Education's Duncan Cracks Down on For-Profit Colleges

Education Secretary Arne Duncan will step up oversight of federal student financial-aid programs after an undercover government investigation found deceptive marketing practices at 15 for-profit colleges.

Duncan vowed to expand the Education Department’s enforcement staff, conduct undercover investigations and increase the number of program reviews, according to a letter to Iowa Democratic Senator Tom Harkin that was obtained by Bloomberg News.

Apollo Group Inc., ITT Educational Services Inc., and Career Education Corp. have fallen in U.S. markets as Harkin has held hearings on sales practices at for-profit colleges and their reliance on federal student grants and loans. The Education Department will hire more than 60 additional investigators and increase the number of program reviews by 50 percent after the investigation by the Government Accountability Office, Duncan said in the letter, which was confirmed by the Education Department.

“The unethical and potentially illegal practices uncovered by GAO are unacceptable,” Duncan said. “We have a responsibility to ensure that students can make informed choices about investing in postsecondary education, and that taxpayers’ investments in the federal student aid programs are helping students.”

Apollo Group, based in Phoenix, fell $1.37, or 3.4 percent, to $39.10 at 12:20 p.m. in Nasdaq Stock Market composite trading. Career Education fell 73 cents, or 3.7 percent, to $18.86. ITT Educational fell $4.08, or 5.9 percent, to $65.22 in New York Stock Exchange composite trading. An index of 12 education stocks has dropped 27 percent in the past six months.

The Education Department’s Inspector General will review the GAO’s findings and potentially refer individuals for criminal prosecution, Duncan’s letter said. The department is also considering enforcement action against schools that could result either in the return of federal money or the loss of a college’s eligibility for federal financial aid, according to the letter.

-- Editors: Brad Skillman

To contact the reporter on this story: John Lauerman in Boston at jlauerman@bloomberg.net.

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