US Senate Committee on Health, Education, Labor, & Pensions

Harkin Reveals Deceptive Marketing Employed by For-Profit Colleges to Profit Off Veterans and Servicemembers

Thursday, May 19, 2011

WASHINGTON—Senator Tom Harkin (D-IA), Chairman of the Senate Health, Education, Labor and Pensions Committee, spoke on the Senate floor today to reveal strategies that for-profit education companies use to enroll veterans and active-duty service members in order to profit off their Post 9/11 G.I. Bill education benefits.  An investigation of the for-profit education industry by Chairman Harkin has revealed that on average, 55 percent of students who attend many of these schools drop out within a year, with no evidence that military students are faring better.  

“I am deeply concerned, as all my colleagues should be, that Congress may have unintentionally created an opening for the current generation of veterans and active-duty service members to be victimized by these abuses because of their eligibility for federal benefits…Military money helps the schools – on paper – to meet a key statutory requirement that no more than 90 percent of their revenue come from Federal financial aid programs.  Schools that exceed this 90 percent mark can face penalties.  But, because of a technicality in the law, military benefits are not counted toward this 90 percent limit.

“With their eyes on their 90/10 ratio, for-profit schools have moved aggressively to exploit the business opportunity.  They have created marketing plans and a sales force specifically designed to target and enroll as many veterans, service members and family members as possible. The industry’s lobbyists are fond of saying that “students vote with their feet.”  But the truth is that the schools spend billions on sophisticated marketing campaigns and large sales teams to get students in the door. 

“This situation is unacceptable.  All too often, students at for-profit schools encounter a high-cost, low-value education, a lack of appropriate support services, and executives whose day-to-day priority is squeezing every available dollar from students and taxpayers.  It is all the more alarming that active-duty military personnel and veterans, using their hard earned benefits, are often victims of these for-profit schools,” Harkin said.

Documents obtained by the HELP Committee paint a picture of an industry with a laser-like focus on enrolling military students:

  • Kaplan produced a 56-page strategy document for recruiting military students:

o   Objective number 1: “Grow our military enrollments to 9,000 per year by 2011.” (a fourfold increase from their current military student enrollment)

o   “Drive awareness via print advertising in key military publications and targeting key military installations.” 

  • A 2010 memo prepared for the CEO of EDMC suggests:  “Probably one of the most important potential short and long-term targets for EDMC are the 800,000-plus military spouses who have been authorized, for the first time in history, for a one-time entitlement of up to $6,000… An aggressive effort to reach these spouses at the military bases with various career fairs, direct communications, and visibility with the Office of Military Families in Washington would be very important.”
  • The CEO of Bridgepoint Education told investors: “Our military enrollment grew from 1% in 2007 to 17% at the end of September 2009.”  He went on to say: “We believe that when we are able to report our 90-10 for 2009 that it should decrease due to our penetration in particular into the military market.” 

 

Below is Harkin’s full statement, as prepared for delivery:

Mr. President, over the past six months, I have come to the floor several times to discuss the findings of an ongoing investigation by the Health, Education, Labor and Pensions Committee’s into for-profit education companies and the growing role they play in higher education. Today I would like to focus on our men and women in uniform.

Mr. President, the first GI Bill made it possible for millions of service members returning from World War II to go to college and get ahead in life.  In the process, that legislation helped usher in a new era of American prosperity.  Over the decades, we have built on that success by extending Federal financial aid to active-duty members of our Armed Forces, and, indeed, to all Americans who seek to better themselves through higher education.  On the whole, this has proved to be one of the Federal government’s smartest investments -- an investment in human capital that has produced huge dividends for our nation. 

For the last decade, our country has been at war.  We in Congress have been eager to ensure that this new generation of veterans returning from Iraq and Afghanistan, those who sacrificed so much for our country, are getting the education benefits they earned, and the quality education they deserve.  Led by Senator Webb and others, we have enacted new laws and expanded existing programs to provide generous new educational benefits to veterans, active-duty service members and their families.  This is a historic achievement that I have been proud to support.

Implemented in August of 2009, the Post-9/11 GI Bill provides that veterans who serve 90 days or more on active duty after September 10, 2001 are eligible for up to 36 months of educational benefits.  And, for the first time, veterans can transfer these benefits to a spouse or child.  Over the last decade, the Department of Defense has also expanded aid available to active-duty soldiers, sailors and airmen through its Tuition Assistance program.  This program will pay up to a maximum of $4,500 a year towards a service member’s classes.  Also in 2009, Congress created the Military Spouse Career Advancement Accounts (MyCAA) designed to expand employment and portable career opportunities for active-duty spouses that provides up to $4,000 over three years.   

When we acted to give new and better benefits to veterans, active-duty service members, and their families, we fully expected that for-profit schools would have an important role to play in providing higher education to those eligible for the benefits.  The innovations and flexibility pioneered by some for-profit schools were ideally suited to active-duty soldiers and to veterans juggling college with work and family obligations. 

Unfortunately, when we enacted the new benefit packages for service members and veterans, we in Congress didn’t anticipate the problems that would arise by opening up a new stream of funding to for-profit schools.  We didn’t foresee that the for-profit sector, eager to please Wall Street investors, would go after this new funding aggressively, often in ways that are not in the best interests of veterans and service members.  We also didn’t necessarily recognize that by allowing service members to combine, transfer and borrow against these various Federal benefit packages, we were giving for-profit schools an opening to enroll service members, veterans and family members in very expensive programs.

Investigation:

My Committee’s investigation of the for-profit sector over the past year has revealed an industry dominated by the very same Wall Street companies and equity investors who brought about the sub-prime mortgage crisis.  These investors are focused on rapid growth and quick profits.  In relatively short order, for-profit colleges and universities have succeeded in enrolling 10 percent of students and claiming fully 25 percent of the federal financial aid budget, including $7 billion a year in Pell grants. 

Many for-profit education companies generate big profits, on par with Raytheon, Apple and McDonalds.  But there is a big problem.  The Committee has compiled data for 30 companies, including the 15 largest publicly-traded ones, showing more than half the students these institutions enroll drop out within a year. Two thirds of students seeking an Associate Degree drop out in a year.  And some of the worst performing institutions have been the most aggressive to enroll service members and veterans.

Because profitability in the for-profit education industry is driven by enrollment growth, my Committee has focused largely on the extraordinarily aggressive marketing and recruitment practices at these schools.  Building on the findings of last year’s undercover investigation by the General Accountability Office, which found abusive recruitment practices at each of the 15 campuses visited, we have uncovered additional evidence that misleading and deceptive recruitment tactics are not the exception but the norm.  Several months ago, here on the floor, I spoke about documents uncovered in my investigation.  Those documents instruct recruiters in tactics designed to of manipulate and emotionally exploit potential students in order to convince them to enroll.  As the documents make clear, these tactics are not improvised by recruiters; they reflect purposeful and strategic efforts by the companies.

Military Recruiting:

Mr. President, I am deeply concerned, as all my colleagues should be, that Congress may have unintentionally created an opening for the current generation of veterans and active-duty service members to be victimized by these abuses because of their eligibility for federal benefits.  

My Committee has found evidence that large for-profit schools are aggressively recruiting active-duty service members and veterans expressly because of their generous educational benefits packages, which were created by Congress in recent years.  It’s not just that these military benefits provide a new revenue stream for the companies; the point is that they are an especially valuable kind of revenue stream.  Military money helps the schools – on paper – to meet a key statutory requirement that no more than 90 percent of their revenue come from Federal financial aid programs.  Schools that exceed this 90 percent mark can face penalties.  But, because of a technicality in the law, military benefits are not counted toward this 90 percent limit.

Investigators with the HELP Committee analyzed data from 30 for-profit schools and found that, on average, the schools derived 86 percent of their revenues from Department of Education student aid dollars in 2009.  This is perilously close to the 90 percent threshold.  For schools close to this threshold, enrolling students eligible for military benefits is highly attractive because those benefits count on the 10 percent side of the 90/10 ratio.  It can mean the difference between facing severe penalties or staying in compliance.  And, as a practical reality, it allows companies to take in Federal dollars well in excess of 90 percent of their total revenue.

With their eyes on their 90/10 ratio, for-profit schools have moved aggressively to exploit the business opportunity.  They have created marketing plans and a sales force specifically designed to target and enroll as many veterans, service members and family members as possible. The industry’s lobbyists are fond of saying that “students vote with their feet.”  But the truth is that the schools spend billions on sophisticated marketing campaigns and large sales teams to get students in the door. 

Documents obtained by the HELP Committee paint a picture of an industry with a laser-like focus on enrolling military students.  For example, this 56-page document lays out Kaplan’s strategy for recruiting military students.  Objective number 1: “Grow our military enrollments to 9,000 per year by 2011.”  At the time, Kaplan signed up about 2,200 military students each year, so they were aiming for more than a fourfold increase.  The document goes on to lay out the marketing and sales plans for achieving this enormous growth.  “Drive awareness via print advertising in key military publications and targeting key military installations.”  To do this, the document suggests that Kaplan planned to spend $30 million over three years for new military-specific recruiting staff, advertising and public relations.  In a later brainstorming exchange between Kaplan executives, the number one item on the list of initiatives to deal with Kaplan’s 90/10 situation was “accelerate military billings/collection. Go to D.C and pick up the check if you have to.” 

At Education Management Corporation, the story is the similar.  Let me quote from a 2010 memorandum prepared by an outside consultant to the CEO: The memo begins “Thanks for the call outlining the interest of EDMC in learning more about potential areas of funding that could add…revenue that would also address the 90/10 issue.”  Number one on the list says, “Probably one of the most important potential short and long-term targets for EDMC are the 800,000-plus military spouses who have been authorized, for the first time in history, for a one-time entitlement of up to $6,000… An aggressive effort to reach these spouses at the military bases with various career fairs, direct communications, and visibility with the Office of Military Families in Washington would be very important.”  A subsequent email message between EDMC’s executives recommends that the company should be “leveraging military spouse benefits to the fullest extent possible” in order to overcome the 90/10 regulation.

Executives of for-profit schools are candid about the value of military students in trying to ease investors’ concern about regulatory compliance.  The CEO of Bridgepoint Education told investors: “Our military enrollment grew from 1% in 2007 to 17% at the end of September 2009.” I would note that this was before implementation of the Post-9/11 GI bill!  He went on to say: “We believe that when we are able to report our 90-10 for 2009 that it should decrease due to our penetration in particular into the military market.” 

So we know that these companies, in their own words, are “aggressively” pursuing military personnel and their families.  How are they enticing them to enroll?  A Kaplan training manual entitled “Military eLearning Modules” tells recruiters how to “utilize fear uncertainty and doubt (FUD) in the sales process” with regards to competitors’ offerings and teaches them how to “overcome objections” that potential students may raise to signing an enrollment agreement. 

A military recruiter at Colorado Technical University, owned by the publicly traded Career Education Corporation, told the New York Times: “There is such pressure to simply enroll more vets — we knew that most of them would drop out after the first session. … Instead of helping people, too often I felt like we were almost tricking them.”

Robert Songer, the coordinator of all education programs for service members at Camp Lejeune in North Carolina, expressed his reservations to the Bloomberg news service: “Some of these schools prey on Marines. … Day and night, they call you, they e-mail you. These servicemen get caught in that. Nobody in their families ever went to college. They don’t know about college.”

Mr. President, these recruiting tactics are nothing short of disgraceful.  When students are enrolled through deception or fear, not only are they being tricked, they are also more likely to be unprepared for the challenges of college. These strong-arm, emotionally abusive tactics are indicative of schools that see students strictly as a means to an end – higher profits.  They appear to have little or no interest in providing students the academic help and support they need to succeed. The end result is that service members, veterans, and their spouses end up enrolling in high-cost programs, dropping out in staggering numbers, and often ending up with a mountain of student debt.  And this often happens despite the availability of similar or better quality programs in the public and non-profit sectors of higher education.

Growth of Federal Dollars

These tactics have certainly paid off for the companies’ bottom line.  I released a report last December documenting the absolutely tremendous increase in the amount of money these companies are receiving from military education programs.  Building on the already substantial growth in revenues generated from traditional Federal financial aid programs -- from $14 billion in 2005 to $29 billion in fiscal year 2009 – the relentless focus that for-profits have brought to military recruiting has yielded an astonishing growth in the funds they get from both the Department of Defense and the Department of Veterans Affairs. 

As the new Post 9/11 GI Bill was implemented, 18 large for-profit operators pushed their intake of VA dollars from $26 million in 2006 to an astonishing $286 million in 2010, including a fivefold increase between 2009 and 2010. 

These same companies increased their collection of Department of Defense benefits by 337 percent, from $40 million in 2006 to $175 million in 2010. 

And let’s be clear, these Federal dollars are not going to small family-owned institutions; they are going to some of the largest Wall Street-owned companies.  Out of the $640 million in Post-9/11 GI Bill benefits that flowed to for-profit schools in 2009-10, $439 million went to the 15 publicly traded companies.  This amount is equal to 69 percent of the military money flowing to for-profit schools, and 25 percent of all Post-9/11 GI Bill benefits. It would be one thing if for-profit schools were using this additional money for educational expenses.  But, unfortunately, what we see is that the lion’s share of that money -- taxpayers’ dollars -- is funneled into profits, marketing, and executives’ salaries and bonuses. 

So what are we getting in return for this enormous investment in these schools?  A whole lot of questions.

We know that student outcomes for the general population at for-profit schools are dismal.  On average, 55 percent of students who attend many of these schools drop out within a year.  And there is no evidence that military students are faring better.  Eight of the 10 top recipients of VA dollars see more than half of the Associate Degree students they enroll drop-out within a year.  Five of the schools see more than 60 percent drop out!

Amazingly, neither the Department of Defense nor the Department of Veterans Affairs has any method to assess these issues. Nor do the Department of Education and the organizations that accredit these schools. 

What this means is that we are handing over huge and growing sums of military money to for-profit schools that we know are not serving the general population well.  And we are doing so without any ability to assess whether these schools are giving our active-duty service members and veterans the quality education that they deserve. 

The complaints that I’ve gathered in the course of my Committee’s investigation point to a deeply disturbing willingness on the part of for-profit schools to exploit veterans.  I received this letter from a veteran who attended ITT Technical Institute – a school that has taken in more Post-9/11 GI Bill money than any other for-profit.  “Unlike other institutions I reached out to, as soon as I expressed interest in ITT Tech, they began to actively and aggressively pursue me.  Minutes after I filled out an online form, a recruiter called me.  He then called every day, telling me it was urgent for me to enroll.” 

The letter writer notes that, due to the high cost of tuition, he had to take out loans.  But, he writes, “the expensive tuition did not seem to go toward a quality education.”

He concludes with this:  “Within two months of leaving ITT Tech, they sent me a bill for $2,000 and a transcript that showed clear signs that it was altered in a way to specifically make my positive balance disappear and create a negative balance.” 

He ends with these chilling words: “I regret attending ITT Tech. The institution provided at best an absolute minimum education and left me with nearly insurmountable debt.”

Another veteran, who attended Bridgepoint Education Inc.’s Ashford University, wrote the following: “I was extremely disappointed, confused and angry … I felt that I have been misled, deceived or even outright lied to in an effort to gain my contractual agreement.”  He was repeatedly assured by Bridgepoint recruiters that his post-9/11 GI Bill benefits would cover the entire cost of his degree, only to find out after he was enrolled that he would owe close to $11,000.

Another student, this one at the University of Phoenix, sent this letter to the Arizona attorney general after trying to resolve his complaint with the school: “I have been a police officer for over twenty years, I am also an Iraq war Veteran.  I believe that the University of Phoenix is using deceptive practices in order to lure students into the school.  The enrollment counselors tell students that they should be complete with their course of study in a short period of time fully knowing exactly how long it is going to take.  The enrollment counselors eventually tell the students that it is going to take a lot longer to finish their program but not until the student has committed all of his financial aid and invested so much money that it would be senseless to leave and waste his invested time and money.” 

Mr. President, what are the consequences for a student who enrolls at one of these schools but is not satisfied with their experience?  Well, even the generous Post-9/11 GI Bill benefit package can be depleted rapidly.  If benefits are used up without completing a program or for credits that can’t be transferred, as is also often the case, the benefits cannot be recovered.  In fact, because of the high tuition at for-profit schools, many students actually have to apply for additional grants and loans to pay for school. This means that many veterans and soldiers who attend for-profit schools are leaving with debt.

Another letter addressed to the Ohio for-profit school regulator reads:

“Normally, a 26-year-old man doesn't need his mom advocating for him. But this is anything but a normal situation. I expected my son be changed by his tour of duty in Iraq. But I could not have been prepared for the reality of those changes. My son struggles on a daily basis with symptoms from PTSD (Post Traumatic Stress Disorder) and TBI (Traumatic Brain Injury). He suffers from bouts of depression, anxiety, headaches, nightmares, vision problems, mental confusion, insomnia, and many other symptoms. You have to pretty much "bottom-line" your conversations with him. He can't mentally process a lot of details. If you continue with your details, he is done with the conversation, unless you can return to a quick "bottom-line." It is my belief that the ITT Representative may have quickly figured this out and taken advantage of the opportunity. I remember when he called me from ITT because I was on my way out to an important occasion. He said the Representative told him he needed a co-signer just so he could start school immediately, but not to worry about it, because the military was going to pay for everything, even give him money to live on and pay his expenses. He sounded so hopeful, something I hadn't heard from him since before the war. It was really hard for him to admit he couldn't continue going to school. He said he just couldn't retain the material. It became too stressful for him to continue. My son is a proud, young man. He is not looking for pity or charity. He is embarrassed that he believed what he was told by the ITT Rep. He could hardly come around me when he found out Sallie Mae was calling me for payment of his loan. Veterans with PTSD commonly isolate themselves from family and friends. This made it even worse. As a mother and a human-being, I am outraged that this kind of predatory lending tactic is used on anyone, but especially on an American soldier who gave everything he had and almost lost his life many times, and who continues to suffer. I will pursue this, on my son's behalf, until someone listens and forgives these loans. Thank you for all of your effort, it is very much appreciated.”

Mr. President, this situation is unacceptable.  All too often, students at for-profit schools encounter a high-cost, low-value education, a lack of appropriate support services, and executives whose day-to-day priority is squeezing every available dollar from students and taxpayers.  It is all the more alarming that active-duty military personnel and veterans, using their hard earned benefits, are often victims of these for-profit schools.

The agencies distributing this money do not have the capacity to investigate and act on the reported abuses by for-profit schools.  The Veterans’ Administration, in fact, has intervened just once, to limit the ability of one failing school to collect veterans’ benefits.  Earlier this month GAO released a report concluding that the VA still faces numerous challenges in implementing the program.

Mr. President, some for-profit schools have succeeded in building a highly profitable business structure while failing to provide the student services, learning environment, and career services that will enable their students to graduate and succeed.  At their best, for profit colleges provide opportunities for traditionally underserved students – including veterans and active-duty members of our Armed Forces – to pursue postsecondary education.  This is highly desirable, and deserves taxpayer support.  But the federal government must be vigilant to ensure that poor performing for-profit schools with huge dropout and student-default rates are not allowed to continue to receive billions of dollars in federal subsidies each year.  We owe this to taxpayers.  We also owe this to the men and women who have served and sacrificed for our nation in uniform. 

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