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. 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. Selected video clips of our undercover tests  can be seen at 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. However, this undercover applicant indicated that  he had $250,000 in savings—more than enough to pay for the program’s  $39,000 costs. Admissions representative encouraged applicant to change the FAFSA to falsely  add dependents in order to qualify for Pell Grants. 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. 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. 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 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. 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 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 for certificates at for-profit colleges were often  significantly more expensive than at a nearby public college. After  refusing to sign an enrollment agreement the applicant was  allowed to speak to someone in financial aid.
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. 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 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.