AG Confirms Investigation of Practices at For-Profit Colleges

By Matt Murphy
STATE HOUSE NEWS SERVICE

STATE HOUSE, BOSTON, MAY 30, 2012…. Ratcheting up the pressure on for-profit education firms, Attorney General Martha Coakley on Wednesday confirmed that her office is investigating deceptive loan and recruitment practices at some for-profit colleges and certificate programs where students often graduate with overly burdensome debt, or fail to graduate at all.

Coakley joined Boston City Council members to raise serious concerns about for-profit colleges targeting low-income residents and veterans with false promises of job placements, often leaving students saddled with unaffordable debt and without a job to afford the payments.

In addition to pursuing “legal avenues” stemming from consumer complaints to her office, the attorney general said she also wanted to get information to consumers to be aware “high pressure sales tactics,” guarantees of jobs after graduation, and encouragement from recruiters to lie on financial aid applications.

Coakley testified before a council subcommittee at Boston City Hall, where Councilor Ayanna Pressley convened a hearing to look into the feasibility of a public awareness campaign surrounding for-profit colleges and universities.

For-profit colleges include many well-known names such as Phoenix University, Devry and Kaplan University that advertise extensively on subways, buses and television for both online and campus courses.

Though Coakley’s office declined to comment on the scope of her investigation, the Boston Globe reported earlier this month that the Washington Post Co., which operates Kaplan Career Institute campus in Boston, and Corinthian Colleges Inc., which runs Everest Institute campuses in Brighton and Chelsea, had received requests for information from Coakley in late April.

Coakley said for-profit schools are heavily reliant on taxpayer funds and use aggressive recruiting tactics to target potential students who can qualify for government aid, but are often more expensive than not-for-profits and leave students in greater debt. She said the cost to attend one of these schools is six times as much, on average, as a community college and twice as expensive as a four-year school.

“When students default on their loans the for-profit colleges are able to keep that money while the students are left to deal with the consequences,” Coakley said.

Coakley’s office said federal financial aid accounts for nearly 90 percent of for-profit school revenues, and that without Pell Grants and federally guaranteed loans, for-profit schools would likely not exist. In 2009, Coakley said for-profit schools received $4 billion in Pell Grants and $20 million in federal subsidized loans, and the 16 largest organizations made $2.7 billion in profit.

In total, 53 percent of for-profit students borrowed more than $30,500, more than double the amount at private non-profit colleges, and only 4 percent of students left school without debt, according to the attorney general’s office.

Coakley on Tuesday also announced that she had signed on to a letter to Congress from 22 attorneys general calling on lawmakers to impose the so-called “90/10 rule” on the GI Bill and Veterans Assistance educational programs prohibiting for-profits from deriving more than 90 percent of their revenue from Department of Education funding.

“We are increasingly concerned with the schools’ marketing, especially targeting our young people and veterans, and that they are overpromising graduation and placement rates,” Coakley said.

Pressley said many for-profit institutions “maliciously target” those they know they can “make a pretty penny” from. “It’s a vicious cycle and we must do our part to break it,” Pressley said.

Ruthie Liberman, the vice president for public policy at the Crittenton Women’s Union, told councilors that they have a waiting list of clients seeking assistance with student loan debt, many of whom have attended one or more for-profit colleges.

Several clients and former students testified that they left school with $8,000 to $30,000 in debt, and were either still unemployed or found work making too little to afford their rent and loan payments, causing them to default. One student, a single mother of two, said she still has $8,000 in debt for the medical assistance program she signed up for at an unmentioned school, and only found out later she could have taken the same courses at Bunker Hill Community College for $3,000.

Liberman said the Crittenton Women’s Union supports the creation of public awareness campaign to alert consumers about the risk associated with attending one of these for-profit schools.

Officials from Empire Beauty, formerly known as Blaine, urged the council not to “vilify” all proprietary schools, insisting that Empire Beauty was conscientious about making loans affordable to its students with a default rate equal to that of community colleges.

“As a public official I’ve been on the receiving end of being lumped together so we don’t want to demonize all for-profit schools,” Pressley said, adding that she just wanted to “put them on notice” that they were being watched.

City Councilors Matt O’Malley and John Connolly also attended the hearing, and aides from Sen. William Brownsberger’s and Rep. Thomas Sannicandro’s offices were in attendance.