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For-Profit Colleges Encouraged Fraud And Used Deceptive Marketing, Watchdog Says

An undercover investigation by a government watchdog uncovers unsavory recruiting practices at several for-profit colleges.

We’ve been following allegations of enrollment abuses and bogus marketing schemes at for-profit schools for some time now, and a report released by the Government Accountability Office this week further highlights some of the questionable recruiting tactics of several for-profit colleges across the country.

Undercover investigators posing as prospective students found that at four of 15 for-profit colleges, they “were encouraged by college personnel to falsify their financial aid forms to qualify for federal aid.”

From the report:

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.

… 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.

All 15 schools made “deceptive or otherwise questionable statements” to the undercover applicants. The schools aren’t identified, but they’re located in six states and Washington, D.C., and were among those “that the Department of Education reported received 89 percent or more of their revenue from federal student aid.” (Read the full report in our document viewer.)

The deceptive statements ranged from students’ potential salaries after graduation to the schools' accreditation to the duration or costs of the program, according to the report. Two of the GAO’s fictitious prospective students each received around 180 phone calls from for-profit recruiters within a month of filling out forms on websites that claim to match prospective students with colleges offering relevant programs. Our ProPublica Reporting Network volunteers reported having similar experiences on such websites.

An earlier GAO report [PDF] found that students at for-profit colleges were more likely to default on their federal student loans than students at public or private nonprofit schools. These defaults leave the government and taxpayers to take care of the costs and “assume nearly all the risk,” the latest report explained.

It seems the hedge funds that have been betting against the for-profit higher-education industry have just been given another point bolstering their criticism of the industry’s ills. Barron’s pointed out Tuesday that since news of the report first leaked, for-profit college shares have taken a tumble.

Update: The report's findings also disturbed some within the for-profit industry. In a statement, the Career College Association--which represents for-profit schools--called the report "deeply troubling" and announced it would expand its efforts to address these problems. 

"Even if the problems cited in the GAO report are limited to a few individuals at a few institutions, we can have zero tolerance for bad behavior," Harris Miller, the group's president, said in the statement. "We are moving as one community to address the issues raised in the GAO report.  We will continue to add to this ‘zero tolerance’ program until all such doubts about our sector are removed."

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