This is the accessible text file for GAO report number GAO-10-948T 
entitled 'For-Profit Colleges: Undercover Testing Finds Colleges 
Encouraged Fraud and Engaged in Deceptive and Questionable Marketing 
Practices' which was released on August 4, 2010. 

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[On November 30, 2010, GAO reissued this testimony to clarify and add 
more precise wording on pages 9 and 12 and to some of the examples 
cited in Table 1 on page 8 and Appendix I, pages 19-27.] 

Testimony: 

Before the Committee on Health, Education, Labor, and Pensions, U.S. 
Senate: 

United States Government Accountability Office:
GAO: 

For Release on Delivery: 
Expected at 10:00 a.m. EDT:
Wednesday, August 4, 2010: 

For-Profit Colleges: 

Undercover Testing Finds Colleges Encouraged Fraud and Engaged in 
Deceptive and Questionable Marketing Practices: 

Statement of Gregory D. Kutz, Managing Director: 
Forensic Audits and Special Investigations: 

GAO-10-948T: 

[End of section] 

GAO Highlights: 

Highlights of GAO-10-948T, a testimony before the Committee on Health, 
Education, Labor, and Pensions, U.S. Senate. 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

Table: Fraudulent, Deceptive, and Otherwise Questionable Practices: 

Degree/certificate, location: Certificate Program – California; 
Sales and Marketing Practice: Undercover applicant was encouraged by a 
college representative to change federal aid forms to falsely increase 
the number of dependents in the household in order to qualify for 
grants. 

Degree/certificate, location: Associate’s Degree – Florida; 
Sales and Marketing Practice: Undercover applicant was falsely told 
that the college was accredited by the same organization that 
accredits Harvard and the University of Florida. 

Degree/certificate, location: Certificate Program – Washington, D.C. 
Sales and Marketing Practice: Admissions representative said that 
barbers can earn up to $150,000 to $250,000 a year, an exceptional 
figure for the industry. The Bureau of Labor Statistics reports that 
90 percent of barbers make less than $43,000 a year. 

Degree/certificate, location: Certificate Program – Florida; 
Sales and Marketing Practice: Admission representative told an 
undercover applicant that student loans were not like a car payment 
and that no one would “come after” the applicant if she did not pay 
back her loans. 

Source: GAO. 

[End of table] 

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 [hyperlink, 
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. 

View [hyperlink, http://www.gao.gov/products/GAO-10-948T] or key 
components. For more information, contact Gregory Kutz at (202) 512-
6722 or kutzg@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Committee: 

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.[Footnote 1] 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,[Footnote 2] 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.[Footnote 3] 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.[Footnote 4] 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.[Footnote 5] 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. 

Background: 

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. 

Title IV Program Eligibility Criteria: 

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.[Footnote 6] 

Defaults on Student Loans: 

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. [Footnote 7] 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. 

College Disclosure Requirements: 

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.[Footnote 8] 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.[Footnote 9] In 
addition, the FTC prohibits "unfair methods of competition" and "unfair 
or deceptive acts or practices" that affect interstate commerce. 

For-Profit Colleges Encouraged Fraud and Engaged in Deceptive and 
Otherwise Questionable Sales and Marketing Practices: 

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 [hyperlink, 
http://www.gao.gov/products/GAO-10-948T]. 

Fraudulent Practices Encouraged by For-Profit Colleges: 

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. 

Table 1: Fraudulent Actions Encouraged by For-Profit Colleges: 

Location: CA; 
Certification Sought and Course of Study: Certificate - 
Computer Aided Drafting; 
Type of College: Less than 2-year, privately owned; 
Fraudulent Behavior Encouraged: 
* 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 Pell Grants; 
* 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. 

Location: FL; 
Certification Sought and Course of Study: Associate's Degree - 
Radiologic Technology; 
Type of College: 2-year, privately owned; 
Fraudulent Behavior Encouraged: 
* 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. 

Location: PA; 
Certification Sought and Course of Study: Certificate - Web Page 
Design; 
Type of College: Less than 2-year, privately owned; 
Fraudulent Behavior Encouraged: 
* 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. 

Location: TX; 
Certification Sought and Course of Study: Bachelor's Degree - 
Construction Management; 
Type of College: 4-year, privately owned; 
Fraudulent Behavior Encouraged: 
* 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. 

Source: GAO. 

[End of table] 

Deceptive or Questionable Statements: 

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. 

Accreditation Information: 

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. 

Graduation Rate, Employment and Expected Salaries: 

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. 

Program Duration and Cost: 

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. 

Financial Aid: 

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. 

Other Sales and Marketing Tactics: 

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.[Footnote 10] 

Accurate and Helpful Information Provided: 

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. 

Web Site Inquiries Result in Hundreds of Calls: 

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.[Footnote 11] 
The table below provides information about the calls these students 
received within the first 30 days of registering at the Web site. 

Table 2: Telephone Calls Received as a Result of Web site Inquiries: 

Student: 1; 
Student's Location: GA; 
Web Site Student Used: A; 
Degree: Business Administration; 
Number of Calls Received Within 24 Hours of Registering: 21; 
Most Calls Received in One Day[A]: 19; 
Total Number of Calls Received in a Month: 179. 

Student: 2; 
Student's Location: CA; 
Web Site Student Used: B; 
Degree: Business Administration; 
Number of Calls Received Within 24 Hours of Registering: 24; 
Most Calls Received in One Day[A]: 18; 
Total Number of Calls Received in a Month: 182. 

Student: 3; 
Student's Location: MD; 
Web Site Student Used: A; 
Degree: Culinary Arts; 
Number of Calls Received Within 24 Hours of Registering: 5; 
Most Calls Received in One Day[A]: 8; 
Total Number of Calls Received in a Month: 72. 

Student: 4; 
Student's Location: NV; 
Web Site Student Used: B; 
Degree: Culinary Arts; 
Number of Calls Received Within 24 Hours of Registering: 2; 
Most Calls Received in One Day[A]: 1; 
Total Number of Calls Received in a Month: 3. 

Source: GAO: 

[A] This number is based on the number of calls received within the 
first month of registering but does not include the first 24 hours. 

[End of table] 

Tuition at For-Profit Colleges Is Sometimes Higher Than Tuition at 
Nearby Public and Private Nonprofit Colleges: 

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. 

Table 3: Program Total Tuition Rates: 

Degree: Certificate - Computer-aided drafting; 
Location: CA; 
For-Profit College Tuition: $13,945; 
Public College Tuition: $520; 
Private Nonprofit College Tuition: College would not disclose. 

Degree: Certificate - Massage Therapy; 
Location: CA; 
For-Profit College Tuition: $14,487; 
Public College Tuition: $520; 
Private Nonprofit College Tuition: No college within 250 miles. 

Degree: Certificate - Cosmetology; 
Location: DC; 
For-Profit College Tuition: $11,500; 
Public College Tuition: $9,375; 
Private Nonprofit College Tuition: No college within 250 miles. 

Degree: Certificate - Medical Assistant; 
Location: IL; 
For-Profit College Tuition: $11,995; 
Public College Tuition: $3,990; 
Private Nonprofit College Tuition: $9,307. 

Degree: Certificate - Web Page Design; 
Location: PA; 
For-Profit College Tuition: $21,250; 
Public College Tuition: $2,037; 
Private Nonprofit College Tuition: $4,750. 

Degree: Associate's - Paralegal; 
Location: AZ; 
For-Profit College Tuition: $30,048; 
Public College Tuition: $4,544; 
Private Nonprofit College Tuition: No college within 250 miles. 

Degree: Associate's - Radiation Therapy; 
Location: FL; 
For-Profit College Tuition: $38,690; 
Public College Tuition: $5,621; 
Private Nonprofit College Tuition: No college within 250 miles. 

Degree: Associate's - Criminal Justice; 
Location: FL; 
For-Profit College Tuition: $26,936; 
Public College Tuition: $4,448; 
Private Nonprofit College Tuition: $27,600. 

Degree: Associate's - Business Administration; 
Location: TX; 
For-Profit College Tuition: $32,665; 
Public College Tuition: $2,870; 
Private Nonprofit College Tuition: $28,830. 

Degree: Associate's - Respiratory Therapist; 
Location: TX; 
For-Profit College Tuition: $38,995; 
Public College Tuition: $2,952; 
Private Nonprofit College Tuition: No college within 250 miles. 

Degree: Bachelor's - Management Information Systems; 
Location: DC; 
For-Profit College Tuition: $53,400; 
Public College Tuition: $51,544; 
Private Nonprofit College Tuition: $144,720. 

Degree: Bachelor's - Elementary Education; 
Location: AZ; 
For-Profit College Tuition: $46,200; 
Public College Tuition: $31,176; 
Private Nonprofit College Tuition: $28,160. 

Degree: Bachelor's - Psychology; 
Location: IL; 
For-Profit College Tuition: $61,200; 
Public College Tuition: $36,536; 
Private Nonprofit College Tuition: $66,960. 

Degree: Bachelor's - Business Administration; 
Location: PA; 
For-Profit College Tuition: $49,200; 
Public College Tuition: $49,292; 
Private Nonprofit College Tuition: $124,696. 

Degree: Bachelor's - Construction Management; 
Location: TX; 
For-Profit College Tuition: $65,338; 
Public College Tuition: $25,288; 
Private Nonprofit College Tuition: No college within 250 miles. 

Source: Information obtained from for-profit colleges admissions 
employees and nonprofit college web sites or employees. 

Note: These costs do not include books or supplies, unless the college 
gave the undercover applicant a flat rate to attend the for-profit 
college, which was inclusive of books, in which case we were not able 
to separate the cost of books and supplies. 

[End of table] 

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. 

Contacts and Acknowledgments: 

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. 

[End of section] 

Appendix I: Detailed Results of Undercover Tests: 

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). 

College information and degree sought: 1; AZ - 4-year, owned by 
publicly traded company; Bachelor's - Education; 
Students receiving Pell Grants[A]: 27%; 
Students receiving federal loans[A]: 39%; 
Graduation rate[A]: 15%; 
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. 

College information and degree sought: 2; AZ - 4-year, owned by 
publicly traded company; Associate's Degree - Paralegal; 
Students receiving Pell Grants[A]: 57%; 
Students receiving federal loans[A]: 83%; 
Graduation rate[A]: Not reported; 
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. 

College information and degree sought: 3; CA - less than 2-year, 
privately owned; Certificate - Computer Aided Drafting; 
Students receiving Pell Grants[A]: 94%; 
Students receiving federal loans[A]: 96%; 
Graduation rate[A]: 84%; 
Encouragement of fraud, and engagement in deceptive, or otherwise 
questionable behavior: 
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. 

College information and degree sought: 4; CA - 2-year, owned by 
publicly traded company; Certificate - Massage Therapy; 
Students receiving Pell Grants[A]: 73%; 
Students receiving federal loans[A]: 83%; 
Graduation rate[A]: 66%; 
Encouragement of fraud, and engagement in deceptive, or otherwise 
questionable behavior:
Scenario 1: 
* 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. 

College information and degree sought: 5; DC - 4-year, privately 
owned; Bachelor's Degree - Business Information Systems; 
Students receiving Pell Grants[A]: 34%; 
Students receiving federal loans[A]: 66%; 
Graduation rate[A]: 71%; 
Encouragement of fraud, and engagement in deceptive, or otherwise 
questionable behavior: 
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. 

College information and degree sought: 6; DC - less than 2-year, 
Privately owned; Certificate - Cosmetology, Barber; 
Students receiving Pell Grants[A]: 74%; 
Students receiving federal loans[A]: 74%; 
Graduation rate[A]: Not reported; 
Encouragement of fraud, and engagement in deceptive, or otherwise 
questionable behavior: 
Scenario 1: 
* 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." 

College information and degree sought: 7; FL - 2-year, privately 
owned; Associate's Degree - Radiologic Therapy; 
Students receiving Pell Grants[A]: 86%; 
Students receiving federal loans[A]: 92%; 
Graduation rate[A]: 78%; 
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. 

College information and degree sought: 8; FL - 2-year, owned by 
publicly traded company; 
Associate's Degree - Criminal Justice; 
Students receiving Pell Grants[A]: Not Reported; 
Students receiving federal loans[A]: Not Reported; 
Graduation rate[A]: Not Reported; 
Encouragement of fraud, and engagement in deceptive, or otherwise 
questionable behavior: 
Scenario 1: 
* 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. 

College information and degree sought: 9; IL - 2-year, privately 
owned; Certificate - Medical Assistant; 
Students receiving Pell Grants[A]: 83%; 
Students receiving federal loans[A]: 80%; 
Graduation rate[A]: 70%; 
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. 

College information and degree sought: 10; IL - 4-year, owned by 
publicly traded company; Bachelor's Degree - Psychology; 
Students receiving Pell Grants[A]: Not reported; 
Students receiving federal loans[A]: Not reported; 
Graduation rate[A]: Not reported; 
Encouragement of fraud, and engagement in deceptive, or otherwise 
questionable behavior: 
Scenario 1: 
* 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. 

College information and degree sought: 11; PA - 4-year, owned by 
publicly traded company; Bachelor's Degree - Business Administration; 
Students receiving Pell Grants[A]: 47%; 
Students receiving federal loans[A]: 58%; 
Graduation rate[A]: 9%; 
Encouragement of fraud, and engagement in deceptive, or otherwise 
questionable behavior: 
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. 

College information and degree sought: 12; PA - less than 2-year, 
privately owned; Certificate - Web Page Design; 
Students receiving Pell Grants[A]: 52%; 
Students receiving federal loans[A]: 69%; 
Graduation rate[A]: 56%; 
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; 
Scenario 2: 
* 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. 

College information and degree sought: 13; TX - 4-year, privately 
owned; Bachelor's Degree - Construction Management; Visual 
Communications; 
Students receiving Pell Grants[A]: 81%; 
Students receiving federal loans[A]: 99%; 
Graduation rate[A]: 54%; 
Encouragement of fraud, and engagement in deceptive, or otherwise 
questionable behavior: 
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. 

College information and degree sought: 14; TX - 2-year, owned by 
publicly traded company; Associate's Degree - Business 
Administration; 
Students receiving Pell Grants[A]: 89%; 
Students receiving federal loans[A]: 92%; 
Graduation rate[A]: 34%; 
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. 

College information and degree sought: 15; TX - 2-year, privately 
owned; Associate's Degree - Respiratory Therapy; 
Students receiving Pell Grants[A]: 100%; 
Students receiving federal loans[A]: 100%; 
Graduation rate[A]: 70%; 
Encouragement of fraud, and engagement in deceptive, or otherwise 
questionable behavior: 
Scenario 1: 
* 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. 

Source: GAO undercover visits and Department of Education. 

[A] This information was obtained from the Department of Education 
National Center for Education Statistics. 

[End of table] 

[End of section] 

Footnotes: 

[1] For-profit colleges are institutions of post-secondary education 
that are privately-owned or owned by a publicly traded company and 
whose net earnings can benefit a shareholder or individual. In this 
report, we use the term "college" to refer to all of those institutions 
of post-secondary education that are eligible for funds under Title IV 
of the Higher Education Act of 1965, as amended. This term thus 
includes public and private nonprofit institutions, proprietary or for-
profit institutions, and post-secondary vocational institutions. 

[2] $26 billion is the aggregate market capitalization of the 14 
publicly traded corporations on July 14, 2010. In addition, there is a 
15th company that operates for-profit colleges; however, the parent 
company is involved in other industries; therefore, we are unable to 
separate its market capitalization for only the for-profit college line 
of business, and its value is not included in this calculation. 

[3] The Federal Supplemental Educational Opportunity Grant (FSEOG), 
Federal Work-Study (FWS), and Federal Perkins Loan programs are called 
campus-based programs and are administered directly by the financial 
aid office at each participating college. As of July 1, 2010 new 
federal student loans that are not part of the campus-based programs 
will come directly from the Department of Education under the Direct 
Loan program. 

[4] A certificate program allows a student to earn a college level 
credential in a particular field without earning a degree. 

[5] Regardless of income and assets, all eligible students attending a 
Title IV college are eligible to receive unsubsidized federal loans. 
The maximum amount of the unsubsidized loan ranges from $2,000 to 
$12,000 per year, depending on the student's grade level and on whether 
the student is considered "dependent" or "independent" from his or her 
parents or guardians. 

[6] GAO previously investigated certain schools' use of ability-to-
benefit tests. For more information, see GAO, Proprietary Schools: 
Stronger Department of Education Oversight Needed to Help Ensure Only 
Eligible Students Receive Federal Student Aid, [hyperlink, 
http://www.gao.gov/products/GAO-09-600] (Washington, D.C.: August 17, 
2009). 

[7] [hyperlink, http://www.gao.gov/products/GAO-09-600]. 

[8] 20 U.S.C. § 1092 and 34 C.F.R. §§ 668.41 -.49. 

[9] 20 U.S.C. § 1094 (c) (3) and 34 C.F.R. §§ 668.71 - .75. 
Additionally, Education has recently proposed new regulations that 
would enhance its oversight of Title IV eligible institutions, 
including provisions related to misrepresentation and aggressive 
recruiting practices. See 75 Fed. Reg. 34,806 (June 18, 2010). 

[10] Depending on the value of the gift, such a transaction may be 
allowed under current law. Federal statute requires that a college's 
program participation agreement with Education include a provision that 
the college will not provide any commission, bonus, or other incentive 
payment based directly or indirectly on success in securing enrollments 
or financial aid to any persons or entities engaged in any student 
recruiting or admission activities. However, Education's regulations 
have identified 12 types of payment and compensation plans that do not 
violate this statutory prohibition, referred to as "safe harbors". 
Under one of these exceptions, schools are allowed to provide "token 
gifts" valued under $100 to a student provided the gift is not in the 
form of money and no more than one gift is provided annually to an 
individual. However, on June 18, 2010 the Department of Education 
issued a notice of proposed rulemaking that would, among other things, 
eliminate these 12 safe harbors and restore the full prohibition. 

[11] Of the 436 calls, not all resulted in a voice message in which a 
representative identified the school he or she was calling from. For 
those callers who did not leave a message, GAO attempted to trace the 
destination of the caller. In some cases GAO was not able to identify 
who placed the call to the student. 

[End of section] 

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