Feds Conduct Undercover Probe of For-Profit Colleges

The Government Accountability Office went undercover to take a look at what really goes on at privately-owned, for-profit colleges.  What it found wasn't so good.

The agency selected 15 schools and successfully infiltrated 12 of them, using bogus high school records to gain admission. The 12 "students" enrolled in 31 courses at an average cost of $1,287 each, and 10 of them managed to collect federal student financial aid.

The "students" purposefully submitted substandard work; one received a passing grade by submitting photos of celebrities and political figures in lieu of responses to essay questions. Three students were expelled for poor work or nonattendance.

Eight of the nine students withdrew without incident at the end of the investigation.  At the ninth school, GAO's request to withdraw was never acknowledged and the student was eventually expelled for nonattendance.

No exit counseling

Three students did not receive federally mandated exit counseling, where students are supposed to be advised of loan repayment options and the consequences of default.

That's what happened to Rosa of St. Augustine, Fla. 

"I was going to the University of Phoenix online. I had to withdraw due to going through a divorce ... I did not know at the time that unlike the community college, when I withdrew that even though I paid with financial aid, I'd have to repay that and my transcripts would be held," she told ConsumerAffairs.com in a complaint earlier today. "No one warned me of this when I told them I was thinking of withdrawing."

Congress and consumer organizations have been casting a wary eye at for-profit schools recently, noting that enrollment in such schools has grown far faster than in traditional higher-education institutions.  

GAO conducted its investigation at the request of Sen. Tom Harkin (D-Iowa), chairman of the Senate's Health, Education, Labor and Pensions Committee, who has been highly critical of for-profit schools, noting that -- among their other drawbacks -- for-profit schools are far more expensive than comparable programs at community colleges or public universities. The average tuition for a for-profit school is about six times higher than a community college and twice as high as a 4-year public school.

Taxpayer dollars

Students enrolling in subpar for-profit schools are not only putting their own time and money at risk, they are also burning through huge amounts of taxpayer dollars.  During the 2009-2010 school year, for-profit colleges got almost $32 billion in grants and loans provided to students under federal student aid programs.

Close to one in four students who attends a for-profit school defaults on his or her federal student loans within 3 years of leaving school, Harkin's office said. This high rate of default combined with the fact that nearly all students at for-profit schools must borrow money to pay the cost of tuition, has resulted in a sector that enrolls approximately 10 percent of American higher education students but accounts for nearly 50 percent of all student loan defaults.

In many cases, students -- like Shelly of Helena, Mont. -- say they were not properly advised before taking out student loans to attend for-profit schools. 

"I attended Mountain State University online first, with FASFA loans and had no problem, actually got money back from them a couple of times. I then went to Kaplan online for one term," Shell said. "I have only been using FASFA to finance as I have no money that is why I had loans. Kaplan says I owe them money but will not explain why."

"I repeatedly told them that I had the loans and they had always covered it. I have asked them to explain why but got no response. Now I am back at Mountain State and have had no problems," Shelly said. "However, Kaplan will now not let the FASFA money go the Mountain State. It's because they will not let me register for the next term due to a 'balance' owing."

Not worth much

Even students who successfully complete their studies often find their degree or certificate doesn't do them much to help their job search.

"Got my degree from Phoenix University; I have a Masters on Business Administration focus on HR," said Claudia of Houston. "I have a student loan that is about $45,000."

But Claudia said her degree isn't accepted by many potential employers.

"They see this school as a for-profit and they do not want to deal with students from this place; resumes are set aside. Is there anything that I could do? I am having to pay for something that did not embrace any rewards to my career."