Breaking News

Patrick Pouyanne Said to Be Named New Total CEO
Tweet TWEET

For-Profit Colleges Scam Military for $521 Million, Report Says

Twenty for-profit colleges reaped $521 million in U.S. taxpayer funds in 2010, seven times more than in 2006, by recruiting armed-services members and veterans through misleading marketing, according to a Congressional report today.

Getting the money from military personnel helped the companies circumvent a cap on the aid they can receive from the Education Department, their main source of income, according to the report from Iowa Democrat Tom Harkin, chairman of the Senate Health, Education, Labor and Pensions committee. Congress should protect veterans and taxpayers from documented abuses by those colleges, the report’s authors said.

The Post-9/11 GI Bill, which Congress passed in 2008, raised educational benefits for almost all military veterans, and in some cases allowed them to pass money for school to spouses and children, according to the report. The colleges made it a priority to recruit military members to exploit the surge in benefits, the authors said.

“Congress may have unintentionally subjected this new generation of veterans to the worst excesses of the for-profit industry: manipulative and misleading marketing campaigns, educational programs far more expensive than comparable public or non-profit programs, and a lack of needed services,” according to the report.

The total of $521 million includes benefits from the Department of Veterans Affairs as well as tuition assistance from the Department of Defense.

GAO Request

Senator Thomas Carper, a Democrat from Delaware, said he asked the Government Accountability Office to investigate the Defense Department’s ability to guard against waste in its tuition-assistance program. A GAO report in August documented misleading marketing at 15 for-profit colleges.

The department “has yet to increase oversight of this education program, leaving us with no indication of whether this increased cost to the taxpayers buys our military personnel the kind of high quality education they so richly deserve,” Carper said in an e-mail.

Harkin’s report is part of an effort to “demonize for- profit colleges,” said Lanny Davis, a spokesman for the Coalition for Educational Success, a Washington-based industry group. Davis held a news conference today to highlight revisions the GAO made in the August report.

No Valid Data

“While Senator Harkin cites the anecdotes of a few unhappy students, he has not produced valid data that examines student satisfaction (military or otherwise) across all sectors of higher education,” Davis said today in a statement.

The top five education companies in Post-9/11 GI Bill revenue, from August 2009 through July, were ITT Educational Services Inc. with $79.2 million; Apollo Group Inc., operator of the University of Phoenix, with $76.9 million; Pittsburgh-based Education Management Corp. with $60.5 million; Hoffman Estates, Illinois-based Career Education Corp. with $58.2 million; and Oakbrook Terrace, Illinois-based DeVry Inc. with $47.9 million, according to the report.

Service members and veterans choose the University of Phoenix because it meets their needs with flexible schedules; online and ground campus course options; and education technology, said Manny Rivera, a spokesman for Apollo Group. The University of Phoenix has been recognized by GI Jobs, civilianjobs.com and Military Advanced Education in their Third Annual Guide to America’s Top Military-Friendly Colleges, he said in an e-mail.

‘Our Mission’

“Our service of military students is driven by our mission to provide access to higher education for historically underserved populations,” Rivera said.

Apollo Group, based in Phoenix, fell $1.23, or 3.2 percent to $36.82 at 2:20 p.m. New York time in Nasdaq Stock Market composite trading. Carmel, Indiana-based ITT Educational declined $1.96, or 3.1 percent, to $60.65 in New York Stock Exchange composite trading. An index of 13 education companies retreated 1.5 percent.

American Public Education Inc., the Charles Town, West Virginia-based operator of American Military University, projected receiving $98.1 million in tuition assistance from the Defense Department, more than any other university surveyed, according to the Harkin report. American Public declined $2.19, or 6 percent, to $34.52 in Nasdaq composite trading.

Bridgepoint Education Inc., based in San Diego, ranked second with $41.2 million. Apollo Group, which received $39.1 million from the Department of Defense in 2009, didn’t provide data for 2010, according to the report. Rivera, Apollo’s spokesman, said the company didn’t have a fiscal 2010 figure available at the time of the request for data.

Dropout Rates

Statistics suggest that the for-profit colleges attended by military members have high dropout rates and poor educational results, according to the report. At 4 of the 5 for-profit colleges receiving the most in Post-9/11 GI Bill funding, loan repayment rates were below 37 percent, according to the report.

At the same 4 schools, 24 percent of the students defaulted on their loans, according to the report. The national rate of student default on government loans was 7 percent in the academic year ended in 2008, the most recent period for which data are available, according to the Education Department. The default rate at U.S. for-profit colleges was 11.6 percent that year, the department said Sept. 13.

Job Skills

The numbers in the report demonstrate that more veterans and service members are choosing for-profit colleges to gain job skills, said Harris Miller, president of the Washington-based Association of Private Sector Colleges & Universities, which represents the industry.

“I find the whole report upside down,” he said. “It shows our young men and women who have chosen to defend our country are valuing education and doing everything to obtain the training they need for a tough job market.”

A 2009 program created by Congress to provide tuition assistance for military spouses cost the Defense Department $250 million in less than a year, according to the report. Forty-six percent of the 136,000 spouses enrolled in the program attend for-profit colleges, according to the report. The program was redesigned with a less-generous benefits package.

‘New Tool’

A 1992 law allows for-profit colleges to get as much as 90 percent of their revenue from federal financial aid. The companies seek military students and veterans because their education benefits are counted as a non-government source, according to the Harkin report.

“The benefits provide a new tool to help for-profit schools manage this increasingly challenging regulatory requirement,” according to the report.

Apollo’s University of Phoenix derived 88 percent of revenue from federal student aid in the fiscal year ended Aug. 31, an increase from 86 percent a year earlier, Brian Swartz, the company’s chief financial officer, said Oct. 13 in a call with analysts and investors. The University of Phoenix’s dependence on federal student aid is “likely to exceed” 90 percent of revenue in fiscal 2012, he said then.

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

To contact the editor responsible for this story: Jonathan Kaufman at jkaufman17@bloomberg.net.

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.