Tom HarkinU.S. Senator
[D] Iowa, United States

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Mr. HARKIN. Mr. President, 2 years ago, not long after I became chairman of the Senate's Health, Education, Labor, and Pensions Committee, I made the decision to undertake an investigation of the for-profit sector of higher education.

My reason for doing so was compelling: Congress had just finished making huge new investments in the Pell grant program; meanwhile, enrollment in for-profit colleges had increased 225 percent over the previous 10 years compared to 31 percent for the rest of higher education.

So this is what we were looking at, as shown on this chart. The enrollment in the for-profit sector kept going up, and finally, in 2006, it took a huge increase--up from 765,000 in 2001 to 2.5 million, almost, in 2010. So while students at for-profit colleges made up between 10 and 13 percent of all the students, for-profit colleges now were receiving almost 25 percent of all student loans and Pell grants.

Meanwhile, troubling reports began to surface: prospective students being lied to by aggressive recruiters; other recruiters showing up at wounded warrior facilities and homeless shelters; students saddled with a mountain of debt, unable to find jobs.

Two years later, our investigation is complete. The committee has held 6 hearings, issued 30 document requests, compiled data from multiple agencies, interviewed many former students and employees, and compiled a fact-based authoritative public record.

Earlier today, we announced the release of our final report called ``For-Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success.'' This report provides a detailed explanation of how Congress has failed to properly monitor student outcomes in this sector of higher education or to safeguard the enormous investment taxpayers are making.

As this next chart shows, Pell grants going to the for-profit sector have grown from $2.5 billion to $8.8 billion, in just 5 years. Again, this is what we are looking at. Just think, that we had to do something; and look at this: $2.5 billion, up to $8.8 billion, in 5 years. These are Pell grants. As I said, about 10 percent of the students, 25 percent of all the Pell grants. This was twice as fast as anything else in higher education.

As the chairman of the Appropriations subcommittee that funds Pell grants, we work very hard to make sure Pell grants keep up, that we increase them. So it was distressing and outrageous to learn that a disproportionate share of this Federal investment is going to schools that are raking in big profits but failing to educate our students.

I will now put up another chart.

You have to ask the question: Has the American taxpayer gotten an acceptable return on this huge investment in students attending school in the for-profit sector? The answer is a resounding no.

More than half of the students who enrolled in 2008 and 2009 had withdrawn by 2010. At many of them, as the chart shows, the withdrawal rate was 67 percent, as shown here for Ashford University.

What this means is, for students who signed up at one of these schools and [Page: S5633] got a loan, got a Pell grant, 1 year later 50 percent of them were not there. It was as high as 67 percent of students at Bridgepoint, Ashford University, who were not there.

So you say: Well, what happened to the money? Guess what. Bridgepoint got the Pell grant. Bridgepoint got the Stafford loan. The student dropped out, and the student has the debt.

The student has the debt, and the student has nothing to show for it: no appreciable skill, no diploma, nothing. In fact, they are worse off than when they started because now they have a huge debt hanging around their neck. I just want to say that in this report, what we will find is overwhelming documentation of exorbitant tuition, unsavory recruiting practices, abysmal student outcomes, taxpayer dollars spent excessively on marketing and pocketed as profits, and regulatory evasion--regulatory evasion and manipulation.

I will have more to say about that later. Again, these practices are not the exception, they are the norm. They are systemic throughout the industry. There are, of course, individual exceptions. Again, there are real differences among the various for-profit colleges. That is why we took profiles of 30 different companies. We took 15 that were publicly owned, investor owned, and we took 15 that are more private. We took some from the biggest to the smallest so we would have a broad picture of what was happening in this industry.

Now, again, compared to the industry overall, some for-profit colleges are doing a better job for their students. I would mention Strayer, Walden, National American University, and American Public University--all private, for-profit schools doing a much better job for their students.

There are also for-profit colleges that have had serious shortcomings. But they are beginning to make some changes. They are now open to new thinking about how to improve student outcomes. I would include in this list Kaplan, DeVry, and Apollo, which is basically the University of Phoenix. The bottom line is that a large share of the $32 billion that taxpayers invested in these schools in 2010 was wasted. We cannot allow this to continue.

Why? Because 73 percent of undergraduate students in this country are nontraditional students. For example, they are holding down jobs, they are older, perhaps they have family responsibilities, come from maybe low-income communities, and they may be the first in their family to attend college. Our Nation's existing network of public and not-for-profit colleges and community colleges cannot meet the demand for higher education or meet President Obama's goal of producing more college graduates without increasing the number of Americans who spend at least some time in higher education. We need for-profit schools to offer these students more than a path to enrollment. We need them to offer students a path to success and graduation.

We uncovered two overall problems with the status quo in for-profit higher education. One, billions of taxpayer dollars are being diverted from the educational activities they were intended to finance; and, two, taxpayer dollars are being used to do real lasting harm to the students these colleges enroll.

Again, think about it. In just the 1 year we examined, more than half a million students enrolled in for-profit colleges and then quit. Almost every one of those dropouts left school worse off than when they began, with no tangible economic benefit, but saddled with debt that cannot be discharged in bankruptcy, far less able now to continue their higher education in the future because they will have defaulted on those loans. They will not be able to get Federal loans, and they will not get any more Pell grants.

So we have to ask why is this happening? One of the reasons is that the tuition at for-profit colleges is grossly out of line with the cost of comparable programs at public and nonprofit institutions and fail to reflect the often dubious value of a degree from a for-profit. As this chart shows, this is average, from a public college in yellow, and the purple is for-profit colleges.

For an average certificate program, public schools, $4,249--this is tuition. At a for-profit, $19,806; for an average associate degree, 2 years, $8,000 in public schools; that would be our community colleges and others, $34,988--almost $35,000 at a for-profit school. For a bachelor's degree, $52,000 in public schools; $62,000 in the for-profit schools. It costs 20 percent more for an online degree from Ashford University than a degree from the University of Michigan.

Now, since these schools do not have bricks and mortar, they do not have to pay heating bills and cooling bills and upkeep of dorms and all of that kind of stuff, one would think they could offer these courses much cheaper than what they are doing. That is not the case. They are much more expensive.

So why doesn't this lower overhead translate into lower tuition? We will put up the next chart. The answer is the efficiencies of online education are not passed on to students. Instead, those lower costs of delivery go straight to profits, marketing, and executive salaries. Tuition is set primarily based on maximizing revenue from Federal taxpayer dollars and on what executives think the market will bear.

That is sort of what this chart shows. This red line is the average available Federal aid to a student. This would be Stafford loans and Pell grants. This is average, $13,205. When we examined all of the private schools--this is just a representative sample--they are all just above that line. In fact, we have internal documents from many of these schools, from their executives, saying they are going to set their tuition in order to make sure they can maximize access to those Federal dollars.

Now, there are exceptions. I wanted to put one in there. American Public Institute, as I said earlier, they are way down here. They made a profit, they are profitable, and they provide a good service. They are not pegging their tuition costs at just what they can maximize. So there are examples out there, but the vast majority set it just at what the market will bear and how they can maximize their Federal dollars.

How much are these Federal dollars? About 83 percent. So I think another feature of the for-profit schools is their almost total reliance on taxpayer money. They say they are for-profit, but it is not like a for-profit for a private business that is competing in selling cars or washing machines or refrigerators or maybe some other kind of a service where one can pick and choose. About 83 percent--this is military, 3.8 percent, and 79.3 percent is Federal student aid dollars; 83 percent comes directly from the taxpayers of this country.

So if for-profit colleges charge exorbitant tuition and often provide an inferior education while experiencing sky-high dropout rates, how are they able to recruit a steady stream of new students? The answer is that for-profit colleges are what I would call a marketing machine. They spend 42.1 percent of their revenues on marketing, recruiting, and profit. Yet they only spend 17 percent of revenues on actual instruction.

By comparison, the University of North Carolina System spends less than 2 percent of its budget on marketing--2 percent. What we see is 42 percent--42 percent on marketing and profits; 17 percent on student instruction. This is interesting: 40.7 percent all other spending. I would point out herein are executive salaries, executive compensation, bonuses paid to recruiters, and on and on and on. Only 17 percent for instruction.

Most colleges, when they talk about marketing, it is down around 2 or 3 percent. I will bet the University of Virginia is probably down there. I do not know. We may have that documentation. I know the University of Iowa System is down around that 2- to 3-percent total for marketing. You have seen their ads, different things for public universities, nonprofit universities, but nothing close to 42 percent.

This is what leads to what we call the ``churn.'' Students come in, they get recruited, they get their Pell grants, they get their loans, the school gets the money, a year later the student drops out, and so the marketers go out and bring in more students. So we get this tremendous churn in the student body at these for-profit schools. Perhaps most critical, these institutions fail to provide adequate student support services, as I said. This is a critical finding of our report. [Page: S5634] Despite knowingly enrolling some of the most at-risk students in our country, many of these schools do not provide these students with the services common sense tells us they need to succeed. How many times have we heard from the for-profit industry: Yes, we are different because we are enrolling students who do not go to our normal colleges, do not go to the University of Iowa, to the University of Virginia. These are nontraditional students. Many of them are poor. That is true, but that is who they are recruiting.

Why are they recruiting them? To get the most Pell grants and the most Stafford student loans. That is what the college gets.

Now, if they are doing that, then they need to provide mentoring, tutoring, some kind of alumni network, job partnerships, and genuine career counseling. Two of the largest for-profit companies provide no career counseling or placement to students whatsoever. Yet these are the very students who need the most help when they go to college. Students from upper income families who go to good schools, they do not need that. English language learners, Latinos, African-American students, those we intuitively know need more education. Maybe they have lost a job and now they realize: I have to do something. I have to get a better education. These marketers go after them. This is what our report found.

If you look at the enrollment in these schools, as I said, it has gone up. The enrollment has gone up. Look at the recruiters. From 2007 to 2010, we went from a little over 20,000 to 35,202 recruiters at 24 of these companies.

Down here, the red line, these are the career services. These are the people who counsel and mentor and tutor and help with career guidance. It has not gone up a bit. Huge increase in students, big increase in recruiters, and almost no increase at all in career counselors. This is a failure, an abject failure.

This report is the first comprehensive fact-based analysis of this industry. Earlier today I saw that the association for for-profit institutions called this a flawed process. As near as I can understand their critique, the process was flawed because it was about them, but that is what congressional oversight is about.

This was not an overnight thing. This is what we produced: four huge volumes, data-driven documentation, documentation on what is happening in this industry. This is the summary. This holds most of what we found. These three will have all of the backup documentation that is needed to support the findings we have.

We have before us a factual record that we have never had before. The Department of Education did not have it. No one has had it before. This can guide us as we move toward reauthorization of the Higher Education Act next year. Again, during the reauthorization we will also be looking at traditional higher education.

We have already held two hearings on college affordability. There is no question that we need to find a way to improve outcomes not just at for-profit colleges but also at low-cost community colleges. That said, the fact is there are problems that are unique--unique to the for-profit sector that will require some unique solutions.

We have seen some progress on this front, as I said. I have met with some of them. They have expressed a determination to reform and to do right by their students. In addition, the Department of Education took steps that are beginning to have real impacts.

In April, President Obama issued an Executive order that will help to ensure our veterans are not the subject of deceptive and misleading recruiting, and that will help solders and veterans to make better decisions about where to use their GI bill dollars.

Last month, Kentucky Attorney General Jack Conway led a 20-State attorney general settlement with QuinStreet, one of the companies engaged in some of the most egregiously misleading recruiting efforts targeted at veterans. But these are not enough. As I said, there is an important role for for-profit colleges in our increasingly knowledge-based economy.

A solid record of student success is in the national interest. The challenge is to require the companies to be as focused on student success as they are on financial success.

Now, there are four things we need to do.

First, we need to know how every student enrolled in college is doing, not just first-time, full-time students. This is a flaw in our system. The Department of Education only tracks first-time, full-time students. Most of the students who go to our for-profit schools are not first-time, full-time students, they are part-time students. So what we need to do is that for any student who gets a Pell grant and/or Stafford loan, we need to know how that student is doing and how they do later on.

Second, we need to be very clear that the Federal education money has to be spent on education, not advertising, recruiting, or lobbying. That is just common sense. I challenge anyone to stand up here and say: No, they should use taxpayer dollars to lobby, to advertise, or to pay a recruiter. No. We have to be very clear--they can spend it on education but not on advertising, recruiting or lobbying.

Third, we need to make sure these schools are providing at least a basic level of student services that would give the at-risk students they enroll a fair shot at completing. If there is one thing that distinguishes good for-profit schools from the bad ones, this is it: a genuine commitment to providing a network of student support--mentoring, tutoring, employer partnerships, genuine career counseling--not just in the beginning but all the way through the program. The good schools that are doing that are turning out quality products.

Fourth, we have to think seriously about outcome-based thresholds, particularly for colleges that get a very high proportion of their revenue from taxpayers. And we need to build on the gainful employment rule to ensure that students are not being loaded up with debt they cannot repay.

I am confident the record we are laying out today will make some of these reforms inevitable as we move forward. I wish to also thank some of my colleagues and to note that work has already begun on legislation.

Senator Hagan is sponsoring a bill to ban the use of Federal financial aid dollars for marketing.

Senators Murray and Webb are sponsoring comprehensive legislation to better protect servicemembers and veterans using the post-9/11 GI bill.

Senator Lautenberg is sponsoring a bill to provide every veteran who receives education aid from the Department of Veterans Affairs with counseling to help make the right choices and to create a system to track veterans' complaints of waste, fraud, and abuse by these for-profit schools.

Senators Carper and Durbin are sponsoring bills to address the absurdity of not counting all Federal money in the restriction on how much money these schools can receive.

One of the things we picked up on as we started this investigation was the tremendous focus these for-profits were now making on veterans, especially Iraq and Afghanistan veterans, and Active-Duty personnel. The reason for that is because we have a 90-10 rule that says for-profit schools can only get 90 percent of their money from the Federal Government. The other 10 percent has to come from someplace else--private sources. But that doesn't count military. If a for-profit school bumps up on the 90-10 level, it cannot go out and recruit any more people, but if it recruits one military person, it can get nine more nonmilitary. So that pays for them to go after the military. Well, Senators Carper and Durbin have a bill in to stop that.

Senator Durbin is also a leader on the issue of private student loans and bankruptcy, as well as a great partner in helping to draw attention to the experiences of students who have attended these schools.

I also thank other members of the HELP Committee who have been active participants at hearings, including Senators Franken, Merkley, and Blumenthal.

I have also received a great deal of support and encouragement along the way from organizations dedicated to ensuring that students have a genuine path to success in higher education. In particular, I thank the Council for Opportunity in Education, the Education Trust, the Leadership Council on Civil Rights, the Institute for College Access [Page: S5635] and Success, Campus Progress, and the National Association for College Admissions Counseling. All of them have been involved in helping us over the last couple of years to get the data we needed.

On behalf of servicemembers and veterans, we have had tremendous assistance from the Iraq and Afghanistan Veterans Association, the Veterans of Foreign Wars, the Military Officers Association of America, Blue Star Families, the Vietnam Veterans Association, Student Veterans of America, the American Legion, VetJobs, VetsFirst, Paralyzed Veterans of America, the National Association for Black Veterans, the National Guard Association, the Air Force Sergeants Association, the Association of the United States Navy, Wounded Warriors, and Veterans for Common Sense. All of them have been involved. We have gone to them, and they have been so forthcoming and helpful, helping our staff and me to understand what is happening.

I also thank the witnesses at our hearings, several of whom have been subjected to unwarranted and undeserved criticism. In particular, I thank Steve Eisman, who provided the committee with unique expertise and insights about the industry in a way that helped policymakers understand that these companies were much more than just colleges. As everyone in this body knows, people with a financial stake in an industry testify before Congress every day and, like Mr. Eisman, provide some of the most insightful and accurate information we receive.

I also thank former Westwood employee Joshua Pruyn, who provided a real-world view of working as a for-profit recruiter. He was willing to come forward for the sole purpose of shedding light on this industry, and the criticism he has sustained speaks poorly of those who claim to believe in the valuable role whistleblowers play.

I thank my staff, who have pursued this investigation tirelessly and tenaciously.

I thank my oversight team and my HELP Committee, who spearheaded the investigation, analyzed the numbers, calculated all of the outcomes, interviewed students and employees, reviewed thousands of pages of documents, and prepared this final report. That oversight team was led by Beth Stein. She was assisted throughout six hearings, three previous reports, many spreadsheets, charts, and megabytes of documents by Elizabeth Baylor and Ryan McCord. More recently, they were joined by Kia Hamadanchy and Bryan Boroughs, who have dedicated many long hours to the research, writing, and publication of this report.

I also owe a tremendous thanks to several staffers who are no longer with the committee but played a critical role in this investigation: Beth Little, Luke Swarthout, and Robin Juliano.

I also thank my former and current HELP Committee staff directors, Dan Smith and Pam Smith, who have ably guided this sometimes challenging effort.

Our communications staffers have patiently explained the 90-10 rule, the cohort default rate, and the fact that we don't actually know how veterans attending for-profit schools are doing to hundreds of reporters throughout the country. I thank Justine Sessions, Kate Frischmann, and Liz Donovan.

I also thank my education policy staffers who joined this effort more recently but who will be carrying us forward in our legislative reform efforts: Mildred Otero, Spiros Protopsaltis, and Libby Masiuk, as well as Carrie Wofford, who has played a tremendous role in outreach to groups across the country and has been a particular advocate on behalf of veterans impacted by the practices of the for-profit colleges.

I also thank our tremendous group of law clerks, who dedicated many hours to the less glamorous tasks of getting this put together: Abre Connor, Joel Murray, Lauren Scott, David Krem, Ashley Waddell, Lindsey Daughtry, Zach Mason, Sophie Kasimow, and Brittany Clement.

A special thank-you goes to the law clerks who helped write and prepare the report: Lucy Stein, Nicholas Wunder, Shauna Agean, Keagan Buchanan, and Douglas Dorando, and also Andrea Jarcho, who has juggled multiple roles and worn multiple hats.

For their assistance along the way, I also thank Paul Edenfield, Madeline Daniels, Alyssa Davis, and also Dan Goldberg for his always-sound analysis and advice.

Finally, I thank Denise Lowrey and Carolyn Bolden, on the committee staff, who spent many hours making the report as error-free as humanly possible.

Today we bring the HELP Committee investigation of for-profit colleges to a close, but the record we have laid out leaves much to be done, and I look forward to continuing to work with my Senate colleagues to help for-profit colleges realize their potential as a genuinely transformative force in higher education.

With that, I yield the floor.