Committee on Education and the Workforce
Hearings

Testimony of the Honorable Maxine Waters (CA-35)
Member of Congress
House of Representatives

U.S. House of Representatives
Committee on Education and the Workforce

Full Committee Hearing on
“Enforcement of Federal Anti-Fraud Laws in For-Profit Education”

March 1, 2005


MY INTEREST IN PROPRIETARY TRADE SCHOOLS

I want to speak to you about the necessity of keeping current student protections in federal law, and insisting the Department enforce current law. A host of new protections are needed, but that is for another day.

The for-profit trade schools, or rather, the students they enroll, have been a matter of deep concern for me for more than twenty years. These proprietary schools talk in terms of providing minorities with opportunities, and cloth themselves with terms of the civil rights struggle.

I take umbrage when these tactics are employed by the for-profit trade schools. African –Americans and Latino’s, since the era of reconstruction, and the arrival of Cortez, respectively, have been offered these same deceptive opportunities. These schools are continually harming my community.

I have always supported job programs and job preparedness programs in my district. I often go to graduation ceremonies or completion celebrations to provide support for the efforts of young people who were looking for a chance at a better life and employment training.

I had GED courses conducted in my office so that my constituents could pass the math portion of the GED to get into the construction training programs. The 17-30 program in my district got former gang members back into a school or a training program. I have spoken at graduation ceremonies many times at the Maxine Waters Employment Preparation Center, part of LA Unified Adult Education Program.

And with respect to all these groups of young people and all these events, there was one thing in common -- most of the participants had been ripped off by a for-profit trade school.

Many of these students had families, and could not pursue further education or training because they had defaulted on previous student loans used to attend a trade school, and thus did not qualify for any current financial aid (including Pell Grants), which they needed to support themselves while attending Community College to obtain training.

At one graduate ceremony at the Employment Preparation Center, I asked how many of the graduates had been ripped off by a trade school, and all hands but one went up. I do not want this pattern to extend into the indefinite future.

Removing the 90/10 protection will have severe consequences in my district. The provisions of HR 507 easing the restrictions on distance learning, and including proprietary institutions within the definition of "an institution of higher education" must be rejected. It is time we thought about the students, not just the school's bottom line. These schools had a gross default rate of 44.6% for the period 2000-2002.

NO STATUTE OF LIMITATIONS

In this country, there is no statute of limitations for murder, and for the collections of student loans from defaulting students. When these students are suffering under a crushing student debt burden, because the promised jobs were nowhere to be found, they learn that these loans cannot be discharged in bankruptcy (as one of the victims on the Sixty Minutes program suggested as her only option).

So, the government has insulated itself from the consequences of these schools’ deception, and the disastrous consequences. Don’t these ripped-off students deserve some consideration and protection?

The reason that I am so strongly support the 90/10 rule, formerly 85/15 (which should actually have a larger number at the bottom), is because I think my constituents and other low income persons and minorities are ill served by the for-profit trade schools and need even more protection from the false sales pitches of many of these for-profit trade schools.

I am not saying that all the for-profit trade schools are bad, but enough of them are, to necessitate the need for student protections. Before my office burned down, I had a pile of trade school complaints two feet thick, and nothing has changed.

RATIONALE FOR THE 90/10 RULE

The 90/10 rule, previously 85/15, was passed to combat rampant fraud, misrepresentations, and exploitative practices in the for-profit vocational education industry. Those practices continue.

Keeping the 90/10 rule or increasing the denominator would give schools the incentive to raise the quality of the education to attract a broad range of students, instead of tailoring the education to the amount of federal funds available to the poorest students.

Eliminating the 90/10 rule would allow problem for-profit trade schools to more easily continue to deceive and mislead low income students (often minorities) at a time when there are few other safeguards.

The 1997 GAO report titled, "Poorer Students Outcomes at Schools that Rely More on Federal Student Aid ," provides support for the 90/10 rule. The rationale behind the 85/15 or the 90/10 rule is that schools providing a quality education should be able to attract a reasonable percentage of their revenue from sources other than title IV funds.

According to Mr. Moore, CEO of Corinthian, in his testimony before this committee last year, if the rule is eliminated, his schools will be able to offer greater access to low income and minority students. But this is already is the case. Ninety percent of revenue per campus can come from such students.

The GAO report even suggested limiting the amount of title IV funds available to 55% of revenue, because it would save an estimated 11 million dollars in default claims annually.

The current rule generously requires that only 10% of a school’s services be pitched to and obtained from groups which have some non-title IV funds to pay for tuition. Why do these schools object? Is it that other groups not so heavily dependent on financial aid are more discerning consumers?

By limiting the percentage of federal funds available to each trade school campus, the expectation is that the overall quality of education will improve because the school would have to recruit more well-off students who would have to pay for at least part of the program from other sources, such as their own savings.

ENFORCEMENT OF 90/10

Despite the harshness alleged by schools of the 90/10 rule, only four schools have ever been shut down by it. I assume this is because the rule is enforced by self-reporting of the schools. I believe this is a mistake.

Further, if only four schools have ever faced a problem with 90/10, why is this industry so vehemently fighting to eliminate it? Have these schools thus far deceived the Department with respect to their sources of funding, because of lack of oversight by the Department and the Department’s reliance on self-reporting?

The OIG has postulated that indiscernible or unreported data may indicate probable violations of the 90/10 rule. Because of the inherent flaw in relying on a self-reporting system, it is likely there are some schools in violation of the 90/10 rule that we do not know about. Again, if only 4 schools were truly in violation this would be a non-issue.

By way of example, Mr. Moore of Corinthian at last year’s hearing provided funding information regarding two entirely different campuses which had funding near the 90% limit. It would be interesting to know how these same campuses survived the 85/15 rule, unless both are new campuses.

Mr. Moore compared these with suburban campuses which had more non-title IV funding. But nothing indicates that the student outcomes at the two campuses (inner-city v. suburban) were comparable, or that the completion / placement rates at either were good. So why should access to intercity students be encouraged?

No information was provided by Mr. Moore about the starting salary earned by these students. I am not interested in having low income minority students go into debt and get no job or a low paying job. But even these statistics re starting salaries are suspect, because they are self-reported.

A report done by the OIG indicated that self-reported placements by accrediting agencies were not reliable, as most of the schools in the sample inflated the placement rate, and often by a huge component. Only two of the seven provided accurate data. None of the additional schools that were evaluated correctly reported its placement rate.

How close proprietary schools are near to the 90%, or how many are likely to be over, it is not known. It is a very bad idea to eliminate a rule that if enforced may have a salutary effect on the education which students receive at proprietary schools, or which may decrease the number of ripped-off students.

I hope the committee is not fooled by the contention that fraud and violations of the law no longer exist. I know this not to be the case.

THERE IS NO POINT TO INCREASE PROPRIETARY SCHOOL ACCESS TO INNER-CITY STUDENTS WHEN DECENT PAYING JOBS DO NOT RESULT

Further, what point is there in allowing these schools more access to low-income / minority students, if the students do not get decent paying jobs. For the two-year degrees, only 20% or less, up to 40% of students, complete the course in the schools that I have seen data for. Of those who complete, they often find only low paying jobs. Some of these fields of study, like cosmetology and fashion, have more job applicants than jobs.

I do not want these students to pay $30,000 - $50,000 for a fashion course of study and end up folding t-shirts at The Gap, as disclosed on the Sixty Minutes segment, when that woman could have gotten the same job with no vocational training.

Further, Tami Hanson, former Director of Placement for Career Education Corporation (hereinafter CEC) said that the cost could be even more, as much as $60,000 to $80,000.

The letters I have received since the Sixty Minutes story reinforce why I believe it is essential to maintain the 90/10 rule, and even increase the ratio. These comments from one such letter relate to American Intercontinental University, a sister school of Brooks College in Long Beach, featured in the Sixty Minutes story:

"We have been raising issue with these questionable practices ever since CEC bought AIU three years ago. We saw the demographics shift to primarily low income, D average (and below) students who were ill prepared to commit to the structure, rigors and requirements of a design college. They were taking out huge federal loans to pay for their tuition, and then because they had no funds for supplies, transportation, or even food, would fail.

I have a DEEP SEATED moral problem with targeting these students, getting hold of their financial aid monies, and lying to them in a variety of ways (i.e. they will be able to get a B.A. degree in two years, they will be able to get a job with JayLo designing, they will be able to get a job with Spielberg and the list goes on and on). As stated above, the majority of these students recruited are not ready for a college, especially one that will land them $60,000 to $80,000 in debt IF they finish, which the majority does not. They have no discipline to come to class, to do the work required for completion of the course and we flunk a large number of these applicants. But that’s ok to the Administration. They allow them to withdraw or take a leave, they collect their financial aid and let them back in after a quarter off. ___ ... a student who had flunked EIGHT QUARTERS (that is 3 classes each quarter at a minimum of $1800 per class for a total of $43,200.). He was re-admitted last year only to continue his poor academic standards, flunking or withdrawing from his classes!!!!!! This is not unusual… The faculty hold these students to standards that are in keeping with college level classes, even though we are repeatedly pressured by the Administration to "work with them" meaning "pass" them through so they do not drop out and we can no longer get their federal money!

… It is because of this accreditation (and I use the word loosely here) that AIU is eligible for these hefty federal monies. It is just so morally wrong, as you know. These students DO NOT need to be going to a private $60,000 to $80,000 college when the Community Colleges were founded for EXACTLY this purpose. I have gone down on my knees (literally!) and begged some of my at-risk students to drop the first week because I can TELL they will fail (they don’t show up at all the first day and come with no supplies or do not have money for supplies the second day and they don’t really even know WHEN they will have money for them!). They usually fail and I am forced to give them that grade."

(emphasis in the original)

Other letters about the same school (two others) or different campuses and schools, such as the Art Institute, an Education Management Corporation school, had the same complaints:

unqualified students were admitted

misrepresentations were made to get students to enroll, re:

o starting salary

o prestigious employers

o etc.

And the completion rates were low.

It would be ill advised to get rid of 90/10, so that schools can rip off more disadvantaged and ill prepared students. Often the poor completion rates are not disclosed, and if known and understood should influence low income students not to sign up.

LOW COMPLETION RATE / LOW STARTING SALARIES AT BROOKS COLLEGE

A case in point is the Long Beach campus of Brooks College, owned by CEC. The college "claims" a high placement rate for its graduates with the school’s assistance if we are to believe the school’s self-reporting. But the school’s accreditor, the Western Association of Colleges and Universities provides in the summary of its evaluation report as follows:

"The claims must be viewed in light of the fact that only about 35% of Brooks’ students ever finish the program and that another 10% of those who do complete or graduate are waived from placement…

The quality of job placements is another important indicator of college program integrity. The college claims in its catalog, for example, that graduation from the Interior Design program "automatically puts you in the elite group of well educated interior design professionals" and that "as a Fashion Merchandiser [graduate] from Brooks College, you’ll be prepared to handle some of the most competitive and serious business management and executive training positions in fashion capitals around the country." Within such statements, there is an implied representation of program quality, market competitiveness of graduates, and availability of career opportunities. However, college data show that the average starting salary way for Interior Design graduates is $11.67 per hour and for fashion merchandising graduates is barely above minimum wage. The most common job title for fashion merchandising graduates is sales associate. The average starting wage for graduates and completers in all programs majors is less that $11.00 per hour. (2.1, 2.9)"

(emphasis added)

At the Katherine Gibb School, the Sixty Minutes producer asked the completion rate, and was told that it was 89%, when it was actually 29% (a 60% error).

I do not want these opportunities for low income and minority people. I do not want them to pay off a $40,000 loan working as a sales associate at Macy’s. Neither should you. These are businesses, looking for bodies to sign up for federal money that they put in their pockets.

LOW INCOME STUDENTS GET FAR MORE GRIEF THAN HELP FROM PROPRIETARY SCHOOLS

Low income students get far more grief than help from these schools. There may be some success stories but there are far more failures. I have seen the devastation caused by these schools in my community, and the devastation has continued unabated. The only difference in my state is that -- because of state law, and the law regarding ability to benefit students -- such students (non high school graduates) are at least left alone.

But instead, equally poor and often minority high school graduates, who are often ill prepared for higher education, are ripped off for many more tens of thousands of dollars. They are signed up for courses they cannot benefit from, even when the instruction is adequate (which it often is not). Too often, adequate teaching staff is considered an unacceptable overhead expense by the school chain.

MOST OF THE MONEY IS SPENT ON ADVERTISING AND RECRUITER SALARY, NOT FACULTY

In these schools, often the number of admissions representatives or recruiters dwarfs the number of full time faculty. The amounts spent on advertising, lead creation, recruiting, and admissions representatives far exceed the salaries paid to the faculty. If the school got student good jobs, it could rely on word-of mouth advertising.

LOW ADMISSIONS STANDARDS

The entrance standards at these proprietary trade schools are exceedingly low -- usually a 2.0 grade point average for the two year courses. But as we saw on 60 Minutes and have found time and time again, low performing students and those in need of remedial education are let into these programs, regardless of their grades, which do not even meet the school’s mediocre acceptance standard.

Jennifer McDonald (Associate Producer at Sixty Minutes) could not disqualify herself for admission by low grades, drug addiction, or failing the entrance test. Students are let in regardless of their test scores or failing grades.

As noted by a former recruiter for Brooks College, the only requirements for admission at Brooks College was "$50.00, a pulse, and you’ve got to be able to sign your name".

LOW COMPLETION RATES

The school knows full well that such students will never complete the course. They drop out, and sometimes even re-enroll in the same course that he or she failed out of (see the letter from an American Intercontinental Staff Member above).

From the information I have seen regarding the two year school trade school courses, usually only about one third (1/3) of the students actually complete the course. I believe the highest completion rate for any course at the Career Education School, Brooks College in Long Beach, was 38 percent. In 2003, there were 396 graduates and 1,131 drops or withdrawals at Brook College of Photography in Santa Barbara, part of the CEC chain.

EVEN GRADUATES DO NOT GET DECENT PAY

Those who complete the course do not necessarily fare any better, because they have a bigger debt to pay. Many do not get jobs, because there are too many schools teaching the same courses of study, so there are more graduates than there are jobs. This depresses the wage scale.

For example, the numerous students that take medical assisting courses often find no job, or if they do find a job in the Los Angeles area, for the most part the jobs are a minimum wage or a little above, with no benefits and few opportunities for a significant pay raise. This was the case regarding the plaintiffs and witnesses in the case of Soltero v. Corinthian (Los Angeles Superior Court Case #BC238435).

The students were assured of a job after they graduate, making $9.00 to $12.00 an hour, or $10.00 to $15.00 an hour. But they got no job or a low paying job, for the most part. Such marginal pay does not justify taking on the burden of student loans, when they could have gotten the same salary without any training. But at least these students were only out $8,000 to $10,000.

LOW PAY UPON COMPLETION OF TWO YEAR COURSES

The same is not the case for those who complete two-year trade school courses which lead to an applied degree. The woman on the Sixty Minutes exposé paid for a fashion course at Brooks College in Long Beach, California, then got a job at the Gap folding T-shirts. The cost for the fashion courses can range as high as $60,000.00. I am sure that is not the job (Gap employee) that she envisioned after the expenditure of so much money for training.

The accrediting agency, Western Association of Colleges and Universities (WASC) did an evaluation of Brooks College in Long Beach (one of the schools featured on Sixty Minutes). This report indicated similarly low starting salaries for students in other two-year courses at the school.

The college data show that the average starting wage "for fashion merchandising graduates is barely above minimum wage. The most common job title for fashion merchandising graduates is "Sales Associate" (emphasis added). The average starting wage for graduates and completers in all programs is about $11.00 per hour. But the admission representatives featured on sixty Minutes indicated that they would be making a starting salary of $35,000 to $40,000.

How many of the thousands of students who have attended the Brooks College and its sister College, American Intercontinental University in Culver City offering many of the same courses would have signed up for a course costing $30,000 to $50,000 if they knew that only about one third of those who started the course would finish?

And those who completed the course and got jobs could expect between minimum wage and $11.00? Not many, I suspect. And this is a nation wide chain. For someone of even average intelligence, this is not a rational choice unless s / he is deceived.

The low starting salary after a two year course of instruction in Photography at Brooks College in Santa Barbara was confirmed in the December 1, 2004 report regarding the re-approval of this school done by the state enforcement agency, the Bureau of Private Postsecondary Education (discussed hereinafter as "Bureau"). The Bureau looked at a sample of graduate files.

While the school, Brooks College in Santa Barbara, touted a starting salary ranging from a low of $34,000 to $75,000, the student sampling done by the Bureau of Private Postsecondary Education indicated exceeding low starting salaries (to be discussed hereinafter). The best pay of a graduate in the samples was a $10.50/hour job at a photo lab, which went out of business.

Further, the same report indicted that although the school records showed that the school assisted the student in obtaining the jobs, albeit low paying, in fact, only one of the students received any help from the school in obtaining employment.

PLACEMENT SERVICES MISREPRESENTED

A class action law suit was recently filed against Brooks College in Santa Barbara, and another one was filed against American Intercontinental University, another Career Education Corporation (hereafter "CEC") school, alleged that the college’s placement services and placement assistance was misrepresentation. From the sampling done by the Bureau at the Santa Barbara campus, that seems to be the case.

Only one student in the Santa Barbara sample received any assistance. The graduates of the Brooks College in Long Beach confirmed that they received no placement assistance.

EASY PREY

I know that what students are promised by these schools is not what they get. Misrepresentations are made about:

the quality of instruction

the state of the art equipment and supplies

the anticipated starting salary

the transferability of units

the completion and placement rates

the student selection process

placement services

jobs with prestigious employers

etc.

My constituents are fooled time and time again, and are the focus of recruitment efforts only because of their access to financial aid. That is why I proposed the 85/15 amendment initially, and why it’s watered down sister, 90/10, must be maintained. The protections that HR 507 seeks to eliminate also must be maintained.

These schools look for their recruits the same place the armed services does – in low income neighborhoods among those who are starved of opportunities and want a piece of the American dream.

UNITS DO NOT TRANSFER

None of the units earned at these trade schools are meaningful. They do not transfer to other schools including state schools but the students are not aware of this. They are lead to believe despite the disclaimer in the catalogue that because the school is accredited the units transfer. The admissions representatives feed that misconception.

If they in fact go to another school, even after paying $50,000 they end up as freshmen again. This misrepresentation is the basis of law suits against Corinthian (a nation-wide chain) in Florida.

PLACEMENT RATE MISREPRESENTED

The biggest misrepresentations made to students that convince them to enroll are anticipated starting salary (discussed above) and the placement rate. But both are often misrepresented. The starting salaries that prospective students are told are seldom true. Many schools tout a 90% plus placement rate. But these are self reported rates and not necessarily accurate.

The WASC report regarding Brooks College in Long Beach implied that the alleged placement rate may be deceptive because most didn’t complete the course, and an additional 10% was excluded from the placement calculation.

The recruiter for Brooks College in Long Beach said:

"We are selling you that you’re gonna have a 95% change that you are gonna have a job paying $35,000 to $40,000 / year by the time you are done in 18 months", say Shannon. We later found it was not true at all."

In a lawsuit against ITT a San Diego law firm proved at trial that ITT inflated its placement rate. For example, a student who was counter help at Burger King was listed as a placement for the Hotel and Restaurant Management course.

The same law firm, Majors & Fox, in litigation against the Corinthian chain also has depositions showing that the school inflated its placement rate. In two class action lawsuits against two Career Education Corporation schools, Intercontinental University in Culver City and Brooks College in Santa Barbara, the plaintiffs allege that the colleges have inflated or misrepresented the placement rates. Another report in December of 2004 on the latter school by the Bureau (the state enforcement agency) confirmed that the school misrepresented its placements.

In addition, the Council of Private Postsecondary Education, the enforcement agency in California prior to 1998, reported that in a sampling of placement rates from for-profit trade school placement logs, (with respect to every school sampled), the placement rates were misrepresented and inflated.

In an OIG Report regarding accrediting agencies, the IG checked a sampling of placement information from a series of seven schools with three different accrediting agencies.

The IG found that only two schools correctly reported the placement rate and the others had inflated the rate as much as 270 %. Only two out of ten schools that were tested, accurately reported the placement rate.

Even if we assumed placement was accurately reported, which is a big assumption, the accreditors’ definition of a placement can be so expansive that a job of a few hours or a day or an unrelated job counts as a placement.

For example the definition of placement can be a job in the field of training or a related field. This could be anything and everything and every school could have 100% placement for paying a third party to hire their graduates for a half a day.

As Tami Hanson, former placement director at CEC said, "(A) placement did not necessarily mean getting students the jobs they trained for. As she says a job placement could mean just about almost anything." (emphasis added)

And really should the school be allowed to count as a placement a job which requires no experience or training? This happens all the time.

FRAUD, ABUSE, AND VIOLATION OF THE LAW STILL PERSIST, WITH LITTLE ENFORCEMENT

Sadly, more than a decade after the passage of additional student and financial protections, many of the same problems persist. Yet, the US Department of Education does little or nothing in following upon student complaints. In the recent months, ITT, a nationwide chain of vocational schools, has become the subject of an FBI fraud investigation. Campuses have been raided in six states. Prior to this, the Department let this chain off with a small fine.

The campus of a local chain in the Central Valley of California has also been raided by the FBI. In addition, Career Education Corp., one of the largest for-profit proprietary education chains, has recently had two class actions filed against it, claiming multiple misrepresentations made to students. An investigation has been initiated by the SEC.

These class action lawsuits against CEC schools involve American Intercontinental University in Culver City, and Brooks College in Santa Barbara. Sixty Minutes did an exposé featuring a third CEC campus, Brooks College in Long Beach, and visited a dozen CEC campuses where the same problems existed.

In California, the Department of Education has uncovered violations in obtaining federal loans at Corinthian’s Bryman College campus in San Jose, California. There are two ongoing lawsuits by students in Los Angeles against Corinthian, and another two in Florida claiming misrepresentations.

A new lawsuit has been filed by Bryman students in Long Beach (a chain owned by Corinthian) alleging misrepresentations. Further, stockholder suits have been filed against the largest proprietary school chains. But the Department has done nothing to follow up on these claims.

Clearly the statement of Mr. Moore, CEO of Corinthian, at the June 16th hearing that, "this problem [abuse and fraud] has been effectively addressed," is far from accurate. In spite of this, industry representatives are asking Congress in current legislation to give these schools unfettered access to Title IV funds.

Members of this committee should reject the provisions of HR 507, which enable for-profit schools greater access to financial aid. Trade schools abuses are an ongoing problem and it is simply being ignored by state and federal regulators. This is what I am distressed about.

Few resources are invested in uncovering and investigation misrepresentation and fraud. The Department does not appropriately follow up, even when others (whether it is uncovered by whistleblowers, student complainants, or attorneys) have uncovered fraud and violations of the law.

ACCREDITING AGENCIES ARE POOR GATEKEEPERS

Mr. Moore, CEO of Corinthian, in his testimony before this committee last year, declared that accrediting agency oversight is all that is needed to ensure quality education. But there is little reason for having confidence in accrediting agencies.

An audit by the Office of the Inspector General in July 2003 found multiple deficiencies with respect to the Accrediting Agency Evaluation Unit within the Department of Education’s Office of Postsecondary Education. This is the unit with oversight over accrediting agencies, which in turn have oversight over trade schools.

Specifically, the audit found that the Evaluation Unit did not meet the minimum level of quality for management controls as defined in the GAO office publications. The report reserved the worst criticism for the Unit’s oversight of regional and national accrediting agencies which were overseeing trade schools. The report recommended that no new agencies be approved until protections were in place.

The American Council of Trustees and Alumni (ACTA), in its report titled "Can College Accreditation Live Up to Its Promise" by George C. Leaf and Rowena D. Burris provided as follows:

"Our overall finding is that accreditation does not guarantee educational quality."

"Finding: the accreditation process focuses on compliance, with a set of input criteria that do not bear directly on student learning."

Thomas R. Bloom (Inspector General of the U.S. Department of Education), in testimony before the House Committee on Governmental Reform and Oversight Subcommittee on Human Resources, March 27, 1997, on the topic of "DOE Management and Programmable Issues", stated that the Office of the Inspector General found accrediting agencies’ monitoring of trade schools to be inadequate:

"We continue to believe that accrediting agencies are inadequate gatekeepers for assuring the quality of participating vocation trade schools. A recent OIG audit of the accrediting agency process revealed that on-site reviews conducted by six accrediting agencies were infrequent typically occurring only every four to nine years, and lasting only several days."

(emphasis added)

In his testimony before this committee last year, Mr. Moore implied that the 90/10 rule was no longer necessary because the accrediting agencies would be an adequate check on school quality and fraud.

Accrediting agencies can not make up for the elimination of the 90/10 rule because the accrediting agencies are themselves private companies dependent on the fees paid by the trade schools. They have few employees, given the number of schools they regulate.

In fact, there is a built-in conflict of interest with respect to accrediting agencies, because they have no incentive to revoke accreditation since their income-stream is directly determined by the number of schools they accredit. Even if an agency increased its standards based on the elimination of the 90/10 rule, a school can still shop among several accrediting agencies and choose the one with the lowest standards.

AN EXAMPLE OF AN ACCREDITING AGENCY’S FAILURE TO APPROPRIATELY MONITOR A SCHOOL

A former employee of Brooks contacted the state enforcement agency (BPPVE) and the Accrediting Council for Independent Colleges and Schools (ACICS), the schools’s accrediting agency about violation of the law. ACICS did an investigation and found nothing wrong.

The Bureau of Private Postsecondary Education did an investigation in connection with an application for reapproval of the school, but unlike the accreditor, the state enforcement agency found multiple violations:

the catalogue was found wanting

its enrollment agreement was out of compliance

another questionable practice found was that enrollment agreements were signed by the students several months before the actual start date of the educational program.

the school did not make the necessary disclosures regarding completion and placement and the transferability of units as required by California law

the school did not adhere to its stated admissions policy, including the policy that requires a 2.0 high school grade point average for admission.

The state enforcement agency found that the institution is not in compliance with Title 5, CCR section 71770(a) which requires that: "the institution shall not admit any student who is obviously unqualified or who does not appear to have a reasonable prospect of completing the program." (emphasis added)

Further,

"the total number of graduates for 2003 to the date of the visit was 396. The number of drops / withdrawals for the same time period was 1,131."

You do the math. This is exactly the sort of low completion rate information that prospective students need to be informed of, as required under California law (the fact that only about 30 percent of those who start the course graduate).

There are numerous other violations in the report, but the most critical in my mind is the schools’ improper inflation of its completion rate by misrepresenting placements which in fact are not placements.

A brochure submitted with the renewal application indicates career "outcomes" listing job titles, the salary range, and the catalogue includes a "partial list of employers" depicting 119 names of corporations and businesses. Of the fifty graduate files reviewed, only three listed the name of the employer and one was the institution itself.

The Bureau was able to contact eleven of the graduates. The report states that "of the eleven, ten of the graduates stated that they had not received job placement from the institution." (emphasis added)

The school referred one graduate to www.monster.com and another to a $7.00/hour job. The best paid graduate placement on record was a $10.50/hour job at a photo lab which had since closed. A former student who is attending Chico State University as a student was listed as employed by Chico State.

The report continues: "Five of the graduates are currently unemployed" (five out of eleven). The graduates that were counted as employed included one job at Sunwest Studios at a salary of $600.00 per month and another is working while enrolled in the Masters program at a local camera shop.

Another graduate who was listed as employed was actually in an unpaid internship. Of those who were employed, all but one got the job on their own. However, "the institution has indicated on the yellow data sheets in the placement files that they have been placed."

The Bureau found that:

"(t)he institutions’ advertisement and promotion is false and misleading, as it depicts job titles and salaries that are considerable, particularly when juxtaposed to the small sampling of the graduates."

The lowest salary cited by the school is given as $34.446 (of which 25% of the graduates in that job title will make less than that salary) and the highest is stated as $76.573."

Hopefully with the new leadership at the BPPVE and the practices exposed by Sixty Minutes at the Sister Brook College in Long Beach and elsewhere, something will be done about these schools which systemically violate the law.

Because accrediting agencies are dependent on school fees, I strongly believe there is a legitimate need for increasing the 90/10 to require a higher percentage of non-title IV money.

By maintaining and enforcing the 90/10 rule, or ideally raising it, proprietary institutions will hopefully have to recruit students with some income to spend on tuition.

THE TYPE OF STUDENT RIPPED OFF IN MY STATE HAS CHANGED, BUT THE FRAUD / VIOLATIONS CONTINUE

The characteristics of the trade school victim have changed, yet systemic fraud committed by for-profit trade schools has not. In the late 80’s and early 90’s the ability to benefit students (those who had not graduated from high school and did not have a GED) and limited English speaking students were most likely to be defrauded.

Because of changes in California and federal law, a school with a high default rate for three years can lose financial aid entirely. But subsequent changes in the counting of default percentages have made this less of a threat.

California law prohibits signing up limited English speakers in courses taught in English. Now, these problem schools recruit high school graduates for health certificate programs and "two year" applied degree vocational programs. These students are ripped off for a lot more money, and often find no job, or a low paying job after their training.

The level of damage to these students is far more severe, because of the enormity of the loans they owe, and the fact that their loans cannot be discharged in bankruptcy when the students are unable to pay.

I believe trade schools have begun to focus on high school graduates because they are less problematic, less likely to drop out, and more likely to have the ability to pay back loans or apply for deferments, and keep the schools’ cohort default rates down. High school graduates often repay the loans despite the fact they do not get the job that they trained for or if they do, it is at a lower pay than the proprietary school represented.

Many of these students do default, but because of the change in how default rates are counted, when they do default, it is not counted against the school for purposes of the 25% threshold.

Unfortunately, these students lose their dreams in addition to a lot more money in longer and higher priced courses. Now, the loss per student is much more. Further, the most recent data shows that the default rate for proprietary students over the life of the loan is exceedingly high – 44% to 46% for the 2000 to 2002 period.

PROHIBITION AGAINST INCENTIVE COMPENSATION UNDERMINED BY DEPARTMENT

Since the passage of 85/15, trade schools have been pushing not only for its repeal, but the removal of other safeguards imposed to prevent fraud in their financial aid program. 85/15 was reduced to 90/10 in the late 90’s.

Trade schools have been successful, with the complicity of the Department of Education, of essentially seriously undermining the federal law passed in the early 90’s that prohibited commissioned recruiters or any other types of incentive compensation.

This law recognized that admissions representatives or recruiters are more likely to misrepresent the program, placement statistics, and potential starting salary to get an enrollee to sign up if the recruiter’s salary increased with the number of enrollees.

Incentive compensation gives recruiters an incentive to "doctor" financial aid documents to maximize the school’s revenue. When Corinthian and Career College Association were unsuccessful in lobbying to change the federal law prohibiting incentive compensation enacted in 1992, the Department granted their wish list regarding this prohibition by adopting the regulations that the trade schools had written over the objections of advocates for students in Negotiated Rulemaking.

The worst provision of the regulations allows trade schools to raise an employee’s salary up or down twice a year. Incentive compensation, expressly prohibited by law, was essentially undermined by the regulations drafted by trade schools that were ultimately adopted by the Department.

Thus, the regulations allow a thinly disguised incentive compensation or quota system which violates the spirit and intent of the prohibition and the law. This very modification by regulation may have contributed to the financial aid violations at the San Jose campus of Corinthian (to be discussed below). And these regulations show that the Department is not serious about combating fraud, abuses or violations of the law.

The schools’ motivation is more understandable – they want unhindered access to low income or working class students’ financial aid. The most aid is available to the poorest segment of students, who are the least likely to be able to combat any abuses of the school or find allies that can effectively advocate for them.

Unfortunately, the perverse incentives of financial aid cause the excesses of these schools to be visited disproportionately on low income and minority students. This consequence has consistently been the focus of my criticism with respect to trade schools.

LACK OF ENFORCEMENT BY THE DEPARTMENT OF EDUCATION

There are changes which can be made to existing law which would curb much of the abuse in the for-profit sector. This could be accomplished by mandatory completion and placement requirements, as well as strict liability provisions barring fraud and misrepresentation in the enrollment process. Further, the schools should be required to disclose chapter and verse – the jobs previous graduates obtained, the name of the employer, and their starting salaries.

But there seems to be little point in this, as the Department does little, very little, to enforce existing law. Further, there are Department employees who worked for and lobbied for the interests of the for-profit schools either before or after they worked for the Department, or both.

The Department at times acts more like a trade association for the trade schools than a regulator. The schools have immediate access to the decision makers, and those representing the interests of trade school students are shut out.

STUDENT COMPLAINTS AGAINST CORINTHIAN HAVE NOT BEEN INVESTIGATED

Neither the Department, Regional Office of the Office of Inspector General, nor the Bureau of Private Postsecondary Vocational Education in California (the state enforcement agency), have investigated the complaints of multiple Corinthian students which were sent to them, even though their claims were supported by twenty to thirty declarations made under penalty of perjury from both students and instructors from multiple campuses and courses of the Bryman chain, owned by Corinthian.

One would think, that even an agency seeking to avoid work, would follow up when the initial work was done for them, but that is not the case. It seems that both the executive and legislative branches of the federal government and those in my state are determined to remove the few safeguards currently in place with respect to for-profit proprietary schools, and to not enforce existing law if it would have a negative impact on the schools.

FINANCIAL AID PROBLEM AT CORINTHIAN CAMPUS OF BRYMAN IN SAN JOSE

If middle-class kids were targeted with direct advertising and deceived as often as low income and minority students maybe their complaints would be taken more seriously by regulatory agencies and members of Congress, and the State Legislators.

Now, the interests of the defrauded students, who are mostly low income or working class students in California, are totally ignored by the Department of Education and the Bureau of Private Postsecondary Vocational Education (the state enforcement agency).

The Department has repeatedly ignored the wisdom and recommendations of the Office of the Inspector General regarding trade schools, as well as the fact that accrediting agencies are not appropriate monitors.

The state enforcement agency in California has been continually criticized by student advocates, internal audits, and the Sunset Review Committee. The situation is so bad that a monitor has been put in place by state law. But recently there has been a change of leadership in California.

The Department did act on a lead with respect to Corinthian’s Bryman campus in San Jose, California. The number of dependents on students’ financial aid applications were inflated to qualify for financial aid or more financial aid.

The admissions representatives were trying to meet their quotas, no doubt. Even though the audit found financial aid violations, there were no dire consequences for Corinthian imposed by the Department.

Further, the results of such audits show the value of the few remaining student and anti-fraud protections, which have also been undermined, specifically the prohibition against commissioned recruiters and incentive compensation.

DEPARTMENT’S INVESTIGATION AND PENALTIES ARE NOT SUFFICIENT

Even when someone of acceptable credentials complains, and financial violations are found, like at the San Jose campus of Corinthian, the investigation is not extended to other campuses of the same chain to see if similar practices and financial violations exist. Rarely, with the exception of Computer Learning Center, do the trade schools face appropriate sanctions when violations are found.

No such consideration by the Department is ever shown for defaulting students who have been ripped off by known fraudulent schools when they cannot pay their student loans. Payment is still enforced out of their disability or relatively low paychecks, even when the Department knows they have been misled -- when they have had the placement rates, starting salaries, and quality of instruction misrepresented to get them to enroll and become obligated to repay tens of thousands of dollars.

Yet the school doing the defrauding may be allowed to pay a few cents on the dollar to settle claims with the Department, or placed on reimbursement status so that they have to wait 45 days for payment of financial aid.

If the school closes, owing the Department money, the corporate officers are not appropriately sanctioned. Then, the same people who served as corporate officers of the closed problem school start new schools and get new financial aid at the new school without any vetting or monitoring of the corporate officers, or restrictions placed on those who previously worked for problem schools which closed.

For example, the current CEO of Career Education Corporation, Mr. Larson, was previously Senior Vice President of Phillips Junior College which closed after many audit violations and thwarted criminal investigations. Phillips owes the defrauded students a $10 million judgment in Los Angeles, as well as many unpaid refunds.

The same history may be found among other chain schools. The corporate officers of the now defunct National Education Center, with a few exceptions, hold the same or similar positions at Corinthian Colleges or Schools. It is this lack of oversight and investigation that I have continually complained about.

Why has the Department not looked into the executives of current schools who held similar positions at prior schools which had multiple audit violations and closed owing a lot of money in unpaid refunds, or was the subject of student complaints?

Why has the Department not looked into the allegations made in class action lawsuits against Corinthian in the lawsuits filed in Florida and the three lawsuits by students in Los Angeles and the one in Long Beach?

Why has the Department not looked into the allegations made in two class actions against Career Education Corporation schools is Los Angeles and Santa Barbara?

Why has the Department not followed up on the allegations made in the Sixty Minutes story about Career Education Corporation, particularly the Long Beach campus which got a bad report from its accrediting agency?

Why has the Department not followed up on allegations made in Matos v. Art Institute, given the significant cost of these programs, the harm likely to befall the students and the school’s graduates and the likelihood that if the allegations are true, such irregularities are also happening at some if not all of the other 67 campuses?

Why has the Department not investigated claims made in whistleblower or shareholder lawsuits against ITT, Corinthian, CEC, and the University of Phoenix?

It is certainly worth a look given the tens of millions of federal financial aid dollars going to this school chain.

WHY IS THE DEPARTMENT RELUCTANT TO ENFORCE THE LAW?

Why was the San Jose campus of Corinthian put on reimbursement (a delay in payment of tuition out of financial aid for 45 days after the program starts) instead of being cut from financial aid completely as a result of its financial aid violations?

Why weren’t curbs put on financial aid given at other Corinthian campuses?

What information does the Department have that the violations were limited to the one campus?

Why did the University of Phoenix and ITT get off so easily when the Department found incentive compensation violations? (I am encouraged that the Department of Justice has filed a brief in support of the attorneys suing the University of Phoenix.)

So, the consequence of a school, like the Corinthian School, Bryman in San Jose, violating financial aid law, is that it does not get tuition up front, but it still does get the money. Did the Department check to see if misrepresentations were made to these Bryman students, as alleged in the lawsuits by students against Corinthian, or by student complaints with the state enforcement agency? Or did it limit itself to the one issue?

If a minority student (such as those that Corinthian seems so eager to educate according to the testimony of David Moore at last year’s hearing), obtained financial aid in violation of the law, that student would likely be doing hard time in jail.

It sends a bad message when violations of financial aid law have so few consequences for a school which is caught, but the consequences experienced by defaulting students are many, and severe. If they default (and many of those students owe $40,000 to $50,000 in federal student loans), then their tax refunds and earned income tax refund (meant for the children of the poor), families are taken year after year. Their paychecks and disability checks are garnished.

Their credit is ruined, so that they cannot even get credit to purchase a used car to get to work. They are barred from Section 8 housing and other government benefits. They are barred from getting grants and loans to get a legitimate education. Pure and simple, these schools ruin young adult’s lives, and steal their dreams. Yet for the most part, the Department refuses to follow up on leads that fraud and violation of the law exist.

TRADE SCHOOLS THAT RELY HEAVILY ON FINANCIAL AID HAVE POORER STUDENT OUTCOMES

Proprietary schools that rely more heavily on Title IV funds have poorer student outcomes. The GAO report on this issue shows that programs with the highest reliance on Title IV funds, on average, have the highest default and the lowest completion and placement rates. When students default on federal loans the schools get paid, while the taxpayer and the students are left footing the bill. Often, the expensive training does not lead to jobs, but the Department has rejected the OIG recommendations to limit funds for education when the jobs are not there.

Mr. Moore, CEO of Corinthian, in a prior appearance before this committee told the committee that the Marietta campus of the Georgia Medical Institute had obtained 81.9 % of its revenue from title IV funds. The implication was that is was approaching 90%, so the 90/10 rule was bad.

However, he failed to mention that the default rate for that campus in 1999 was 2.8%, but then skyrocketed to 18.5 percent in just three years. One could conclude that this means nearly 1 in 5 students were unable to find employment sufficient to make the minimum loan payments, or did not know to apply for deferments.

GAO studies show students default because they do not have sufficient income to pay the loans. It is disingenuous for Mr. Moore or the directors of other schools to hide the motivations of for-profit institutions behind promises of improving access to education for minority students. I take exception to this.

I believe the real motive behind wanting to enroll more minority and low income students is that they are the most profitable students since they qualify for the highest amounts of federal financial aid and the smallest expected family contribution, or none at all.

Further, they are less likely to complain, and when they do they are less effective, because they don’t know where to complain, or how to articulate their complaint, as they do not know the requirements of the law.

It is apparent that there are little or no admissions standards for many of these schools in practice, and unqualified students are enrolled (see prior discussion).

With the newly added pressures from Wall St., the FBI, the SEC, the Department of Education and this committee should be more concerned about protecting these students and taxpayers, rather than protecting the proprietary schools which have a history of violations.

PROBLEM SCHOOL IN MY DISTRICT

The American College of Medical Technology is an allied health school located in Gardena, CA in my district. Despite being sued at least twice for making misrepresentations to students, the same practices have continued. It is alleged by students that the school makes misleading remarks or fails to explain the certification that these students will receive after completing the MRI course.

The school implies that the students will be qualified for a more widely accepted certification regarding MRI use than what they actually get from the program, and the school provides grossly inflated estimates of probable starting salaries. This is what induces students to spend $18,000 on tuition for the program.

Students complain of the following:

they have not been given any hands on experience with the appropriate machinery for their field,

they were given textbooks that covered different material than that for the course of instruction in which they enrolled, and

they had instructors that were unable to answer the simplest of questions related to the material.

Despite the lawsuits and multiple student complaints, the school proceeds unabated in any way, unhindered by the state enforcement agency or its accrediting agency. Additional complaints will be filed.

Further, the course does not meet the minimum completion / placement rules under California law. Thus, the school should be ordered to stop offering this program. But the enforcement agency has refused to enforce the law, and the accrediting agency has also been remiss.

PROBLEMS WITH THE CURRENT LAW

Although most of my comments have been limited to the 90/10 provision, I disagree with CEO of Corinthian, Mr. Moore’s comments at the previous hearing, which indicate that the other safeguards regarding schools are sufficient. HR 507 must be defeated.

Accreditation does not ensure a quality education (see discussion above). The cap on default rates can be avoided by not enrolling ATB students and / or by changing to Sallie Mae private loans if the school exceeds the default ceiling for two years.

Further, the change in the computation of default rates has helped the schools by lowering their default rates by not counting students who default after their deferment runs out. The new method of counting defaults protects schools from reaching the 25% threshold over three years, and being barred from receiving financial aid.

The new method of counting defaults looks at only the first two years of repayment, and counts those with a deferment as if they were repaying the loan. But the rules for deferment and forbearance were liberalized, so that the deferment for economic hardship is more easily obtained.

So, low income students would most likely default after the two year period had elapsed, and their deferment ended. But since the default occurred after the first two years, it will no be counted against the school for purposes of computing the default rate.

Between 1993 and 1996, the percentage of proprietary students whose loans were in deferment increased from3.7% to 9.1%. These new rules save schools from defaulting out of the financial aid program, (but it doesn’t help the students or change the actual v. reported default rate). For example, 352 schools, rather than the 181 would exceed the 25% threshold if those whose loans were in deferment or forbearance were excluded from the default calculation.

Nevertheless, proprietary schools count for an inordinate percentage of the defaults. Further, defaults at two-year proprietary institutions exceed that of two-year non-profit institutions.

The satisfactory progress requirement can easily be avoided by giving the students the answers to the test (this is common) or simply changing the grades or re-enrolling the students. The Department is not sufficiently diligent in seeking refunds from problem schools or getting a large enough letter of credit. They often accommodate schools rather than protecting the students and the taxpayers.

Further, the Department does not investigate charges made by students regarding misrepresentations made to influence students to enroll, such as:

transferability of units

the probable starting salary

the percentage of students who completed and were placed in a job (even though federal regulations single these violations out as common, and only gives the Department, not private attorneys, the right to enforce these provisions)

experience and quality of the teachers

the availability of equipment, books, and supplies

the type of certification one can get upon graduation.

This is very sad, because these federal regulations have no private right of action, and can only be enforced by the Department, which does not do its job.

SCHOOLS SHOULD HAVE A REPORTING REQUIREMENT

The Federal regulations specifically prohibiting these practices listed above. But these prohibitions may as well not exist for all the (non-existent) enforcement that is done by the Department. We should not have to count on whistleblowers or private attorneys to do the Department's job. There should be specific laws and regulations which only apply to trade schools (those with no significant general education requirements).

Such schools should be required to report all lawsuits filed by students and stockholders against the school and all lawsuits filed by former employees or stockholders that allege violations of financial aid or education laws and / or regulations. The Department should be required to investigate all such allegations. The Department should be given no discretion in this regard.

All trade schools should also be required to give a copy of any confidential settlement of such a lawsuit to the Department, the OIG and the state enforcement agency. The Department should not simply ignore such suits which are a source of evidence, as is the case now.

Furthermore, this committee should investigate why the Department does not sufficiently investigate schools that violate the law and hand out appropriate penalties when they show no mercy to defaulting students who have been defrauded and are having 15% of their paychecks or disability checks taken so they are not left with sufficient funds to support their families.

The low income former students' earned income tax credits, which are to benefit low income children and tax refunds, are taken year after year from defrauded students who defaulted and did not get a job. The amount owed by the student never goes down because of added interest and huge collection fees which can add an additional 40% to the amount owing. These trade school students get zero priority from the department. This has simply got to change.

CONCLUSION

For the reasons discussed, above it is essential that the 90/10 rule be maintained and the fraction needs to be increased. To do anything else is to declare open season on low-income people and minorities. I am dead set against this.

To eliminate the rule will cause a whole lot of heart ache and family disruption at the lower end of the economic ladder. These families will be squeezed to the breaking point when the Department of Education tries to collect on the $40,000 in loans, when the family member did not get a job and has barely enough to feed and house the family.

I do not view these schools as offering opportunities to my constituents. These schools are using my mostly African-American and Latino constituents as mere ciphers to get the highest level of financial aid. They want my constituents merely to feed there bottom line without regard to the misery that most certainly will follow.


TRANSCRIPT OF THE SIXTY MINUTES SEGMENT

For-Profit College: Costly Lesson

Jan. 30, 2005

Are you interested in a new career? Are you looking for specialized training and a high-paying job in computers, fashion or health care?

Well, a lot of people must be, because companies selling that dream, the for-profit career colleges, are one of the fastest growing area in the field of education.

It’s a multi-billion dollar business with most of the revenues guaranteed by the federal government, and until recently the industry was the darling of Wall Street.

Now, it’s under scrutiny, with one of the biggest players facing allegations that it deceived investors, the federal government, and students, who say they’ve been taught a very expensive lesson. Correspondent Steve Kroft reports.

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If you’ve ever watched daytime TV, you’ve probably seen one of Career Education Corporation’s ads offering students a brand-new life.

"Ever think you could be part of this? With the right training, you can!"

That one was for the Katharine Gibbs schools, which were bought by Career Education Corporation in 1997, and make up just a small part of its scholastic empire.

A year ago, CEC was one the hottest stocks on the NASDAQ exchange, with five years of record growth and $1 billion in annual revenue. It comes from nearly 100,000 students at 82 different campuses, taking classes in everything from computer animation to the culinary arts.

Brooks College in Long Beach, Calif., offers training in fashion and design, but its graduates have a special nickname for their alma mater: "Crooks College."

Why?

"Cuz they robbed us," says one graduate.

"Everything was a lie," says another.

What was the biggest lie?

"Job placement -- 98 percent job placement," several graduates said. "They said, like, starting $30,000 a year, $30,000 or more."

Brooke Shoelberg, Chanee Thurston, and Amanda Harris enrolled to study fashion merchandising after the school signed them up for tens of thousands of dollars in student loans, and showed them videos promising to help them get jobs with companies like Giorgio Armani.

Did Brooks College find any of them a job? No, they said.

Did it make an attempt to find them a job? Again, they said no.

The school declined to comment, but 60 Minutes knows that all three women graduated near the top of their classes. A year later, none had been able to find the kind of job she was supposedly trained for.

Brooke was managing a telephone store; Amanda was unemployed; and Chanee was selling T-shirts. All of them went heavily into debt to get a two-year degree they now believe has little value.

"The school has no credibility with the fashion industry, whatsoever," says Thurston.

Complaints, laid out in a number of lawsuits against CEC by former students, investors, and employees, are now under investigation by the Justice Department and the Securities and Exchange Commission.

The lawsuits and the investigations were cited by CEC as the reason for declining a request by 60 Minutes for an on-camera interview.

But there were plenty of other people willing to talk on-camera. One man, who wore sunglasses and a visor, said, "I am completely embarrassed that I ever worked at Brooks College or for CEC."

This man, along with two of his former colleagues, Barry Ross and Eric Shannon, used to work at Brooks College. They say there were some dedicated teachers there, but that the administration was more interested in making money than in educating students.

Ross’ title was admissions representative. But Shannon says "we were really sales people."

"Selling the dream, basically," says Ross.

"We’re selling you that you’re gonna have a 95 percent chance that you are gonna have a job paying $35,000 to $40,000 a year by the time they are done in 18 months," says Shannon. "We later found out it’s not true at all."

"Yeah, it wasn’t true at all," says Ross.

According to an evaluation report from the Western Association of Schools and Colleges, "Only about 38 percent of Brooks students ever finish the program," and the average starting salary for all graduates is "less than $11 dollars per hour."

The admission counselors told 60 Minutes they were expected to enroll three high school graduates a week, regardless of their ability to complete the coursework. And if they didn’t meet those quotas, they were out of a job, which is what the man in sunglasses says happened to him. They all say the pressure produced some very aggressive sales tactics.

"In that way, the job was a lot like a used-car lot, because if I couldn't close you, my boss would come in, try to close you," says Shannon.

The enrollment fee was $50. "You need three things," says the man in sunglasses. "You need $50, a pulse, and you’ve got to be able to sign your name. That’s about it."

You have to sign your name to a government loan form. The government-backed student loans are crucial to the entire industry.

In 2003, they made up nearly 60 percent of CEC’s revenues. And in order to be eligible for that money, CEC is required to provide students with accurate information about job placement.

Would CEC exist if it weren't for government loans?

"I don’t believe that they would be a $1 billion company in 10 years, if it weren’t for the federal government loan programs," says Tami Hanson, who was once the national manager in charge of student placement for all of Career Education Corporation’s campuses in the United States.

Hanson, who was fired a few months ago, was one of more than 50 current or former employees with whom 60 Minutes spoke at more than a dozen schools. All had variations of the same story.

What was the corporate culture like?

"All about the numbers, all about the numbers," says Hanson. "Getting students enrolled, getting students in the seats. Keeping students in the seats, getting them passed enough to graduate, and then trying to get them any job we could."

But getting students any job they could did not necessarily mean getting them jobs they were trained for. And she says a job placement could mean just about almost anything.

"It may be that, you know, they end up placing them folding T-shirts at the Gap at a fashion, as a fashion grad -- which is fine, but not what they were promised in the beginning," says Hanson.

"And a job they could've gotten without paying $15,000 or $30,000," says Kroft.

Actually, it is more like $30,00 $60,000 and $80,000 depending on the program, says Hanson.

Hanson says the quality of education varies from school to school, and that there are some very good programs and highly motivated students who find successful careers. But she says too many students simply don’t have the aptitude or the skills necessary to succeed in class or the workplace.

"They were not prepared, but at the same time, the instructors were really pressured to pass them through that class to keep them in school," says Hanson.

So CEC could keep collecting the government money? "So they could keep the revenue," says Hanson.

CEC has denied these and other allegations in response to various lawsuits, and it says it’s made compliance with government regulations and investigating complaints a top priority.

Chairman John Larson wrote 60 Minutes saying, "We’ll investigate the situations cited in your report and take appropriate corrective action as violations are identified."

And it did not take long to find a violation. To see how the admissions process works, 60 Minutes Associate Producer Jennifer MacDonald, armed with a hidden camera, went to a number of CEC schools in the New York area.

At the Katharine Gibbs School, she began by asking about graduation rates. She was told that 89 percent graduated.

But that wasn’t even close. According to the Department of Education’s most recent figures from 2003, this school’s graduation rate was 29 percent not 89 percent, a difference of 60 points. Federal regulations require that prospective students be given the official statistics in writing prior to enrollment and the admission representative seemed ready to sign MacDonald up.

When MacDonald wanted to know about a career in fashion, this is what she was told: "These jobs pay a lot of money. You’re looking at, if you take this craft and be very serious about it, you can make anywhere from hundreds of thousands to if you go up to be a designer."

But not everything at Career Education Corporation is fashion or business. Its Sanford Brown Institutes prepare students for careers in health care; training ultrasound and cardiovascular technicians; and medical and surgical assistants.

The admission representative told the associate producer that the school was highly selective. So MacDonald did everything she could to disqualify herself for admission to become a medical assistant, a nine-month program that costs almost $13,000 prepares students for entry-level positions.

When lousy grades and prior drug use weren’t enough to get her rejected, she tried a different approach. She told them she had a "problem with blood." The representative told her that "98 percent of our students have a problem with blood. The first day of the module, they don’t hand you a syringe and say, 'Go for it.'"

The school did require the associate producer to take an admission test. She intentionally flunked it, getting just 7 out of 50 questions correct. But the school allowed her to take another test with different questions. This time, the admission representative said she had doubled her score to 14 out of 50, and that was just good enough to qualify for admission.

Although it was easy to get in, all the counselors told MacDonald she would have to work hard and attend class to complete the course. But Hanson says what CEC is most interested in is tuition.

"They want to say that the student comes first, but I think it becomes obvious to anybody that works in the school, that the student does not come first," says Hanson.

Where does the student come? "The student comes with how many dollar signs are attached to them. And anything after that is secondary," says Hanson.

CEC is not the only publicly traded career-school operator in trouble with the federal government. Last fall, the Department of Education handed out its largest fine ever -- $9.8 million dollars to the Apollo Group and its University of Phoenix for admitting unqualified students to boost enrollment.

And a year ago, federal agents raided the headquarters and 10 campuses of ITT Educational Services, investigating charges of falsified grades and attendance records.

Nick Glakas is president of the Career College Association, a Washington lobbying group that represents 1,100 career colleges in the United States.

"This is not an industrywide problem. And let me address the whole question of being under investigation," says Glakas. "Allegations from a legal standpoint are not facts and are not evidence."

Glakas says career colleges are a passport into the middle class for millions of people, a gateway to the American dream.

"Twenty-five percent of our students are working adults. Fifty percent are minority. Seventy percent are the first in their family to go to college. This is an extraordinary success story," says Glakas.

Rep. Maxine Waters, who represents the poorest district in Los Angeles, isn’t so sure. For the past 15 years, she’s been the industry’s most persistent critic.

"I have seen young person after young person who simply wanted to get trained for a trade, for a job, get ripped off," says Waters.

Why hasn’t anything been done? "These private post-secondary schools are very sophisticated in its politics, and they actually have members of Congress who protect them," she says.

Over the past two years, career colleges and lending institutions that benefit from government-backed student loans handed out more than a million dollars in campaign contributions to members of the House Education Committee. Half of that money went to the committee’s two ranking members: Chairman John Boehner of Ohio and Buck McKeon of California. Both declined requests for interviews.

As for the sales reps whom 60 Minutes spoke with, Barry Ross has filed a discrimination lawsuit against CEC. Eric Shannon now works in finance, and the young man is the sunglasses is selling cars.

And the Brooks College graduates? They feel betrayed. They were sold the idea that an investment in education would change their lives. This investment did, but not in the way they were promised.

"My mother told me to declare bankruptcy and I'm only 21," says Thurston. "She said it'll go away in 10 years so when I'm 31 I can start my life all over."

"But we are all students that did everything we were supposed to, we gave it our all," says Amanda Harris. "And we're still jobless. You know, like, it doesn’t make sense."

For-Profit College: Costly Lesson

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