that if she  failed to pass the college’s required assessment test, she can  continue to take different tests until she passes.
The college representative did not tell the graduation rate when  asked directly. The representative replied, “I think, pretty much, if  you try and show up and, you know, you do the work, you’re going  to graduate. You’re going to pass guaranteed.” The college’s Web  site also did not provide the graduation rate.
Undercover applicant was required to take a 12-minute admittance  test but was given over 20 minutes because the test proctor was  not monitoring the student.
Scenario 2
Undercover applicant was encouraged by a financial aid  representative to change the FAFSA to falsely increase the  number of dependents in the household in order to qualify for a  Pell Grant.
The financial aid representative was aware of the undercover  applicant’s inheritance and, addressing the applicant’s expressed  interest in loans, confirmed that he could take out the maximum in  student loans.
The career representative told the undercover applicant that  getting a job is a “piece of cake” and then told the applicant that  she has graduates making $120,000 - $130,000 a year. This is  likely the exception; according to the BLS 90 percent of  architectural and civil drafters make less than $70,000 per year.  She also stated that in the current economic environment, the  applicant could expect a job with a likely starting salary of $13-$14  per hour or $15 if the applicant was lucky.
Encouragement of fraud, and engagement in deceptive, or  otherwise questionable behavior  The financial aid representative would not discuss the undercover  applicant’s eligibility for grants and loans and required the  applicant to return on another day.
Scenario 2
While one school representative indicated to the undercover  applicant that he could earn up to $30 an hour as a massage  therapist, another representative told the applicant that the  school’s massage instructors and directors can earn $150-$200 an  hour. While this may be possible, according to the BLS, 90 percent  of all massage therapists in California make less than $34 per  hour.
Scenario 1
Admissions representative explains to the undercover applicant  that although community college might be a less expensive place  to get a degree, community colleges make students spend money  on classes that they do not need for their career. However, this  school also requires students to take at least 36 credit hours of  non-business general education courses.
Admissions representative did not disclose the graduation rate  after being directly asked. He told the undercover applicant that it  is a “good” graduation rate. The college’s Web site also did not  provide the graduation rate.
Admissions representative encouraged the undercover applicant  to enroll by asking her to envision graduation day. He stated, “Let  me ask you this, if you could walk across the stage in a black cap  and gown. And walk with the rest of the graduating class and take  a degree from the president’s hand, how would that make you  feel?”
Scenario 2
Admissions representative said the bachelor’s degree would take  3.5 to 4 years to complete. He gave the applicant the cost per 12  hour semester, the amount per credit, the total number of credits  required for graduation, and the number of credits for the first year.  When asked if the figure he gave multiplied by four would be the  cost of the program, the representative said yes, although the  actual tuition would have amounted to some $12,000 more.
Admissions representative required the undercover applicant to  apply to the college before he could talk to someone in financial  aid.
Admissions representative told the undercover applicant that  almost all of the graduates get jobs.
Flyer provided to undercover applicant stated that the average  income for business management professionals in 2004 was  $77,000-$118,000. When asked more directly about likely starting  salaries, the admissions representative said that it was between  $40,000 and $50,000.
Encouragement of fraud, and engagement in deceptive, or  otherwise questionable behavior
Admissions representative told the undercover applicant that the  college was accredited by “an agency affiliated with the  government,” but did not specifically name the accrediting body.
Admissions representative suggested to the undercover applicant  that all graduates get jobs. Specifically he told the applicant that if  he had not found a job by the time he graduated from the school,  the owner of the school would personally find the applicant a job  himself.
Scenario 2
Admissions representative told our undercover applicant that  barbers can earn $150,000 to $250,000 a year, though that would  be extremely unusual. The BLS reports that 90 percent of barbers  make less than $43,000 a year. In Washington, D.C., 90 percent  of barbers make less than $17,000 per year. He said, “The money  you can make, the potential is astronomical.”
Encouragement of fraud, and engagement in deceptive, or  otherwise questionable behavior  Scenario 1
When asked by the undercover applicant for the graduation rate  for two programs, the admissions representative did not answer  directly.  For example the representative stated that “I’ve seen it’s  an 80 to 90% graduation rate” for one of the programs but said for  that information “I would have to talk to career services.”  She also  said 16 or 17 students graduated from one of the programs, but  couldn’t say how many students had started the program. The  college’s Web site also did not provide the graduation rate.
Admissions representative told our prospective undercover  applicant that student loans were not like car loans because  student loans could be deferred in cases of economic hardship,  saying “It’s not like a car note where if you don’t pay they’re going  to come after you.  If you’re in hardship and you’re unable to find a  job, you can defer it.”  The representative did not explain the  circumstances under which students might qualify for deferment.   Borrowers who do not qualify for deferment or forbearance and  who cannot pay their loans face fees, may damage their credit or  have difficulty taking out future loans.  Moreover, in most cases,  bankruptcy law prohibits a student borrower from discharging a  student loan.
Scenario 2
Admissions representative suggested to the undercover applicant  that he not report $250,000 in savings reported on the FAFSA.  The representative told the applicant to come back once the  fraudulent financial information changes had been processed.
This change would not have made the undercover applicant  eligible for grants because his income would have been too high,  but it would have made him eligible for loans subsidized by the  government.
Encouragement of fraud, and engagement in deceptive, or  otherwise questionable behavior
Admissions representative falsely stated that the college was  accredited by the same agency that accredits Harvard and the  University of Florida.
A test proctor sat in the test taking room with the undercover  applicant and coached her during the test.
The undercover applicant was not allowed to speak to a financial  aid representative until she enrolled in the college.
Applicant had to sign agreement saying she would pay $50 per  month toward her education while enrolled in college.
On paying back loans, the representative said, “You gotta look at  it…I owe $85,000 to the University of Florida. Will I pay it back?  Probably not…I look at life as tomorrow’s never  promised….Education is an investment, you’re going to get paid  back ten-fold, no matter what.”
Admissions representative suggested undercover applicant switch  from criminal justice to the medical assistant certificate, where she  could make up to $68,000 per year. While this may be possible,  BLS reports 90% of medical assistants make less than $40,000  per year.
Scenario 2
When the applicant asked about financial aid, the 2  representatives would not answer but debated with him about his  commitment level for the next 30 minutes.
The representative said that student loans would absolutely cover  all costs in this 2-year program. The representative did not specify  that federal student loans by themselves would not cover the  entire cost of the program. While there are private loan programs  available, they are normally based on an applicant passing a credit  check, and typically carry higher interest rates than federal student  loans.
The representative said paying back loans should not be a  concern because once he had his new job, repayment would not  be an issue.
The representatives used hard-sell marketing techniques; they  became argumentative, called applicant afraid, and scolded  applicant for not wanting to take out loans.
Encouragement of fraud, and engagement in deceptive, or  otherwise questionable behavior  Scenario 2
Admissions representative initially provided misleading information  to the undercover applicant about the transferability of the credit.  First she told the applicant that the credits will transfer. Later, she  correctly told the applicant that it depends on the college and what  classes have been taken.
Admissions representative said the bachelor’s degree would take  3.5-4 years to complete, but only provided an annual cost estimate  for 1/5 of the program.
Scenario 2
Admissions representative did not provide the graduation rate  when directly asked. Instead she indicated that not everyone  graduates.
Scenario 1
Admissions representative told the undercover applicant that she  could take out the maximum amount of federal loans, even if she  did not need all the money. She told the applicant she could put  the extra money in a high-interest savings account. While  subsidized loans do not accrue interest while a student is in  college, unsubsidized loans do accrue interest. The representative  did not disclose this distinction to the applicant when explaining  that she could put the money in a savings account.
Scenario 2
Admissions representative told the undercover applicant that the  college is regionally accredited but does not state the name of the  accrediting agency. The college’s Web site did provide specific  information about the college’s accreditation, however.
Admissions representative said financial aid may be able to use  what they call “professional judgment” to determine that the  undercover applicant does not need to report over $250,000 in  savings on the FAFSA.
Admissions representative did not disclose the graduation rate  after being directly asked. He instead explained that all students  that do the work graduate. This information was available on the  college’s Web site; however, it required significant effort to find the  college’s graduation rate, and the college did not provide separate  graduation rates for its multiple campuses nationwide.
Encouragement of fraud, and engagement in deceptive, or  otherwise questionable behavior  Scenario 1
Admissions representative told the undercover applicant that she  has never seen a student decline to attend after speaking with  financial aid. The admissions representative would not allow the  applicant to speak with financial aid until she enroll in the college.
If the undercover applicant was able to get a friend to enroll in the  college she could get an MP3 player and a rolling backpack. As  noted in the testimony, although this is not illegal, it is a marketing  tactic.
Financial aid representative told the undercover applicant that he  should have answered “zero” when asked about money he had in  savings—the applicant had reported a $250,000 inheritance.
The financial aid representative told the undercover applicant that  she would change his FAFSA form by reducing the reported  assets to zero. She later confirmed by e-mail and voicemail that  she had made the change.
This change would not have made the undercover applicant  eligible for grants, but it would have made him eligible for loans  subsidized by the government.
Scenario 1
Admissions representative said the program would cost between  $50,000 and $75,000 instead of providing a specific number. It  was not until the admissions representative later brought the  student to financial aid that specific costs of attendance were  provided.
Scenario 2
Admissions representative did not disclose the graduation rate  after being directly asked. The college’s Web site also did not  provide the graduation rate.
Admissions representative encouraged undercover applicant to  change the FAFSA to falsely add dependents in order to qualify for  grants.
This undercover applicant indicated to the financial aid  representative that he had $250,000 in the bank, and was  therefore capable of paying the program’s $68,000 cost. The fraud  would have made the applicant eligible for $2,000 in grants per  year.
Encouragement of fraud, and engagement in deceptive, or  otherwise questionable behavior  Scenario 1
Admissions representative said the program takes 18 to 24  months to complete, but provided a cost estimate that suggests  the program takes more than 2.5 years to complete.
The college’s Web site did not provide the graduation rate.
Scenario 2
Undercover applicant would be required to make a monthly  payment to the college towards student loans while enrolled.
Admissions representative guaranteed the undercover applicant  that getting a degree would increase his salary.
The undercover applicant was not allowed to speak to a financial  aid representative until he enrolled in the college.
Scenario 2
Admissions representative misrepresented the length of time it  would take to complete the degree. He said the degree would take  2 years to complete but provided a cost worksheet that spanned 3  years.
The undercover applicant was told he was not allowed to speak to  a financial aid representative until he enrolled in the college. After  refusing to sign an enrollment agreement the applicant was  allowed to speak to someone in financial aid.
Admissions representative told undercover applicant that monthly  loan repayment would be lower than it actually would.
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