Responsive Documents - Department of Education: Regarding For-Profit Education: 8/17/2011 - 11-00026-F 2woodward

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Woodward, Jennifer
From: Woodward, Jennifer
Sent:
To:
Sunday, November 14, 2010 10:10 AM
Minor, Robin; Gust, Mary
Subj ect: FW: another ABC News undercover investigation
FYI.
From: Georgia
Sent: November 2010 8:55 AM
To: Jennifer; WolffJ Russell
Subject: FW: another ABC News undercover investigation
FYI
From: James
Sent: November 13J 2919 10:56 AM
To: Martha; Justin; Eduardo; YuanJ Georgia; Steve;
Tony; Joanne
Cc: David
Subject: FW: another ABC News undercover investigation
ABC found a college recruiting felons for a criminal justice program. Video is online.
http://abcnews.go. com/Thelaw/abc-news-investigates-profit-education- recruiters-caught-
offering/story?id=12122004&page=1\
ABC News Investigates For- Profit Education Again: Recruiters Caught Offering Bad Advice
Despite ABC News' Previous Report, Some Recruiters Still Give Grossly Misleading Information
As a former Criminal Justice professor for the for- profit Remington Coll ege in Houston,
Larry Stewart said he was shocked when he discovered several convicted fel ons in his criminal
justice classes.
"My very first class, I had a husband and wife who, he had done 13 years at the Texas
Department of Corrections for a home invasion, robberyJ" he said.
"And his wife had done three years for trafficking drugs across state lines."
According to Stewart, the felons in his class told him that recruiters for the school said
they could work in law enforcement.
"I said, 'And you want to do what?'" he said. "They said, 'Well, we want to go into criminal
justice.' And I said, 'You can never get a job in criminal j ustice. ' And they said, 'Well,
the recruiters said that we can.'"
It isn't the first time recruiters for for-profit school s have been accused of misleading
people. ABC News conducted an investigation in August that exposed recruiters from the
country's biggest for-profit college, University of Phoenix, for giving incorrect advice to
prospective education majors.
In that investigation, we sent in one of our producers undercover who asked about becoming a
teacher in New York State. The recruiter told him a degree from the University of Phoenix
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would enable him to take the state
and become a certified teacher in New

York. This was not true. The recruiter also encouraged the ABC News producer to take out the
maximum amount of financial aid allowabl e, including interest-bearing student loans -- even
if it was more t han he needed.
Experts say students who have attended for-profit schools are defaulting on their federal
student loans at an alarming rate, which, they add, may contribute to the next big financial
crisis.
After speaking with Stewart, ABC News conducted another undercover investigation recently,
this time at Remington College. We sent in a prospective student with a felony conviction,
undercover, to talk to a recruiter about enrolling in the college's criminal justice program.
Student: "I have -- a felony from 2ees."
Recruiter: "OK, 2005, OK . And what is it?"
Student: "Theft"
Recruiter: "We will definitely work with you, especially when you know it up front. And that
helps us a lot.
When we know your history and your situation up front. We know exactly what, you know, kind
of a target area you wanna be in -- sheriff's department, corrections."
The recruiter also told our undercover student that he couldn't be a cop, but there were a
variety of opportunities in law enforcement for people with felony convictions.
Remington College Recruiter Caught Giving False Information
Recruiter: "Sheriff's, corrections, jail ers -- we put everybody in all those places all the
time ... even border patrol, if you ever thought about it. Because, see, that ' s something
else that you could do that's still in the realm of criminal justice."
Despite the recruiter ' s assurances, that ' s actually not true for the state of Texas .
According to the Texas Department of Public Safety, a person with a felony conviction cannot
work for any sheriff's department, or as a corrections officer in the state of Texas, and
generally that's the case for border patrol positions as well.
A spokesman for Remington told ABC News that before students enroll in their criminal justice
program, they must sign a document acknowledging that they may not be abl e to work in law
enforcement with a criminal record .
This particular recruiter at Remington made her misleading statements just mont hs after
Harris Miller, a spokesman for the Associ ation of Private Sector Colleges and Universities,
admitted that for-profit schools need to clean up their act.
When asked why he thought the for-profit industry was in the hot seat, Miller said at the
time, "We're under fire for a couple of reasons. One reason is we're making mistakes."
He added, "our schools and my board of directors is committed to making changes . .. we have a
zero tolerance policy. That means once in a while you have to take an employee and take him
out in the back and shoot him-- not literally-- but you have to dismiss employees."
ABC News first talked to Miller in August after the initial investigation, when he promised
to improve the for- profit industry's recruiting standards. But despite his assurances, ABC
News found that Remington wasn't the only for-profit college whose recruiters were still
trying to sell misleading information to prospective students.
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DeVry Coll ege Recruiter Touts Overblown Success Rate
At DeVry College of New York, ABC News sent a producer undercover to speak with one of the
school's recruiters about becoming a certified teacher in New York through its program.
Recruiter: "Last year, 88 percent of our graduates were actually workin' in their field
within six months of graduation, OK? So, when we go through it later, you know, we'll show
you the breakdown by, you know, degree and by program and everything like t hat, so you can
kinda understand what, you know, where the number's coming from. But, I mean, 88 percent in,
you know, 2ee9 -- I guess, dependin' on where you come from. But with the economy and
everything, you know, most people look at that as--"
Producer: "That's pretty good."
Recruiter: "--a pretty good rate."
But the recruiter's claims were grossly misleading.
Based on DeVry's numbers, many of the graduates the recruiter was referring to had jobs to
begin with that DeVry was taking credit for.
A spokeswoman for the DeVry College of New York sent a statement sent to ABC News via email
in response to our investigation of the college's numbers, saying, "We make no apologies for
counting these employed students in our employment statistics and disclose this fact openly
in our print collateral, web site and admissions materials. We have been consistently
reporting our employment statistics in a similar fashion for over 3a years. Many, if not most
institutions of higher education also treat these employed students as part of their employed
population."
Click HERE to read a letter to ABC News from DeVry College of New York.
In a statement to ABC News about the issues with for- profit colleges, Sen. Tom Harkin, D-
Iowa, the c hairman of the Senate Committee on Health, Education, Labor and Pensions, said:
"Each aspect of for-profit colleges ' relationships with their students that I've investigated
so far often features misrepresentation or manipulation -- it appears job placement claims
are no different.
Misleading students and the American public about job placement rates is yet another example
of for- profit colleges putting their shareholders before their students . Just as a lender
shouldn't mislead an advertisement American into a mortgage they can't afford, an
institution of higher education should not lead a prospective student into loan debt with
misleading promises of post -graduation job prospects."
When we spoke with him i n August, Miller attempted to explain what happened with recruiters
at other for- profit colleges.
"In some cases ... for whatever reason, because of poor training, because of rogue employees or
because they're getting the wrong message from above -- whatever the reason, somebody is
doing things wrong too widespread and we're going to change that," he told ABC News.
Some critics of for-profit schools believe the industry is out to enroll students because it
means big money for them. An enormous, publically-traded industry, for-profit colleges
received $24 billion in federal funds in 2ee9 and had an enrollment of 1. 4 million students,
according to the Government Accountability Office. Tuition for some is more than $2e,eee per
school year.
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"Every institution of higher education has

in more money than goes out, otherwise
the school'll close down," Miller said in his interview after our initial investigation.
"Your tax status has nothing to do with whether you're Harvard Universi ty ... or whether you're
a 'tax-status: for-profit' institution."
Miller added that despite aggressive recruiting methods, money is not the biggest goal of
these for- profit institutions.
"It can't be profit first, because if you're not turning out a quality student, you're not
gonna be able to continue in business-- because students have choices," he said . "They don't
have to go to one of our institutions. They can choose to go to a state college if they have
relatively open enrollment. They can choose to go to a community college. So unless we can
show quality outcomes systematically, there's no way these schools will be able to continue
to operate."
After ABC News' first investigation into the University of Phoenix, it seems as though some
improvements h ave been made at that particular for-profit institution. University of Phoenix
president Bill Pepicello told ABC News that the college has stopped compensating its
recruiters based on the number of students they enroll.
University of Phoenix Changed Recruiting Policy After First ABC News Investigation
Upon learning of the change, ABC News again, twice, sent in an undercover producer to speak
with a University of Phoenix recruiter to ask about getting a teaching certificate in New
York through the school ' s program. This time, the recruiter did not offer any misleading
advice.
Recruiter: "If you live in the state of New York, we can't enroll for education for you
because the New York requirement for education is totally different than what we can enroll
for."
Despite the change at University of Phoenix, Remington's former Criminal Justice professor,
Larry Stewart, said he remains skeptical of the for-profit college industry because it makes
so much money.
"They're more concerned about the bottom line. What is the bottom figure on this student," he
said. "They look at, 'How much money did we make this term or this quarter?'"
Click HERE to read 20e9 employment data submitted to ABC News from DeVry College of New York.
ABC News' Lauren Effron contributed to this report
advertisement
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Woodward, Jennifer
From:
Sent:
To:
Subj ect:
Page 5 of 212
email@addthis.com on behalf of nanshep12@gmail.com
Thursday, August 19, 2010 3:07PM
Woodward, Jennifer
For-Profit Education: ABC News Goes Undercover to Investigate Recruiters at the University
of Phoenix - ABC News
Pretty soon you'll tell me not to send you any more emails - I wondered though if you had
seen this?
http://abcnews.go.com/Thelaw/profit-education-abc-news-undercover-investigate-recruiters-
university/story?id=ll411379
This message was sent by nanshep12@gmail . com via http://addthis.com. Please note that
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Woodward, Jennifer
From: jwa@ix. netcom. com
Sent:
To:
Subject:
Friday, May 28, 2010 12:32 PM
Woodward, Jennifer; Russei.Wolff@ed.gov
(RE Kaplan
FYI
JOHN ANDREWS
813 8771867
- - -- -- - Forwarded message follows ------- http:/jmotherjones.com/mojo/2010/05/steve-eisman-
big- short-michael -lewis
Steve Eisman's Next Big Short : For-Profit
Colleges
n By Andy Kroll
Thu May. 27, 2010 4:55AM PDT
Steve Eisman, the outspoken investor whose huge wager against the
subprime mortgage market was chronicled by author Michael Lewis in his
bestselling book The Big Short, has set sights on a new target : for-profit colleges of
the kind of you might see advertised on daytime TV and at bus stops. Think ITT
Educational Services, Corinthian Colleges, or Education Management Corporation.
In a speech t i tled "Subprime Goes to College, " delivered Wednesday at the Ira
Sohn Investment Research Conference, Eisman bl asted the for-profit
education industry, likening these compani es to the seamy mortgage brokers
who peddled explosive subprime loans over the past two decades. "Until
recently, I thought that there would never again be an opportunity to be
involved with an industry as socially destructive and morally bankrupt as the
subprime mortgage industry. I was wrong," Eisman said. "The for - profit
education industry has proven equal to the task. " (All of Eisman's remarks here
come from a copy of his prepared remarks obtained by Mother Jones.)
Eisman, a blunt, no-frills portfolio manager at FrontPoint Financial Services Fund, a
Morgan Stanley subsidiary, became an overnight sensation as one of the main
characters in Lewis ' latest . After witnessing the first wave of subprime madness in
the 1990s, Eisman grew skeptical of the industry as a whole, Lewis writes . Then,
when subpri me surged again in the 2000s, he put his knowledge to work. Needless
to say, he's a lot richer than he was t wo years ago.
The for - profi t education sector has soared over the past decade, making
companies like ITTand Apollo Group into heavyweights . Driving much of the
growth, Eisman explained, was the sector's easy access to federally
guaranteed debt through Title IV student loans. In 2009, he said, for-profit
educators raked in almost one-quarter of the $89 billion in available Title IV
loans and grants, despite having only 10 percent of the nation's
postsecondary students.
Ei sman attributes the industry's success to a Bush administrati on that
stripped away regulations and increased the private sector's access to public
funds . "The government, the students, and the taxpayer bear all the risk and
the for-profit industry reaps all the rewards,"Eisman said . "This is similar to
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the subprime mortgage sector in that the
bore far less

risk than the investors in their mortgage paper." (Calls to several for-profit
including ITTand were not immediately returned.)
Another similarity between subprime lending and for-profit education is
Eisman said: Both push low-income Americans into something they can't
afford"in the schools ' pricey programs that leave the students heavily
in debt; what's the degrees they get mean little in the real world: "With
billboards lining the poorest neighborhoods in America and recruiters trolling
casinos and homeless shelters"and I mean that literally"the for-profits have
become increasingly adept at pitching the dream of a better life and higher
earnings to the most vulnerable."
Eisman went on to cite the industry ' s dropout rates of 50-plus percent as
another sign of poor quality; the numbers are likely he given
that the industry reports them voluntarily . "How good could the product be if dropout
rates are so stratospheric?" he asked. "Default rates are already starting to
skyrocket . It's just like subprime"which grew at any cost and kept weakening its
underwriting standards to grow."
How does this kind of industry even stay in business? Eisman
has much to do with accreditation. There are two main tiers of college
accreditation: national and regional"the latter being the more valuable. (Big schools
like Yale and the University of Michigan are regionally accredited.) As Pulitzer Prize-
winner Dan Golden has reported
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for-profit colleges with the weaker national
accreditation have started acquiring financially troubled colleges for their regional
accreditation. In a Bloomberg Golden cites ITT's acquisition of New
Hampshire-based Daniel Webster College in June 2009 for $20 million) a purchase
that could ultimately reap $1 billion or more for ITT.
Eisman saved the ugliest part for last: As he sees it, the industry's era of
massive profits"ITT is more profitable on a margin basis than he
notes"are about to end, thanks to new government regulations in the
pipeline . He predicts big hits to the per-share earnings of Apollo ITT,
Corinthian Colleges, Education Management Corporation, and the Washington
Post Company"which owns and relies on Kaplan for profitability. For ITT and
Corinthian, Eisman foresees 2010 losses of nearly 40 to S0 percent . Regarding
EDMC, he noted in his prepared remarks that the company's 2010 fiscal estimate is
"massively negative."
Eisman ended with a warning:
Are we going to do this all over again? We just loaded up one generation of
Americans with mortgage debt they afford to pay back. Are we going to
load up a new generation with student loan debt they can never afford to pay
back? The industry is now 25 percent of Title IV money on its way to 40
percent. If its growth is stopped now and it is policed, the problem can be
stopped. It is my hope that this administration sees the nature of the problem
and begins to act now. If the gainful employment rule goes through as then
this is only the beginning of the policing of this industry.
But if nothing is done, then we are on the cusp of a new social disaster.
Not all experts on the for-profit education foresee such an ominous future.
Trace Urdan, a managing director at Signal Hill who analyzes the industry, told
Mother Jones earlier this week that pending regulation from Washington could
indeed complicate the future for for-profit colleges. He added, however, that "if you're
short on the industry right now
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you think there's a game-over scenario on the
way""something Urdan himself doesn't necessarily see happening. Should the
Education Department strongly crack down on for-profit schools, Urdan said he
predicted losses of 8 to 12 percentnfar less than Eisman's 40 to S0 percent
projection.
--- ---- End of forwarded message -------
2
John W. Andrews, Esq .
Andrews Law Group
3220 Henderson Blvd.
Tampa, Fl 33609
ph. 813-877-1867
fx. 813-872-8298
jwa@ix.netcom.com
Page 8 of 212
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Page 9 of 212
Woodward, Jennifer
From: Guthrie, Marty
Sent: Friday, August 06, 2010 7:55AM
Woodward, Jennifer; Wolff, Russell
McCullough, Carney
To:
Cc:
Subject: FW: Student Lending Analytics Slog
FYI
From: noreply+feedproxy@google.com [mailto:noreply+feedproxy@google.com] On Behalf Of Student Lending
Analytics Blog
Sent: Friday, August 06, 2010 4:27AM
To: Guthrie, Marty
Subject: Student Lending Analytics Blog
Student Lending Analytics Blog
r a ~ :
The Difference Five Weeks Makes
Posted: 05 Aug 201o 11:48 AM PDT
June 23, 2010: President and CEO of Career College Association, A Response to Steve Eisman, at National
Press Club
"It is no secret that the career education sector is under attack by short sellers, trial lawyers, self-styled
consumer advocates, and some traditional academics. Although they should know better, these critics use
anecdotes to generalize and to make sweeping condemnations of our sector. They seize on admittedly
flawed government data to make the most extreme statistical arguments. They exploit the same small
cadre of so-called third party experts to generate critical comments. And they recycle old news to give
currency to new allegations. In short, they twist the truth to serve their self-interest."
August 4 , 2010: From Career College Association press release "GAO Report Deemed Deeply Troubling:"
"The Career College Association (CCA) said the recent findings of a Government Accountability Office
(GAO) report on admissions and financial aid practices at several private sector colleges and universities
is deeply troubling and, notwithstanding multiple safeguards that schools already take, and the oversight
provided by the "triad" of federal and state regulators and accrediting bodies, it will institute a series of
immediate steps to help its members assure full compliance with regulations and accreditation
requirements in all areas.
"Even if the problems cited in the GAO report are limited to a few individuals at a few institutions, we can
have zero tolerance for bad behavior," said CCA President and CEO Harris N. Miller. "As educators, our
commitment must always be to put students first, even if that means taking action against individual
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employees or institutions that color outside the lines. We understand that employees can make mistakes,
but it is up to employers to take the set of comprehensive and multifaceted preventative and corrective
actions that minimize the risk of such problems and correct those that occur.
Wondering What Happened When Incentive Compensation Rules Were
Tightened in 1992?
Posted: 05 Aug 2010 11:32 AM PDT
From SLA post in November 2009 (which includes a table showing the percentage of student loans
coming from students at for-profit institutions:
At 22.1% in 2008-09, the proprietary sector is nearing their two decade high of 24.2% share of federal
student loan volume which they reached in 1990, just prior to the Nunn report and the ban on
incentive compensation in 1992.
In the decade where this ban on incentive compensation was weakened through the introduction of
twelve "safe harbors" in 2002, the percentage of federal loans going to proprietary schools has grown
from 12% in 2000 to 22.1% in 2008-09. I can't prove causality, but it is interesting to note that in the
period following the ban from 1993 to 2000, the proprietary sector's share of the federal loan market,
despite annual gyrations, remained almost unchanged from 11.5% in 1993 to 12.0% in 2000.
The Department of Education has proposed regulations to eliminate the safe harbors and go back to
the earlier ban on incentive compensation. Following the GAO report and hearing, University of Phoenix in a press
release today indicated that they would be making the following changes to their compensation plans:
"In addition, as previously announced, beginning November 1 of this year the University plans to roll out a
new student counselor compensation framework, which has been in development and testing for more
than a year ... A firm decision to change the way counselors are evaluated and compensated, including a
commitment to completely eliminate admission targets as a component of compensation."
Three questions:
What will the admissions counselors compensation be based upon (and what behaviors will this
compensation structure encourage)? As anyone who has managed salespeople knows, they respond to
incentives!
Will competitors be following suit with compensation changes or just waiting until they are forced to when
the new regulations take effect?
How sharply will enrollment growth decline as a result of the new compensation structures (and all the
negative publicity swirling in the sector)?
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Woodward, Jennifer
From:
Sent:
To:
Cc:
Subject:
Page 12 of 212
Guthrie, Marty
Friday, August 06, 2010 7:55AM
McCullough, Garney
FW: Student Lending Analytics Slog
FYI-Wanted to share this in case you guys haven't seen this from SLA. Incentive comp info toward the end.
I'll forward today's SLA message (which also includes incentive comp info) shortly.
From: noreply+feedproxy@google.com [mailto:noreply+feedproxy@google.com] On Behalf Of Student Lending
Analytics Blog
Sent: Thursday, August 05, 2010 4:24AM
To: Guthrie, Marty
Subject: Student Lending Analytics Blog
Student Lending Analytics Blog
Pell Grants Rise 61% in 2009-10 Academic Year; 45% of Students Now Receiving Pell
Grants
What's Happening In Private Student Loan Land?
Reactions to Senate Hearing on For-Profit Marketing Practices
Highlights from Hearing on For-Profit Marketing Tactics
Pell Grants Rise 61% in 2009-10 Academic Year; 45% of Students Now
Receiving Pell Grants
I might have titled this post: A Sign of the Times ...
The Federal Student Aid Data Center site updated figures last month for Pell Grants. Here are stats on
recipients, grants and average grant size for the past four years with annual changes in the right hand columns:
Acad. Yr.
06-07
07-08
08-09
Recipients
(in millions)
5.29
5.69
6.32
Grants Average
(In $MM) Grant Size
$12,792 $2,419
$14,675 $2,580
$18,284 $2,892
1
Avg
Recipients Grants Grant Size
8%
11%
15%
25%
7%
12%
09-10 8.23 $29,361
Page 13 of212
$3,566 30% 61% 23%
Observations:
The 61% growth in Pell Grants to an annual figure of $29-4 billion was driven by both a 30% increase in
recipients to 8.23 million and a 23% increase in average grant size to $3,566. The maximum Pell Grant
for the 2009-10 academic year was $5,350. The maximum grant is $5,550 for the 2010-11 academic year.
With NCES estim ating that 18.4 million studen ts would attend two year and four-year institutions in
fall 2009, that would mean almost 45% of those in attendance received a Pell Grant for 2009-10. If you
assume 100% of students at proprietary schools are Pell-eligib1e, that suggests that about 1 in 4 students
at public and private non-profits are Pell-eligible.
For those wondering how the percentage of recipients and grants broke out by sector, 63% of grant
recipients and 62% of the grant volumes came from students at public institutions with for-profits next at
25% of recipients and dollar value of grants (Recipients and Grants in Millions):
School Type Recipients Gr ants
PRIVATE-NONPROFIT 1.01 $3,877
PROPRJETARY 2.06 $7,339
PUBLIC 5. 16 $18,145
8.23 $29,361
PRIVATE-NONPROFIT 12% 13%
PROPRIETARY 25% 25%
PUBLIC 63% 62%
100% 100%

What's Happening In Private Student Loan Land?
Posted: 04 Aug 2010 11=44 PM PDT
I thought I would provide a brief update of several new developments with private student loans:
Two states have formalized their fixed-rate private student loan products for 2010-11:
Vermont Student Assistance Corporation (VSAC) is offering a private student loan with fixed rates
ranging from 6.9% to 7.75% [dependent on repayment option selected] and fees ranging from o% to 5%
[dependent on credit scores]. Applications will be available in early August.
Maine Educational Loan Authority (MELA.) is offering a private student loan with a fixed rate of 7-75%
and a 4% guarantee fee. Interest payments are required during the in-school period.
Several lenders have recently tweaked (or announced an upcoming change) the range of interest rates on their
2
private loan products (each dropping below the minimum or "as low as" interest rate on their
loans):
Discover reduced the minimum starting interest rate on their variable-rate private loans to 3.75% (from
4.25%). This is Discover's first change to interest rate ranges since June tst of last year.
Chase will be reducing their minimum starting interest rate on their variable-rate private loans to 3-94%
(from 4.14%). Chase has changed their interest rate ranges on several occasions this year (note that some
of the changes were driven by an increase in UBOR during the year):
Pre-March 1st: 4-40% to 9-75%
March 1st: 4.15% to 8.75%
July 1st: 4.14% to 9-79%
As of August 6th: 3-94% to 9-79%
And in other news ...
In late July, the New York Post reported that Sallie Mae had hired Goldman Sachs to help it explore "options." The
company has made no secret that they are carefully evaluating their restructuring options (from New York Times):
"According to The New York Post the student lender hired Gol dman Sachs to advise on a sale or
spinoff of its student-loan servicing business and its $145 billion government-subsidized loan portfolio.
The company is also mulling the possibility of converting part if its platform into a traditional deposit-
taking bank, The Post said."
Citibank's Student Loan Corporation reported a 40% decline in private loan originations in the quarter ending
June 30, which is traditionally a seasonally slow quarter. For 2009-10 academic year, Student Loan Corporation
originated close to $900 million in private loans, a 47% reduction from the 2008-09 academic year. I also came
across an article citing a banking aualyst, Dick Bove, who expressed this opinion of whether Student Loan Corp. would
be sold:
''The ability to sell Student Loan at this time is nil," he said, noting that perhaps in two or three years,
after the financial markets settle, a sale may occur."
Reactions to Senate Hearing on For-Profit Marketing Practices
Posted: 04 Aug 2010 u:oo PM PDT
US Names Apollo, Corinthian, Kaplan In For-Profit Probe (Wall Street Journal) includes company and the
3
n
. . , . th Paoe 15 o f ~ 1 i .
career co ege associations reactions to e GAO report ana .Senate hearing:
Kaplan: "A Kaplan spokesman said in an emailed statement the company had initiated investigations at the
two schools named by the GAO "immediately upon learning of the incidents" and has suspended
enrollment at its Pembroke Pines, Fla., campus. Investigations at that campus and the Riverside, Calif.,
campus continue. The spokesman said Kaplan "will take all necessary actions" against employees violating
the company's standards and code of conduct."
University of Phoenix: "An Apollo representative said the company has initiated an internal investigation
and it, too, would take "immediate and decisive disciplinary action" if it finds employees in violation of
policies meant to protect students."
Career College Association: "The Career College Association, a trade group, announced late Tuesday in
response to the GAO's findings that it would enhance its top-down compliance training programs and
institute a "mystery shopper" program immediately in the hopes of heading off some criticism. "Even if
the problems cited in the GAO report are limited to a few individuals at a few institutions, we can have
zero tolerance for bad behavior," President and Chief Executive Harris Miller said in a statement. "We will
continue to add to this 'zero tolerance' program until all such doubts about our sector are removed."
GAO: 15 for-profit colleges used deceptive recruiting tactics (Washington Post) had this reaction from
WAPO executives (the Washington Posts owns Kaplan, one of the schools cited in the report):
"In a joint statement, Donald E. Graham, chairman and chief executive ofThe Washington Post Co., and
AndrewS. Rosen, chairman and chief executive of Kaplan Inc., described the tactics revealed in the
videotaped interviews as "sickening."
"They violate in every way the principles on which Kaplan is run," they said in a statement posted on The
Washington Post Co.'s Web site. "The GAO and the Senate [Health, Education, Labor and Pensions
Committee] have done us a favor. We will do everything in our power to eliminate such conduct from
Kaplan's education institutions."
W APO also highlighted the fact that most of the companies investigated were the largest in the industry
[representing almost 43% of the 1.8 million students enrolled in for-profits]:
"Many of the largest for-profit entities were named among the 15 sites targeted by GAO investigators:
University of Phoenix, with more than 400,000 students; Argosy University, part of the 136,000-student
Education Management Corp.; Kaplan College, part of the 119,000-student Kaplan Higher Education
operation owned by The Washington Post Co.; and Everest College, part of the uo,ooo-student
Corinthian Colleges."
Lawmakers Focus Ire on Accreditors for Abuses at For-Profit Colleges (Chronicle of Higher Education)
noted the failings of oversight and enforcement at the Dept. of Education and accreditation bodies:
'The rest of the hearing focused on assigning blame for the abuses. Pressed by la\vmakers, Mr. Kutz
faulted the Education Department, saying it has failed in its oversight of the sector. While there are
4
. . Pag' 16 of 212
regula nons m place to protect students from misleaaing and aggressive sales, they're not being enforced,
he said. "It certainly seemed like a wild, wild West out there," he said, urging government regulators to
step up their monitoring offor-profit recruiting and to punish colleges whose employees violate the
rules ...
As for the accreditation process, here is one exchange that the Chronicle captured:
"Do you think maybe your rigorous standards aren't rigorous enough?" asked Senator Franken, of
Minnesota.
"I believe the standards themselves are rigorous," Mr. McComis replied. "In these cases, the schools'
compliance with the standards fell short."
Asked by Senator Harkin why the accreditor hadn't found problems at the three institutions, Mr.
McComis replied that the accreditation process isn't designed to catch "the sort of fraud the GAO bas
alleged."
'We don't secret shop," he said. "So in the normal course of an evaluation, I'm not sure we'd find those
occurrences."
That answer appeared to infuriate Mr. Harkin, who said it was "apparent to me that we need a hearing on
accreditation."
Senator to Review Accreditation of For-Profit Colleges (NY Times) highlighted Harkin's cal1 for a focus on
the accreditation process:
"As part of the expanding Congressional scrutiny of for-profit colleges, Senator Tom Harkin announced
at a hearing on Wednesday that he plans to examine their accreditation process ... Mr. Harkin questioned
Michale McComis, executive director of the Accrediting Commission of Career Schools and Colleges,
about why his group had found so few violations over the last two years in more than 6oo visits to
institutions it accredits when the Government Accountability Office found problems at every one it
visited."
'Tight' Rules Sought for For-Profit Colleges (USA Today) noted that some lawmakers are seeking a more
comprehensive look across all types of higher education institutions:
"Some lawmakers called for an expanded exploration t o include practices of traditional non-profit public
and private colleges. 'The for-profit sector should not be examined in a vacuum," said Sen. Mike Enzi,
R-Wyo."
Ironic that on the day of the Senate hearing about misleading recruiting tactics, Career Education filed an 8-K with
the SEC that contained the following (from WaJl Street Journal, emphasis is mine):
"Career Education said in a filing with the Securities and Exchange Commission Wednesday that the
government's recommendations could "materially and adversely affect our business," with proposals
5
d
. . . inful !Page 17 of 2_1,2 f
regar mg recruiter compensation, ga emp oyment, the definition o a credit hour and liability for
making misrepresentative statements having the most potential impact."
For-Profit Colleges Hit with Claims of Fraud, Aggressive Recruiting (Christian Science Monitor) provided
details of the testimony of the former recruiter at Westwood College:
"Another witness at the hearing was Joshua Pruyn, who spoke about working as an admissions
representative for Alta College Inc. in Denver. He was trained in sales tactics, including interviewing
students to find the "pain points" in their lives that could be used to pressure them to enroll, such as
worries about being in a dead-end job. Misleading potential students to make enrollment targets was
standard practice and was rewarded with incentives such as trips, he said.
Mr. Pruyn quit after nearly 6 months. The final straw, be said, was discovering that students who wanted
to withdraw and clearly would eventually dropout (including a military person who was called up for
active duty) were pressured to stay enrolled for at least 14 days because after that point , the school could
keep federal money that the student had been awarded."
Highlights from Hearing on For-Profit Marketing Tactics
Just finished watching a few hours of the Senate HELP committee hearing: For-Profit Schools: The Student
Recruitment Process.
Highlights:
The first half of the hearing focused on the GAO report which hit yesterday and included videotape (here is
a link to the video) demonstrating the fraudulent and deceptive marketing practices uncovered.
Senator Harkin will be sending an information and document request to 30 for-profit schools tomorrow. He
is planning on holding another hearing in September to "get to the bottom of this." He seemed most
interested in graduation rates and churn rates but I would be surprised if he didn't ask about recruitment
practices also.
Harkin also seemed interested in finding a legislative solution to this issue. He described the Dept. of
Education regulations on program integrity to be a good "first step" but expressed concern that
regulations can be changed too easily by future administrations, using the "safe harbors" of incentive
compensation as an example.
The accreditation process also will be coming under additional scrutiny too with Senator Franken, in
particular, focusing his line of questioning on the issue of how well accreditors are ensuring that their
rigorous standards are being adhered to.
I missed the first 30 minutes of the hearing but the committee "named names" of the colleges investigated in
6
the GAO report (from Barrons):
Page 18 of21 2
Case 1: University of Phoenix, Arizona
Case 2: Everest College, Arizona
Case 3: Westech College, California
Case 4: Kaplan College, California
Cases: Potomac College, Washmgton, DC
Case 6: Bennet College, Washington, DC
Case 7: Medvance Institute, Florida
Case 8: Kaplan College, Florida
Case 9: College of Office Tech, illinois
Case 10: Argosy College, lllinois
Case u: U of Phoenix, Pennsylvania
Case 12: Anthem Institute, Pennsylvania
Case 13: Westwood College, Texas
Case 14: Everest College, Texas
Case 15: ATI Career Training, Texas
Other notes that I scribbled down (hope to have a transcript up in 24 hours):
Here is a transcript of the video provided at the hearing: http:/ jv.ww.gao.govjvideofilesjgao-I0-948t/gao-
I0-948t.txt with some statements made by admissions reps.:
"You gotta look at it- I owe $8s,ooo to University of Florida. Will I pay it back? Probably not. I look
at life a little differently than most people. I look at life as tomorrow is never promised."
"Most doctors are walking around with over $250,ooo in student loans ... but it's workable, you
know, it's really workable. And the ... a lot of people have student Ioans ... but the best thing about
it, it's not like a car note, where if you don't pay they're gonna come after you.''
When a prospect wanted to learn more about financial aid, the admission supervisor had this to say
before tearing up their application: "So, honestly, I gotta tell you, I totally understand your
7
Page 19 of2"2 .
concern, but I really, With all due respect, I don't bebeve you're ready to take that step, penod.
That paper could say $40,000. And in your situation, and at your stage in life, you should be
ready to make your investment of time and money necessary to get you to where you should be at
this point. But you're not. And we're trying to help you get there and trying to help you ...
understand it, but there's ... What are you really afraid of? There has to be something more."
GAO investigation showed that 6 of the 15 admission counselors would not provide financial aid information
until the student bad signed an enrollment agreement and paid an application fee. Investigator said it It's
not not hard to find fraudulent and deceptive practices; the big difference is the vast amount of money is
coming from American taxpayers.
Isakson suggested that there should be a focus on enforcing current laws and asked what Dept. of Education
was going to do to enforce Program Participation Agreements.
Sen. Burr made two comments: Department of Education should look at elimination of incentives and their
role in the willingness of counselors to break the law. Also, rattled off statistics on graduation rates at
both for-profit and non-profit institutions in his state.
GAO investigator's take on current oversight and enforcement regime: "Given what we saw it looked like the
"wild, wild west."
Sen. Mikulski referred to admissions counselors as "bounty hunters" and described students encountering a
"black hole of debt, disappointment and heartbreak."
With several admissions counselors in the investigation recommending that prospects falsify their FAFSA,
several senators recommended linking the FAFSA forms to the IRS database for verification purposes.
Panel2
David Hawkins of the National Association for College Admission Counseling highlighted the information
asymmetry between prospect and admissions counselor akin to the subprime mortgage industry which makes
students vulnerable to being misled in the process. Also highlighted the role of the "safe harbors" that were added to
the incentive compensation ban as "effectively gutting" that ban and "providing a roadmap for institutions to
circumvent the law as originally designed" and leading to these "boiler room sales tactics."
GAO found 32 violations of incentive compensation since 1998
Here is history of incentive pay issue as posted earlier
Michael McComis , Executive Director, Accrediting Commission of Career Schools and Colleges, Arlington, VA
discussed the accreditation process including the triad system which includes federal and state regulators in addition
to accreditors. He described a multi-step process including student surveys, on-site visits, interim reviews and a
robust compliant process. He concluded by saying that ACCSC would look forward to working with Congress to
8
strengthen the process.
Page20of212
Joshua Pruyn , former Admissions Representative, Alta College, Inc., Denver, CO described the daily grind of
being on the front lines of selling on-line education to the masses. He described being trained in a 7-step sales
process, described the interview with a prospect as "psychological game" after initial training. Prospective students
are referred to as "leads." He described the importance of "starts" with the focus on having a student in program for
at least 14 days, after which the schools keeps the federal financial aid. Described how one Asst. Director received
the "Best Liar award" at team celebration. Also discussed the obfuscation behind the internal private loan program
offered by Westwood including a) not to call it a loan but instead "Westwood would step in to help" b) need to pay
$150 while in school (which didn't keep loan balance from increasing) and 3) 12% interest on the loans.
Questions to panelists
Compensating admissions directors based on students enrolled is common practice; what's wrong with
that?
Hawkins: Since safe harbors, we have been collecting stories; lawsuits, media reports. We have 10 pages of bullet
summaries of this evidence. There is no doubt in my mind because of safe harbors that there is preponderance of
evidence that this is industry practice. How much more evidence do we need? There is significant need for
counseling for low-income students and when you don't provide it they are at a disadvantage and when you give
them misinformation ...
What are the rigorous standards used by accreditors to ensure schools only admit students that are
accurately and fully informed?
McComis: rrhis was the most pointed line of questioning with Senator Franken highlighting the fact that
three of the schools from the GAO investigation were accredited by ACCSC]. In the end, McComis said that his
commission will look to see if there is more they can do on diligence [Later Sen. Harkin made the point that
ACCSC made 629 on-site evaluations and didn't find any substantial non-compliance while GAO randomly
sampled 3 institutions and had adverse findings at all of them].
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Woodward, Jennifer
From:
Sent:
To:
Subject:
Page 21 of 212
Finley, Steve
Wednesday, June 23, 2010 9:08 AM
Siegel, Brian; Burton, Vanessa; Scaniffe, Dawn; Morelli, Denise; Marinucci, Fred; Jenkins,
Harold; Woodward, Jennifer; Wolff, Russell; Sann, Ronald; Wanner, Sarah; Varnovitsky,
Natash a
Chronicle article
Interesting article in the Chronicle about the upcoming oversight hearing on for-profit institutions, possible effects on
other schools, and the general lack of information about life-time default rates for institutions.
http://chronicle.com/article/New-Grilling-of-For-Profits/66020/
Worth reading for that discussion, but also interesting to see that some large for-profit schools are starting to give
students a form of "try it and see if you like it" option:
Kaplan is cautiously testing out one solution. Beginning thi s past March, Mr. Smith said, the university began a
pilot program in which new students ca11 emoll conditionally and then leave after three \>.
1
eeks, without anv debt
or any transcript, if they fi nd they cannot handle the work.
"It is a substantial hit to revenue," he said of the trial course structure, "but the fact of the matter is it's
absolutely the right kind of thing to do." The for-profit Universitv ofPboenix, the nation's largest university
system, is advertising a similar trial svstem.
1
Page 22 of 212
Woodward, Jennifer
Sent: Friday, November 12, 2010 11:20 AM
To: Jenkins, Harold; Marinucci, Fred; Siegel, Brian; Wolff, Russell ; Finley, Steve; Morelli, Denise;
Wanner, Sarah; Yuan, Georgia; Sann, Ronald; Thompson, Lauren; Kolotos, John;
McCullough, Carney; Guthrie, Marty
Subject: FW: Academe Today: For-Profit Colleges May Be at Brink of a Major Reset
Note the first article by Ms. Blumenstyk. There are links within that article to other articles about the GE public hearings
last week.
The comments are very interesting.
From: The Chronicle [daily-html@chronicle.com]
Sent: Friday, November 12, 2010 5:00AM
To: The Chronicle
Subject: Academe Today: For-Profit Colleges May Be at Brink of a Major Reset
Friday November 12, 2010
Subscribe to the Chronicle!
..J
Subscribe to this newsletter J Stop receiving this newsletter J
Top Stories
For-Profit Colleges May Be at Brink of a Major Reset
By Goldie Blumenstyk
Companies are seeing slower enrollment growth, tempering expectations, and adopting new strategies.
Analysts say this is just the beginning.
ADA Compliance Is a 'Major 0
Vulnerability' for Online Programs x
At most colleges, meeting standards is in the
hands of individual faculty members or their
departments, rather than any central office, a
survey found.
ndiana U. Anatomy Program
o-<rn""'"" New Life to Study of
rs
Katherine Mangan
Indiana University Northwest encourages the
families of body donors to meet the students
who learn from the donors' loved ones.
Despite Violence, British Students Plan
More Protests Against Austerity
Measures
By A isha Labi
~ u h l i c officials set about track in{! down
1
Page 23 of 212
perpetrators of the storming of Conservative
Party headquarters.
More News
New NCAA President Hints at His Pt;orities in Remarks to Faculty Reps
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California Community-College Leaders to Recommend One Million New Graduates by 2020
I A Composer's Muse Takes the Form of a Technology Institute
The Ticker: News From Around the Web
Provost at Bowie State Who Drew Faculty Complaints WiU Leave
Wedding Announcement Costs Gay Administrator Her Job at a Catholic College
Trustees Fall Short in Fund Raising, Survey Finds
AP Italian Is Coming Back
Postcards: Great College Towns Across America
Never a Bad Meal, or a Meal That's Bad for the Community
A visit to Beloit College's slow-food co-op, where student members take control of what they eat.
From the New Global Edition
India's Business Leaders Applaud Progress on Higher Educat ion
By Shailaja Neelakantan
At a recent summit, the country's higher-education minister asked the private sector to take part in
improving the system.
WorldWise: Why Brazil's Standardized Entrance Test Deserves t o Be Salvaged
Despite major problems, the exam is worth saving to help make higher education more accessible, says
Ben Wildavsky.
Commentary
'The Washington Post' and the Perils of For-Profit Colleges
By Stephen Burd
The newspaper's parent company owns Kaplan Inc. and a share of Corinthian Colleges,
presenting a conflict of interest in its coverage of the for-profit industry.
The Chronicle Revi ew
tudent Bodies
y Jill Silos-Rooney
What's the appropriate reaction to students who expose themselves to more than
knowledge?
Brainstorm: Printing Money Blues
Sensible social safety nets would be better than desperate monetary stunts for stabilizing our economy,
writes Teresa Ghilarducci.
Brainstorm: Imagine a University Run by Demons From the ld
In what ways would a Second Life University differ from an actual one? asks Gina Barreca.
Advice
i
I
i
. Tips for Graduate Students

., Lisa Patrick Bentley
i . if you take the reviewers' advice, revise your proposal, and it still gets
t . clown?

J
2
Page 24 of 212
ProfHacker: Use RSS to Keep Up With Favorite Online Services
From Gmail to You Tube, Tungle to Remember the Milk, many of the most popular online services
maintain blogs that provide news, tips, and tutorials covering how to use their product.
From The Chronicle's Slogs
Buildings & Grounds
Ranking the Most-Affordable College Towns
If you want to live cheaply, try living near Ball State University, the University of Buffalo, or nearly
anywhere in Ohio.
Players
Leaders in College Sports Remain
Largely White and Male
Of the 120 athletic directors at the nation's
most-competitive college sports programs, all
but 19 are white men, a new report says.
Arts & Academe
Art Students' Mental Health: A
Complicated Picture
The need "to be creative on demand" entails
stresses that are particular, and particularly
intense, therapists say.
From Arts & Letters Daily
We can't say we didn't know enough. Our recent L--------------------'
housing bubble was inflated despite-partly
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data, and sophisticated models. More
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Page 25 of 212
Woodward, Jennifer
From: McDade, John
Sent:
To:
Monday, October 26, 2009 6:28 PM
Woodward, Jennifer
Subject : Re: Article
FSL:
Congratulations! Job well done - I can't wait to read it.
Regarding IC, I'll try to take a look at it.
Talk later,
John Me.
Sent from my BlackBerry Wireless Handheld
To: McDade, John
Sent: Mon Oct 26 17:02:43 2009
Subject: RE: Article
Feel free to stop over anytime with t hat bleach ... my place sure could use a little TLC. Anyway, I got the Brief
from Hell fi led at 5. My head hurts! I'll send you a pdf of it tomorrow. Thanks again for all you insights. If you
have any on the big IC, (Incentive Comp), please let me know, as that is my most specific assignment as
attorney-advisor.
From: McDade, John
Sent: Monday, October 26, 2009 8:39AM
To: Woodward, Jennifer
Subject: Article
F L.
Good morning!
Interesting article below from the Inside Hi gher Ed website
FYI - my apartment floors needed a drastic cleaning (even broke out the bleach), and I did not get a chance to review any
of the items.
Talk later,
1
Page 26 of 212
YF w
+++++++++++++++++++++++++++++++
In the Crosshairs?
October 26, 2009
Share This Story
http://www.insidehighered.com/news/2009/10/26/regs#
Education Department officials have been insisting for months that, despite the warnings of some
Wall Street analysts to the contrary, the federal government is not intent on intensifying its regulation
of for-profit higher education.
That assertion got a little harder to believe on Friday, when the department announced the
composition of a committee charged with negotiating a set of new federal regulations related to the
integrity of federal financial aid programs. Given the issues on the panel's agenda, its membership
leans notably toward critics of the for-profit sector of higher education, and decidedly short on
representatives of the colleges.
Department officials, however, reject the idea that the panel they've appointed is unbalanced.
As is typically the case in the federal negotiated rul e making process (which is explained here), the
department's September 9 announcement inviting nominations for the committees said it would
populate the panels with people who "represent the interests significantly affected by the topics
proposed for negotiations."
In this case, the topics under the overall rubric of the integrity of federal financial aid programs include
such things as incentive compensation for college recruiters and the use of tests to gauge students'
"ability to benefit" from a higher education, which are heavily used by for-profit universities,
community colleges, and other open-access institutions.
The goal of negotiating committees like this one (and another t he department is creating to look at
foreign institutions) is to try to reach unanimous agreement on a set of recommendations for
proposed regulatory changes, to provide to the education secretary. Disapproval from any single
negotiator can torpedo the whole process, giving the federal agency that sponsors the session- in
this case the Education Department-- free rein to propose whatever it wants.
It was inevitable that any group of officials deemed to have an interest in issues related to potential
financial aid fraud and abuse would contain some people who don't like for-profit colleges. The
institutions have long been viewed with skepticism by consumers' rights groups that (citing many
historical examples and a smaller number of high-profile recent ones) accuse some of the institutions
of preying on low-income students by charging comparatively high tuitions and underdelivering on
their promises of good jobs.
2
So it's no surprise that the committee

Department contains consumer and
student advocates with a track record of criticizing for-profit colleges. The student members (one
primary representative and an alternate) come from two student groups, U.S. PIRG and the United
States Student Association, that frequently take aim at for-profit colleges. Both groups signed a letter
this month, for instance, that urged Congress to toughen its regulation of private student loans made
by for-profit colleges.
The panel also features two consumer advocates. One, Margaret Reiter, is a lawyer who, as deputy
attorney general in California, sued Corinthian Colleges. Inc., for "a persistent pattern of unlawful
conduct" that included allegedly inflating job placement data and falsifying government records.
(Corinthian settled for $6.5 million in 2007.) Her alternate, Deanne Loonin, represents the National
Consumer Law Center, which published a 2005 study called "Making the Numbers Count: Why
Proprietary School Performance Data Doesn't Add Up and What Can Be Done About lt."
What's more unexpected, perhaps, is that the group gathered by the department to negotiate a set of
issues that relate heavily to for-profit institutions contains so many other members with a clearly
stated antipathy toward the sector, and so few members from for-profit institutions themselves.
As is common, the financial integrity committee includes one representative (plus an alternate) from
each of the major sectors of higher education-- public two-year (Richard Heath of Anne Arundel
Community College), public four-year (Philip Asbury of the University of North Carolina at Chapel
Hill), private four-year (Todd Jones of the Association of Independent Colleges and Universities of
Ohio) and for-profit colleges (Elaine Neely of Kaplan Higher Education). Aside from Neely, who can
be counted on to advocate for the career college sector, none is known to be particularly a friend or
foe of for-profit higher education.
But bas.ed on their track records or previous statements, it's fair to expect several of the officials
selected by the department to represent various other "communities of interest" to take a sharply
skeptical view of for-profit colleges.
Jim Simpson, associate vice president of workforce development and adult education at Florida State
College (formerly Florida Community College at Jacksonville), was appointed to fill a slot designed to
represent the interests of "work force development." Simpson traveled to Denver in June to speak at
one of three regional hearings the department held to solicit views on the issues it should explore in
negotiated rule making, and he closed his presentation (which can be found on Page 35 of this
transcript} with a stinging critique of for-profit colleges.
He flew to Denver, Simpson said, in part to "put a human face on what happens when schools take
advantage of lax regulations." He then recounted the story of a student who applied to his institution
after having made the honor roll at an unidentified for-profit university-- "despite later test results ...
that placed the student at an elementary school level in mathematics, language and reading,"
Simpson said.
"This student and their family took out $16,000 in student loans to pay for a two-year degree from a
for-profit university that was clearly only interested in tuition money obtained from federally backed
student loans," he said. "It is a travesty that they were encouraged to take out huge student loans
when their daughter has almost no chance of getting a job that would allow the eventual repayment of
those loans."
College presidents are represented in the negotiation process by Terry W. Hartle, senior vice
president for government and public affairs at the American Council on Education. Hartle typically
3
stays above the fray in the regular political traditional colleges and for-profit
higher education. But ACE, as the lead lobbying group for higher education, almost always sides with
traditional colleges in policy debates, and the Career College Association, the leading lobbying group
for for-profit institutions, withdrew from ACE in a public spat earlier this decade.
The Education Department chose David Hawkins, director of public policy at the National Association
for College Admission Counseling, to represent the interests of admissions officers on the negotiating
team. Like several major higher education associations, NACAC does not let for-profit colleges into its
membership.
And Hawkins, who writes widely about ethics and other issues in higher education, wrote a 2007
article challenging the notion that for-profit institutions are doing a good job of serving students from
low-income backgrounds.
"During the long-running debate over the current reauthorization of the Higher Education Act,
lobbyists for the for-profit institutions would have you believe that 'traditional' colleges and universities
are fighting against the for-profit colleges in a spiteful legislative contest," Hawkins wrote. "In reality,
the 'contest' in Washington is one to preserve the integrity of student-aid programs in an environment
characterized by increasingly aggressive recruiting, indiscriminate admissions and loan financing --
often with little to no regard for the student's ability to benefit or repay - and questionable ' return on
investment' for many students lured in by the publicly traded for-profit colleges' massive
advertisement complex."
Apart from Neely, the Kaplan senior vice president of regulatory affairs, and her alternate, David
Rhodes, president of the School of Visual Arts, the only other negotiator who appears likely to
advocate for for-profit institutions is, by design, is Anthony Mirando, who as president of the National
Accrediting Commission of Cosmetology Arts and Sciences was appointed to represent national
accrediting agencies.
(Other negotiating teams in the recent past contained just one representative of for-profit colleges,
too, but they were focused on topics-- such as accreditation and student loans -- that did not
disproportionately affect those institutions. The loan team contained multiple lenders, and the
accreditation team three or four accrediting officials.)
Officials of the for-profit higher education sector had argued --to no avail --that given the growth of
for-profit colleges and the emphasis in this round of rule making on issues that could directly affect
them, the department should consider appointing more than one person from the institutions to the
negotiating team.
Harris N. Miller, president and CEO of the Career College Association, declined to comment on the
makeup of the negotiating panel, which begins its work a week from today.
Officials at the Education Department offered only a one-line statement in response. "The make-up of
this committee is similar to past committees and we remain committed to ensuring that it reflects key
constituencies," said Justin Hamilton, a spokesman.
But Barmak Nassirian, associate executive director of the American Association of Collegiate
Registrars and Admissions Officers, vigorously challenged the assertion that the negotiating team
appointed by the department is tilted against for-profit colleges, and that the department has it in for
the sector.
4
Nassirian specifically disputed the notion that R a \ ~ \ r ~ s
2
and others (including Nassirian himself} who
have criticized for-profit colleges in the past are biased against the colleges. Hawkins has criticized
the colleges' use of incentive compensation for recruiters, Nassirian said, because he believes such
payments "inevitably lead to abuse" in the admissions world that Hawkins's group oversees.
"But on the rest of the issues, he is a fairly moderate guy, and I don't know that he is any harsher on
the for-profit sector than the nonprofit sector," Nassirian said. Like many experts on financial aid and
higher education, Nassirian said, Hawkins believes "it's in everybody's interest that these programs
be able to demonstrate accountability and program integrity, or else the billions of dollars that are
being devoted to them could be redirected elsewhere."
For-profit colleges have "legitimate concerns ... that they not be subjected to utterly destructive
requirements," Nassirian said. But if the institutions are feeling picked on by the new administration,
that may have more to do with the fact that the previous White House and Education Department
were soft on the sector, greatly softening the very same regulations on executive compensation that
are now under review in the upcoming negotiations.
"I can understand why, from the perspective of the last eight years of the Bush administration, any
change can only be perceived as a change for the worse" for for-profit colleges, Nassirian said. "But
when you judge the matter from the perspective of the taxpayers who fund the system, all the
department has asked them to do is to be more reasonable. There is a new mindset in this
administration that every dollar needs to be reasonably accounted for, and that money is not being
wasted. I don't believe that the good for-profit schools want to contest that view."
-Doug Lederman
5
Woodward, Jennifer
From:
Sent.:
To:
Subject:
b
b) 5)
Page30of212
Woodward, Jennifer
Thursday, December 09, 2010 12:07 PM
Wolff, Russell; Finley, Steve; Yuan, Georgia; Kvaal , James; Bergeron, David
RE: Follow-up [DeVry]
1
- ------ --- -------------
from: Sova, Alexandra -
Sent: Tuesday, December 07, 2010 9:53AM
To: 'Thomas Parrott, Sharon'; Yuan, Georgia
Subject: RE: Follow-up
Dear Sharon,
Thank you for your email. I am happy to hear you had a beneficial meeting with the Department.
Sincerely,
Alexandra Sova
Alexandra Sova
Assistant to the Deputy Secretary
U.S. Department of Education
Alexandra .Sova @ed .gov
202.401.9965
----------
From: Thomas Parrott, Sharon [mailto:sthomasparrott@devry.com]
Sent: Monday, December 06, 2010 6:37PM
To: Yuan, Georgia
Cc: Private - Miller, Anthony
Subject: Follow-up
Hi Georgia,
It was great to visit with you during DeVry's meeting with Secretary Duncan a few weeks ago. I was particularly pleased
to hear that we share the process of "side by side" review of new regulations to further our understanding of what they
really say.
I am following up with you at Secretary Miller's suggestion, regarding our recent discussion at the Department
concerning the new program integrity rules. I would very much appreciate an opportunity to share some thoughts that
we have on solutions that meet both the letter and spirit of the new rules, while providing additional clarity to colleges
and universities. I am happy to call or visit with you at your earliest convenience.
Best,
Sharon
Sharon Thomas Parrott
Senior Vice President
Government and Regulatory Affairs
Chief Compliance Officer
DeVry Inc.
3005 Highland Parkway
Downers Grove, ll 60615-5799
p: 630.515.3146
f: 630-353-3968
c: 312-485-3225
e: stparrot@devry.edu
www .devryinc.com
3
Woodward, Jennifer
From: Wolff, Russell
Sent:
To:
Thursday, January 07, 2010 4:16PM
Finley, Steve
Subject: FW: UOP meeting
What t he f-- does t hat mean? And, no, I was not a " bee".
- ---------------- -------
From: Jenkins, Harold
Sent: Thursday, January 07, 2010 3:59 PM
To: Sann, Ronald
Cc: Marinucd, Fred; Finley, Steve; Wolff, Russell; Woodward, Jennifer
Subject: RE: UOP meeting
Thanks to all who commented. I passed the comments on to Bob.
From: Sann, Ronald
To: Jenkins, Harold
Cc: Marinucci, Fred; Finley, Steve; Wolff, Russell; Woodward, Jennifer
Subject: RE: UOP meeting
Harold,
I agree. I think it's up to Bob whether to meet with them, but to the extent this covers issues in the
current reg.-neg., we should avoid providing UOP, or any other school, with special access. If a
meeting is held, we should be included.
Ron
From: Jenkins, Harold
To: Marinucci, Fred; Wolff, Russell; Woodward, Jennifer; Finley, Steve; Sann, Ronald
Subject: FW: UOP meeting
Importance: High
Comments invited. I would highly recommend that he include someone from this office, but I don't
know a basis for recommending against a meeting. Steve and Ron, I am including you in view of
ongoing reg neg; could we say that in view of reg neg it would be inappropriate now to give one
school a private channel for propounding its proposals?
I want to get back to Bob this afternoon. Thanks.
Harold
From: Shireman, Bob
Sent: Thursday, January 07, 2010 1:09PM
1
To: Jenkins, Harold
Subject: UOP meeting
Importance: High
From: Julie Shroyer <jshroyer@wheatgr.com>
To: Shireman, Bob
Sent: Thu Jan 07 11:54:23 2010
Subject: Hello and Meeting Request
Dear Bob,
Page 34 of 212
I hope the new year is t reating you well. Just left you a voice mail message but realize it may be easier to send you a
note via email. Would love to tell you about my family's visit to our friends the Kim/Paterson family in the Netherlands
(Dec. 26-Jan. 1). Feel free to have lucinda call me too because she may be even more interested. All of us should figure
out how to do time overseas.
As I indicated in my voice mail, I would also like to submit a formal meeting request for Apollo. We are hoping that you
may have time in your schedule sometime over the next few weeks. Here are the specifics:
Meeting Participants:
Greg Cappelli, CEO, Apollo
Terri Bishop, Director/Vice President External Affairs, Apollo
Julie Shroyer, Sr VP, Wheat Government Relations (consultant to Apollo/University of Phoenix)
Purpose:
To discuss ideas for implementing various student/consumer protections (e.g., related to borrowing practices,
disclosures, etc.) and the technology that Apollo is developing to support compliance and academic quality and
innovation.
When:
Preferably as soon as possible or within the next few weeks.
Thank you so much for your consideration of the request. I look forward to hearing from you and seeing you soon.
Best,
Julie
Julie E. Shroyer
Senior VP
Wheat Government Relations
1201 S. Eads Street, Suite Two
Arlington, VA 22202
(703) 271-8760
jshroyer@wheatgr.com
2
Page 35 or 212
Woodward, Jennifer
Sent:
To:
Tuesday, December 08, 200910:17 AM
Woodward, Jennifer
Subject: FW: article on the proposed elimination of the incentive comp safe harbors
-----Original Message- - ---
From: Shireman, Bob
Sent: Monday, December 07, 2089 8:35 PM
To: Wolff, Russell
Cc: Woodward, Jennifer
Subject: RE : article on the proposed elimination of the incentive comp safe harbors
To: Shireman , Bob
Cc: Woodward, Jennifer
Subject: FW: article on the proposed elimination of the incentive comp safe harbors
Bob:
Russ
http: //higheredwatch. newamerica . net/blogmain
At Long Last, Department of Education Puts the Interests of Students
First<http://higheredwatch.newamerica.net/blogposts/2889/at_long_last_the_department_of_educa
tion_takes_a_stand_to_safeguard_students-24548>
* By
* Stephen Surd
December 3, 2999
At Higher Ed Watch, we have repeatedly called on federal policymakers to strengthen
regulations
<http://higheredwatch.newamerica.net/blogs/education_policy/2997/11/easing_restrictions_trade
_schools> that aim to prevent unscrupulous for-profit colleges and trade schools from taking
advantage of financially needy students . Our calls, however, have gone largely unheeded as
Congress, under both Republican and Democratic leadership, has continued t o weaken these
rules<http ://higheredwatch. newamerica.net/blogposts/2008/ our_bi ggest_disappointments_with_fin
al_higher_ed_bill-19290> . At the same time, the Department of Education has long coddled the
for- profit higher education sector by continually t urning a bli nd eye to widespread
allegations of fraud and abuse at some of the nation' s l argest chains of proprietary schools.
But this week, the Obama administration let the sector know, i n no uncertain terms, that
those days are over.
1
On Monday, the Department of Education regulatory proposals
<http://www.ed.gov/policy/highered/reg/hearulemaking/2ee9/integrity-session2-issues.pdf> that
aim to strengthen the integrity of the federal student aid programs and prevent unscrupulous
for-profit colleges and trade schools from taking advantage of the low- income and working-
class students they tend to enroll. A top goal for the Obama administration is to stop these
institutions from deliberately recruiting and admitting unqualified students, who end up
taking on huge amounts of debt for training from which they are unlikely to benefit.
The most significant of these preliminary proposals is one that Higher Ed Watch has long
called for
<http://higheredwatch.newamerica.net/blogposts/2e09/rewriting_the_rules_on_trade_schools_to_b
etter_safeguard_students-19140> -- reversing changes that the Bush administration made to the
Department of Education,s regulations enforcing a federal law barring colleges from
compensating recruiters based on their success in enrolling students.
As we have previously
reported<http://higheredwatch. newamerica . net/blogposts/20e8/memo_to_education_department_rewr
ite_the_rules_on_trade_schools-19256>, Congress in 1992 added a provision to the Higher
Education Act prohibiting colleges from giving "any commission, bonus, or other incentive
payment based directly or indirectly on success in securing enrollments" to admissions
officers. The ban on incentive compensation for college recruiters was included as part of a
broader effort by lawmakers to crack down on fly-by-night trade schools that had been set up
to reap profits from the Title IV federal student aid programs. With r eports rampant that
trade schools were enrolling unqualified low-income individuals simply to get access to Title
IV funds, policymakers believed it was important to bar postsecondary-education institutions
from paying recruiters on the basis of how many students they enrolled.
A decade later, top Education Department officials with ties to the for-profit sector
<http://chronicle.com/article/For-Profit-Colleges-Praise-a/13510> set out to weaken this
prohibition. In November 2ee2, the Department issued new regulations that created 12 "safe
harbors,, <http://frwebgate.access.gpo. gov/cgi-bin/getdoc.cgi?dbname=2002_register&docid=e2-
27627-filed> for colleges that wished to provide incentive payments to their admissions
employees. The agency took this action over the objections of a negotiated rulemaking panel
made up of college officials, advocates for students, and consumer groups that had been
assembled to consider the rule changes and of the two main national organizations
representing college admissions officers (see
here<http://www. newamerica. net/files/AACRAO. pdf> and
here<http://www. newamerica.net/blog/files/NACAC%20Comments.pdf>).
Among other things, the revised rules allowed colleges to adjust the annual or hourly wages
of recruiters up to twice a year, as long as the adjustment was "not based solely on the
number of students recruited, admitted enrolled, or awarded financial aid'' [emphasis added]i
and to provide commission-based recruiting for non-Title IV programs at institutions
participating in the federal student aid programs. These exemptions clearly violate both the
spirit and the letter of the law barring commission-based compensation . The net effect of
adding these safe harbors was to allow colleges, particularly for-profit ones, to continue to
engage in the type of predatory recruiting practices that the law expressly prohibits.
In fact, in the years since the ''safe harbors" were added, some of the largest publicly
traded for-profit higher education companies have been charged with engaging in misleading
recruiting and admission tactics <http: //www.sfweekly.com/2ee7-e6-e6/news/burnt-chefs/> to
inflate their enrollment numbers. In 2004, for example, the Department reached a $9.8 million
settlement agreement with the University of Phoenix after the agency concluded that the
largest chain of proprietary schools had knowingly violated the incentive compensation ban.
The university is now in negotiations to settle <http: //phx.corporate-
ir.net/phoenix.zhtml?c=79624&p=irol-newsArticle&ID=1347031&highlight=> a False Claims lawsuit
2
P,aoe 37f f 2.12
<http://www.kroplaw.com/uop/Second . Amended.LOmp a1nt . pdf> over allegations by former
recruiters who say they were compensated solely on their success in enrolling students.
Under the Department of Education's new preliminary regulatory proposals, all 12 safe harbors
would be eliminated. In offering this recommendation, the Education Department clearly
acknowledges that the regulatory changes that the agency's former leaders made to the
incentive compensation ban run counter to the underlying law they are meant to enforce. ((The
Department believes that the specific language of the statute is clear, and that the
elimination of all of the regulatory <safe harbors' would best serve to effectuate
Congressional intent," agency officials wrote in a preamble to the preliminary draft
proposals.<http://www.ed.gov/policy/highered/reg/hearulemaking/2009/integrity-session2-
issues . pdf>
The Department's leaders also recognize that the rule changes -- particularly the one
allowing schools to provide incentive compensation to recruiters as long as the payments are
not based solely on their success in enrolling students -- have opened the door to fraud and
abuse. r ~ h i s
1
Safe harbor' has led to allegations in which an institution concedes that its
compensation structure includes consideration of the number of enrolled students, but avers
that it is not solely based upon such numbers," Department officials wrote. ((In some of these
instances, the substantial weight of the evidence has suggested that the other factors
purportedly analyzed are not truly considered, and that, in reality, the institution based
salaries exclusively upon the number of students enrolled."
The preliminary draft proposals now go to a negotiated rule-making panel
<http://www.ed.gov/policy/highered/reg/hearulemaking/2009/2809-2/team-one- negotiators.pdf>
that the Department has convened to help revise the regulations. The panel, which is made up
of non-profit and for-profit college leaders, student advocacy groups, and consumer watchdog
groups, will debate the agency's recommendations and suggest alternatives. If the group does
not reach consensus on the proposals -- which seems likely in this case
<http://www.insidehighered.com/news/2889/12/81/rules> -- the Department will be free to
propose whatever it wishes.
Inevitably, some members of the negotiating panel will try to chi p away at these proposal s .
We would hope, and fully expect, the Obama administration to stand tough --because the
Department's new leaders recognize that their job is to safeguard students from unscrupulous
schools and protect the integrity of the student aid programs, rather than continuing to
coddle the for-profit higher education industry.
3
Page 38 of 212
Woodward, Jennifer
From:
Sent:
To:
Nan Shepard V tb)(B\ @gmail.com)
Tuesday, September 14,20101:13 PM
Woodward, Jennifer
Subject: Re: RE: higher ed blog post on UOP study about for-profit institutions
On Sep 14,2010 8:15AM, "Woodward, Jennifer" <Jennifer.Woodward@ed.gov> wrote:
Click on the link and note the first comment at the end of the piece. It is written by Trace Urdan.
who has a financi al stake in Apollo. The last sentence in his conm1ent is qui te telling and, in my
opi nion. extremely offensive.
From: Finley, Steve
Sent: Tuesday, September 14,2010 10:34 AM
To: Siegel, Brian; Burton, Vanessa; Scaniffe, Dawn; Morelli, Denise; Marinucci, Fred; Jenkins, Harold; Woodward,
Jennifer; Wolff, Russell; Sano, Ronald; Wanner, Sarah; Vamovitsky, Natasha
Cc: Yuan, Georgia
Subj ect: higher ed blog post on UOP study about for-profit institutions
http://higheredwatcb. oewamerica.net/blogmaio
Guest Post: University of Phoenix Founder Forgets One
Important Stakeholder -- Students
September 14, 20 10
By Craig Smith
Anyone worki ng on Capitol Hill these days knows that the for-profit higher education industry is
spending millions of dollars on lobbying in an effort to defeat, delay or weaken the Department
of Education's proposed regulations on gainful employment. This should come as no surprise--
like bankers swarming House and Senate offices in an effort to weaken proposed financial
reforms in response to the sub-prime meltdown, for-profit colleges are businesses lobbying to
protect their main revenue stream. In this case that is federal tax dollars in the form of federal
student aid. Nor is it a surprise that the for-profit college sector is enlisting their employees to
write comments opposing the regulations or paying for high profile education summits in an
effort to change people's minds about recent reports of fraud and abuse in their sector.
Recently, however, the University of Phoenix has ratcheted up the lobbying blitz with the help of
a recent report issued from the NEXUS Research and Policy Center. Now, as The Chronicle o[
1
H
. h Ed . d CNBC h dPage.39ot21 2 fi
lg er ucatwn an ave reporte , tms report entitled "For-Pro t Colleges and
Universities: America's Least Costly and Most Efficient System of Higher Education," has raised
some eyebrows. NEXUS is funded by in-kind support from University ofPhoenix's parent
company the Apollo Group and grants from the John G. Sperling Foundation-- the foundation
set up by the founder of the University of Phoenix and the head of the Apollo Group.
Furthermore, the report is authored by Jorge Klor de Alva, President of NEXUS and
coincidentally a past-executive ofUniversity of Phoenix and an Apollo board member.
In an effort to maintain a position of independence for the Center and avoid charges of
astroturfmg, Klor de Alva tried to distance the Center and its report from current lobbying efforts
around gainful employment. According to Chronicle coverage:
Nexus sees its business as advocacy but "not lobbying, "and Mr. Klor de Alva said he has no
plans to distribute the report to members of Congress, where lawmakers are continuing to
hold hearings on the for-profit sector. But that doesn't mean the report won't become
another piece of fodder in the debate. "!suspect, "he said, "that it will get distributed over
there."
Well how prescient of him. Any takers on who would have sent this report to all Congressional
officers? Why, John Sperling, of course.
The report arrived in Congressional staffers' email boxes as a PowerPoint presentation along
with a message from Sperling and a sample letter members of Congress could send to Education
Secretary Arne Duncan opposing the gainful employment regulations. Says Sperling:
The attached power point has been prepared by NEXUS, a research and policy institute
whose primary focus is the for-profit sector of higher education. Given its commitment to
fact based research, not special pleading, the power point presents a rationale for the need
to rethink the reforms proposed by the Education Department and the HELP Committee
using as an example the case of the University of Phoenix, whose massive database on its
operations and its academics has been made available to NEXUS researchers.
It is unclear how a policy center whose only report is a piece of blatant advocacy for the
organization that funds the center is committed to "fact based research" and not "special
pleading," but that is not the most outlandish claim in the package. No, that comes in a broad
finding of the report, which Sperling highlights in his letter:
Perhaps the most important finding of the case study is the fact that for-profit institutions
operate at no cost to taxpayers because the interest students pay on their federal loans plus
the taxes paid by the institutions is greater than the Pell Grants and all of the other state
and federal subsidies received by the students and the institutions. Further, the study shows
that not only will the proposed reforms require a major increase in Department of
Education oversight staff, they will greatly lower the efficiency and raise the costs of the
institutions in the sector -- all at the expense of taxpayers.
Let's work through that. According to the Department ofEducation,s proposed rule for Gainful
Employment:
In 2009, the five largest for-profit institutions received 77 percent of their revenues from the
Federal student aid programs. This figure that does not include revenue received from
certain Federal student loans (not authorized by the Higher Education Act) that are
2
page 40 oq 12 .
exempted under the so-called 90/10 rwe, or otner revenue denved from government sources
including Federal Veterans' education benefits, Federal job training programs, and State
student financial aid programs. A recent study completed for the Florida legislature
concluded that for-profit institutions were more expensive for taxpayers on a per-student
basis due to their high prices and large subsidies.
Let's be clear. For-profit colleges receive the vast majority of their revenue and their profit from
taxpayer money. They generate this flow by charging high tuition, which results in their students
receiving a disproportionate amount of Pell Grant money and borrowing more on average and
therefore carrying higher debt burdens. This leads to more significant interest on those loans and
overall loan repayments. To argue that this model is better because it is "revenue-neutral" for the
federal government is to turn the equation on its head.
Yes, the for-profit sector pays corporate taxes which means they must budget for that
expenditure. How do they do that? By making sure they generate enough revenue and that
means making sure tuitions are high enough which means more federal student aid dollars
flowing to the institution. In short, to make sure they have enough money to pay the federal
government, they have to get more money from the federal government on the front end. I
believe that is what we call a zero-sum game. But to even enter into that argument is to miss the
real point. Students.
To defend a business model of education in which it is okay for students to take on excessive
loan debt (and, in too many cases, default on those loans) while companies like Apollo make
millions of dollars by arguing that it doesn't cost the federal government anything is ludicrous if
not immoral.
The goal of our federal financial aid system is not for the federal government and business to
make money with the welfare of students-particularly low-income and minority students-as
an afterthought. The financial aid system envisioned in the Higher Ed Act is supposed to use the
economies of scale at the federal government's disposal to help all students get an affordable and
equivalent education that will improve their economic and social well-being. If the for-profit
sector wants to convince Congress and the public that they are not the next sub-prime mortgage
crisis waiting to happen and that they are vital to the effort of strengthening our system of higher
education, perhaps they should remember that helping students succeed without unmanageable
loan debt, and not milking the federal student aid system to improve their bottom-line, is the key.
Craig Smith is the Deputy Director of Higher Education for the American Federation o[
Teachers where his primary responsibilities are field services and communications with an
emphasis on political and legislative action. Prior to joining the AFT's national staff, he was a
full-time faculty member and local union president at Salt Lake Community College. Craig blogs
regularly on AFT's Faculty and College Excellence website. His views are his own and not
necessarily those of the New America Foundation.
3
Woodward, Jennifer
Sent:
To:
Wednesday, September 29, 2010 7:24 PM
Finley, Steve
Cc: Wolff, Russell
Subject: RE: Speech by Sen. Durbin
-----Original Message-----
From: Finley, Steve
Sent: Wednesday, September 29, 2919 7:21 PM
To: Woodward, Jennifer; Sann, Ronald
Cc: Wolff, Russell
To: Sann, Ronald
Cc: Wolff, Russell; Finley, Steve
From: Sann, Ronald
Sent : Wednesday, September 29, 2919 7 :98 PM
To: Siegel, Brian; Burton, Vanessa; Scaniffe, Dawn; Morelli, Denise; Marinucci, Fred;
Jenkins, Harold; Woodward, Jennifer; Wolff, Russell; Wanner, Sarah; Finley, Steve;
Varnovitsky, Natasha
Subject: Speech by Sen. Durbin
FYI --- a friend who is a journalist for the Bureau of National Affairs (BNA) sent me the
text of this speech given by Senator Durbin on Tuesday. The formatting is difficult, but
it's worth at least a scan.
Ron
Durbin (O- IL)
Sep 28, 2910
> mr. president, if you opened a newspaper over the last several weeks,
> you probably noticed large full-page advertisement that has appeared
> almost every day. it shows usually a young person and then has a
> caption which reads, it says, "1ee,ee0 working americans don ' t count?
> put the brakes on the department of education's gainful employment
>rul e." there are a lot of photos with young people with that basic
> statement that are popping up i n newspapers not only in washington but
> across the united states . others show photos of young people saying,
1
Page70of 212
Woodward, Jennifer
Sent:
To:
Wednesday, September 29, 2010 7:24PM
Finley, Steve
Cc: Wolff, Russell
- ----Original Message-----
From: Finley, Steve
To: Woodward, Jennifer; Sann, Ronald
Cc: Wolff, Russell
rr unr. wuuuwar u, JO::Itti.J..I 0::1
To: Sann, Ronald
Cc: Wolff, Russell; Finley, Steve
<:;uhiPrt: RE: Soeech bv Sen. Durbin
From: Sann, Ronald
Sent : Wednesday, September 29, 2919 7:98 PM
To: Siegel, Brian; Burton, Vanessa; Scaniffe, Dawn; Morel li, Denise; Marinucci, Fred;
Jenkins, Harold; Woodward, Jennifer; Wolff, Russell; Wanner, Sarah; Finley, Steve;
varnovitsky, Natasha
Subject: Speech by Sen. Durbin
FYI --- a friend who is a journalist for the Bureau of National Affairs (BNA) sent me the
text of this speech given by Senator Durbin on Tuesday. The formatting is difficult, but
it's worth at least a scan.
Ron
Durbin (D-IL)
Sep 28, 2010
> mr. president, if you opened a newspaper over the last several weeks,
> you probably noticed large full - page adverti sement that has appeared
> almost every day. it shows usually a young person and then has a
> caption which reads, it says, "100,099 working americans don't count?
>put the brakes on the department of education's gainful employment
>rule." there are a lot of photos with young people with that basic
> statement that are popping up in newspapers not only in washington but
> across the united states . others show photos of young people saying,
1
> "i don't count? some in washington think f a l r o
7
~ P-\?.
12
these ads have been
> hard to miss.
> they're running in more than ten newspapers on a daily basis for
> several weeks at a cost of millions of dollars. and most americans
> when they look at it are puzzles, what is this all about, what is t his
> debate, what is this battle all about?
> well, many of these ads are being paid for by corinthian colleges
> incorporated. this is a for-profit higher education company that
> provides training and education after high school for young people
> across america and for t hose who are not so young anymore. corinthian
> and other for-profit colleges are upset about a regulation that the
> obama administration has proposed. corinthian is spending millions of
> dollars on a barrage of ads across the united states rather than
> basically taking the same money and offering it in scholarships and
> help for their students. they want to stop the obama administration
> from its proposed change in the rules. you see, the proposed
> regulation could end federal subsidies to some of the poorest
> performing for-profit colleges in america and that might hurt the
> profits of some very wealthy corporations, especially corinthian . so
> this is simple dollars and cents. they're spending millions of dollars
> now to persuade congress and perhaps some voters and opinion makers
> not to enforce a rule that holds them to a standard of performance
> because they may lose business. and if they lose business, they may
> lose profits. and in losing profits, they think it's worth putting
> money into this advertising effort. they're worried because you take a
>look around and you can't miss them in washington. i've said half
> jokingly that having served in congress for more than 20 years, that
> the best way i can find to meet former members of congress that i
> served with over those 20 years was to take on this issue because
> they've all signed up as lobbyists for these for-profit colleges. so
>they're calling me and saying, durbin, guess who i'm working for? it
> turns out that my efforts to hold for-profit colleges accountable for
> the students who are going to school there and ending up deeply in
> debt is a full employment bill for former members of congress to be
> lobbyists. that was not my intention. it's not my goal.
>they're also spendi ng, as i said, millions of dollars on these ad
>campaigns, which i've spoken to some newspaper people who say thank
> goodness, it isn't profitable in the newspaper business anymore but
> thank goodness these schools are buying full-page ads. that hel ps the
> bottom line of newspapers. so i have kind of this one-man campaign to
> put america back to work and make american newspapers more
> profitability. it is almost the basis for a comedy routine, but what
> i'm talking about here is not funny at all. what i'm talking about
> here is that some of these for-profit schools are sinking young people
> deeply in debt in student loans that they can never pay off, promising
> them courses, training, degrees t hat will lead to a good job and, in
> fact, leads to a dead end where they end up with a worthless piece of
> paper, they don't end up with the skills they need to get a job but
> they do end up in debt. student loans to t he heavens. i think the
> department of education is on the right track. if we're going to send
> literally millions if not billions of dollars to colleges and schools
> that are training those who finish high school, we should have some
> standards there. we shouldn't just give them to anyone who happens to
> call themselves a school or call their effort an education or
> training. it's right to ask these questions.
> the proposed gainful employment regulation is complicated and some
> changes may be made. before it ' s all over, but it really is pretty
2
> basic in what it's trying to do.
should not
> routinely leave students with student loan debt that they cannot
> afford it pay back -- afford to pay back. luring a 20 or
> 21-year-old deeply in debt when they are being promised a job they'll
>never have is cruel and unfair and, in a moment, i'll tell you what
> happens when the students default on those debts. in the meantime,
> though, the taxpayers are subsidizing this. it's our federal tax
> dollars passing through washington and out to these schools loaned to
> paid to the colleges that are representing they have
> something good to leaving the students deeply in debt and many
>of them without a job. this rule the obama administration ' s
> talking about would take a look at debt-to-income ratios and student
> loan repayment rates to determine those education and training
> programs that are leaving students with more debt than they can
> realistically ever pay back. those programs might have to print a
> warping lainl on their -- warning label on their promotional materials
> about the high debt levels of their students or there might be
> restrictions on enrollment in departments of schools that -- that
> regularly produce students deeply in debt without a job. some programs
> would actually lose their eligibility for federal student aid if they
> didn't meet certain standards. now, i think that that is an honest
> approach for the students and for our need i n this country to educate
> and train people in our work force .
> recently, mr. i had a hearing in chicago and it was on this
> issue, and i couldn't get over the crowd. i expected a few people to
> be interested . 450 people showed up. we had to have an overflow room
> in the federal courthouse. and as i walked i nto that federal
> courthouse building, i thought there was something else important
> going on there beyond my hearing. it turned out the picketers and
> demonstrators on the sidewalk outside were there for me. and so i went
> up to talk to them, students . these two students i spoke to were
> dressed in the tunic which chefs wear with the buttons on the side,
> white tunic, and they were carrying a sign against the gainful
> employment rule. and i talked to them. and i where do you go to
> school? well, mr.
> president, they said they went to the institute of art of chicago
> located in the suburb of chicago, shamberg, illinois. for those
> of us who know chicago, the reason that name is written the way it's
> written is because there is a real art institute in chicago.
> this school is not affiliated with it but is creating the impression
> at least that it may have some connection. it doesn't . and i asked the
> student, what are you studying? and the student says, culinary arts . i
> want to be a chef. i said, how long does this course last? and he
> said, two years. i said, how much do you pay in tuition for this
> course? he said, $54,000.
> $54,000 to work in a restaurant. and i said, how much will you get
> paid after the finish the course when you go to work? well, we usually
> start about $10 an hour and if i work six days a week or maybe more,
> do a lot of overtime, i might make $30,000 a year gross. i said, do
> you have any idea how long it's going to take you to pay off this
> debt? i mean, what is this leading to? someday i want to own a
> restaurant.
> i that's a great but if you start this journey off
> in what's the likelihood you'll reach your goal?
> i'm going to pursue it. i think it ' s the thing to do. the same
> culinary course is offered at the community colleges in chicago, a
> two-year course, same tuition for two years, $12,000. s
3
Page73of212
> this young man is go1ng to be deeply 1n a debt wh1ch
> people our age think thank goodness. that's more than my first home
>cost. they're going to have that facing them as they start a job that
> pays about ten bucks an hour. and to me, i s unfair and creates
> an unrealistic expectation . i wish there would be a suspension for
> like six months of the super chef, master chef shows so that all the
> young peopl e who are bored watching cable tv won't turn to these shows
> and have these dreams about being the master chef tomorrow. for many
>of them, it's going to be a dream that's never although the
> debt that they incur will be realized in a hurry. we think that these
> schools would either have to improve the salary outcomes for their
> students or cut tuition costs. either way, that's good for students.
> what the for-profit colleges want us to believe the idea of
> controlling student loan debt somehow hurts these students .
> let's take a look at corinthian college spending millions of dollars
> on these ads to stop this accountability. this company is buying
> full-page print advertising all across america. it owns he everrest
> everrest institute and everest university. if i did a little
> quiz here and said to the american people, which institution of higher
> learning do you believe receives the most federal funds of any
> institution in america, most people would get it wrong. it's an
> institution that is owned by a company called the apollo group, and
> it's known as the university of phoenix. the university of phoenix has
>over 45e,eee undergraduates enrolled. that's more than the combined
> undergraduate enrollment of all of the big ten schools .
> they receive more aid for education than any other institution in
> america . the next two -- devry university out of chicago. i might add
> during the testimony before our panel, our investigation, did come up
>with some very positive things to say. i hope that what i'm about to
> say here does not take - - is not taken to condemn every for-profit
> school. i think some are valuable and should continue. the other is
> capland university. capland is owned by "the washington post" and is
> the biggest money maker in their corporation. they have quite a few
> students. they are number three in terms of receiving federal aid to
> education. the fourth school incidentally is penn state university,
> finally one that you would guess would be there. it's a large
> university with online courses. that just gives you an idea of where
> the federal money is flowing from student loans and pell grants .
> it's going to for-profit schools. they represent about 9% of all the
> students taking postsecondary education. they represent 25% of all the
> federal aid to education and 43% of all the student loan defaults. 7%
>to 9% of the students, 43% of the defaults . it's an education that we
> have a problem.
> we are shoveling money in the name of educating students at
> institutions which are heaping them up with debt and not providing
> them with training or preparation for a good- paying job. in 2999,
> the one that's buying the millions of dollars in pages of
> had $1.3 billion in revenue, up 22% over the previous
> year. 89% of the revenue for corinthian colleges across the united
> states came from the federal treasury tpr-rbgs taxpayers. -- from
> taxpayers in the form of federal pel! grants and student loans. that
> doesn't include the g.i. bill, department of labor funding or
> department of defense funding . the company's profit in 2009 was $71
> million. the c.e. o. of cori nthian colleges buying all these ads was
> paid $4.5 million in executive pay and other compensation last year.
> corinthian spent out of the money that they brought in, 89% of it from
> the federal government, spent $295 million in advertising and
4
> recruiting in the year 2339. that's
revenue went to
> advertising and recruiting. they are by and large a marketing
> operation. bring the students in, sign them up, bring in the federal
> dollars . bring in more students, sign them up, bring in the federal
> dollars.
> given the ad campaigns in the newspapers, the amount spent on
> advertising by corinthian is likely to go up even higher .
>on average for-profit schools which receive the lion ' s share of t heir
> revenue from federal taxpayers, spend 25% of their revenue on
> advertising and r ecruiting. what do community colleges across america
> spend in recruiting students to come to their campuses and classrooms?
> not 25% of the revenue . 2%. so they're being outclassed in the
> marketing battle by these for-profit schools . how are the students
> doing at everest college, for example? recently an undercover
> government accountability officer investigator went and took a look.
> that investigator posed as a potential student and found the
> admissions representative at this everest college misrepresented the
> cost and length of the program and refused to disclose the graduation
> rate to this so-called student. not surprisingly.
> only 15% of the student loans are being paid by the students who go to
> everest college. 85% of them are not paying on their loans. it shows
> you they're going in debt they cannot pay off. data from the
> department of education indicates that corinthian overall in all their
> different colleges has a 24% repayment rate. three out of four
> students who go to their schools can't pay the principal on their debt
> after they finish. three out of four. it is the lowest repayment rate
> of any publicly traded corporation in thi s business . on a recent
> investor call, corinthian acknowledged some campus are at risk of
> losing accreditation and the majority of campuses will have a
> three-year default rate, over 33%. you can' t expect a young students
> fresh out of high school or someone without worldly experience to
> launch an investigation about whether a school is accredited. you
> assume if the federal government is going to send its money to the
> university for the students someone in washington is keeping an eye on
> the school to make sure it's the real thing. the honest answer is
>we're not. that's why the obama administration thinks we should change
> the rules, create more oversight on these schools, make sure the
> federal dollars are well invested and students don't end up
> overwhelmed by debt. an independent analysis predicted that the
> corinthian company-wide three-year default rate would be 39%. you know
> what that means? two out of every five students who attend college
> owned by corinthian corporation will default on their student loans
> within three years.
> that's happening despite the company's strong efforts to lower the
> defaul ts within the government's three-year window. they're
> encouraging students just pay interest on your debt if you can't pay
> principal so at least you can say you're paying something. corinthian
> spent $13 million over what this calls what it calls default
> management. this is indefensi ble that we are sending this money to the
> corinthian corporation. they are heaping money on the corporation and
> not paying for an education . everest is doing slightly better with
> 25%. corinthian offers private loans to students who are in trouble.
> listen to this .
>corinthian's college's chief financial office stated in an investor
> call that they anticipate a 56% to 63% default rate. that's 56% to 58%
> default rate on i nternal student lending. why s&l corinthian -- why is
> corinthian willing to lend money to the students, their own money when
5
> they know the students are defaulting on ~ 8 t ~ ~ ~ ~ ~ n t loans? the company
> is willing to take this loss of $75 million in private student loan
> defaults because these loans help insure the federal loans and pell
> grants will keep coming in to these students despite the fact that
> they are in over their heads in debt and have nowhere to turn.
> corinthian college was sued by the state of california in 2007,
> arguing the -- the state argued they misled students about career
> opportunities . they reached a $6.5 million settlement in the state of
> california to refund tuition to former students, pay student debt
> cancelation and pay civil penalties . it wasn't the first time they
> were in kofrplt there have been a number of lawsuits from former
> students who spent tens of thousands of dollars for useless address.
> recently corinthian has been sued by shareholders for allegedly making
>false statements about the company's business prospects. i have
> questions about whether corinthian is the education opport unity that
> students are looking for. there are certainly students who have good
> experience at one or more of the corinthian schools but i want to
> share a story that they aren't featuring in their full-page ads
> arguing that they should not be subject to oversight by the department
> of education. last year, "washington monthly" magazine told the story
> of a student named martin. at the age of 43, martin decided to go back
> to school in nursing. she came across a web site for everest college,
> part of corinthian. she was promised state-of-the-art training and
> rotations at los angeles medical center . she was worried about the
> $29,000 tuition but was told it wouldn't be a problem. she was going
> to make $35 an hour as a nurse . martin filled out her paperwork,
> rushed through the process, wasn't told the terms of her loans,
> including private loans that carried double-digit interest rates. the
> education didn't turn out to be what was promised. the instructors
> were inexperienced, the lab equipment was old and broken, and instead
> of the promised rotations at ucla medical center, her clinical
> training consisted of passing out pills at a local nursing home.
> martin was unable to find a job after she graduated.
> instead, she's working as a home health care aide and she can't pay
> back her student loans. she said, "i made one mistake and i'll be
>paying for it the rest of my life." now, many of these for-profit
> colleges argue that we need them desperately because the community
> college system in america is filled. not true. over the last week, mr .
> president, i went to olivarvy college, part of the city college system
> in chicago. they have some new leadership there is inspiring.
> and i said, what is your capacity? they said, we are about 50% of our
> capacity. we can absorb many more students in community colleges. and
> those community colleges cost a fraction of what these for-profit
> colleges charge. i think it ' s important that we give to students the
> information about the variations in costs for education and training
> and what they can expect to receive . according to the department of
> education, everest college in skokie, illinois, costs on average
> $14,000 in tuition and fees for education. less than three miles away
> from everest campus in skokie is a school you and i both know, oakton
> community college. in oakton, students can earn degrees in the same
> field, the same certificates for dramatically less. a certificate in
> medical billing, a program offered at everest college, the private,
> for-profit school, for $10,000 will cost you $1,800 at oakton
> community college. 1/10th of the cost of this private school. the core
> riptian ad contamine -- corinthian ad campaign suggests that we don't
> think the students enrolled in their school count. i disagree with
> them. i think they count for a lot. they account for our future. i
6
> would like to tell the students colleges, it's
> because they count that we're asking these hard questions. i see
>another colleague on the floor, the senator from minnesota, and so i'm
> going to wrap up quickly here and just tell you one thing i want
> students to know across america .
> first, the standards that i wanted to impose on for-profit colleges i
> also want to impose on community colleges, public universities, and
> private universities. they should be accredited so that their hours
> are worth taking. they shouldn't promise a job leading from a
> certificate that is earned there if it is not true. they should have
> full disclosure to students about what it means to enter into a
> student loan. and they ought to have some revenue coming in other than
> the federal government. for many of these, 75% to 99% of their revenue
> comes straight from the federal government. and when the g.a.o. did
> the undercover survey of what some of these for-profit schools are
> saying to students, some of these recruiters were saying too them,
>listen, i'm a recruiter but i just finished college and i've got a big
>debt that i'll never pay back. you know? i'm going to have a good job
> and make a lot of money so it's okay. you know what happens when you
> default on a student loan in america? i think it's about time we tell
> students what they might get into if they get in over their head with
> a worthless education. your loan will be turned over to a collection
> agency and they might charge you up to 25% more to collect what you
> owe . your wages can be garnished. that is, they can take it right out
> of your paycheck. your tax refunds can be intercepted by the federal
> government if you still owe a student loan. and your social security
> benefits ultimately will be withheld if you end up in debt at that
> point in your life from a student loan. your defaulted student loan
> will be reported to a credit bureau and remain on your credit history
> for seven years after -- even after it's paid. that means you may not
> be able to buy a car or a house or take out a credit card. it might
> mean you can't get a job because of your credit history. you can't
> take out any more student loans if you're in default on earlier loans
> or receive pell grants. you're in longer eligible for h.u.d. or v.a.
> loans. expucd be barred from the armed -- and you could be barred from
> the armed forces and you might be denied some jobs i n the federal
> government. and you might also add, most student loans are not
> dischargeable in bankruptcy. when the bottom falls out and you go to
>bankruptcy court, that's the one that will still be hanging over you
> when you walk out of that court process. i think we have to be honest
> with students across america and let them know what they're getting
> into when they get in to students loans. i borrowed money. i went to a
> good school. i think it paid off for me.
> but it was an important deci sion and i wasn't misled about my
> education. i knew what i was going to get and i knew it gave me an
> opportunity and i was willing to risk the debt to reach that goal. and
> it worked. that's a good thing. but for those who are misleading
> students, burying them deanly in debt, i -- deeply in debt, i can tell
> them that the time of accountability has arrived. the federal
> government is going to keep its obligation to the students across
> america to help them with education, but these schools have an
> obligation to their students to be honest with them, to be accredited,
> and to produce training and education that leads to a good-paying
> jobs. i yield the floor.
>
7
Woodward, Jennifer
Sent:
To:
Saturday, November 14, 2009 3:17PM
McDade, John
Subject: RE: Response To: Propublica article
From: McDade, John
Sent: Friday, November 13, 2009 9:23AM
Subject: Response To: Propublica article
F
++++++++++++++++++++++++++++++++++
November 03, 2009
Incentive Compensation and the For-Profit Education Sector: A History
As the first set of negotiating rulemaking sessions kicks into gear this week (Inside Higher Ed reported on the
drama surrounding who should be at the table for the negotiating sessions), I thought it would be useful to
review one of the central issues that the negreg teams will be tackling, that of incentive compensation.
Here is a bit of the history. The original incentive compensation ban in the 1992 HEA reauthorization stemmed
what became known as the Nunn Report (or the report from the Permanent Subcommittee on Investigations
titled "Abuses in Federal Student Aid" is linked here) and their 1991 hearings which cast a cloud on practices in
1
the for-profit education sector at that time. Here is written I 9 years ago had to say about
admissions/recruitment practices:
"One of the most widely abused areas of those observed during the Subcommittee's investigation lies in
admissions and recruitment practices. Among these practices three stand out in terms of they adverse effects
they generate: false and/or misleading advertising; unethical and/or illegal recruitment efforts; and, falsification
of information used to satisfy GSLP (Guaranteed Student Loan Program) ability-to-benefit requirements (here
is what a recent GAO report had to say about ability-to-benefit tests circa 2009)."
As a result of this report, this incentive compensation ban found its way into the 1992 HEA reauthorization:
"The institution will not provide any commission, bonus, or other incentive payment based directly or indirectly
on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting
or admission activities or in making decisions regarding the award of student fmancial assistance, except that
this paragraph shall not apply to the recruitment of foreign students residing in foreign countries who are not
eligible to receive Federal student assistance. [HEA 487(a)(20), 20 USC 1094]. "
And that is the way it remained until 2002, when twelve exceptions (some might even use the word "loopholes)
were introduced to weaken the incentive compensation ban. Here are the rules that the National Consumer Law
Center found most troubling in 2002:
a) 668.14(b)(22)(ii)(A) would exempt from the "incentive compensation" prohibition payment of fixed
compensation (such as a fo:ed salary) as long as that compensation is not adjusted up or down more than
twice during any twelve month period.
This provision would for the first time exempt "salary'' compensation from the commission ban if
adjusted no more frequently than every six months. This provision would invite schools and recruiters to
game the system. For example, they could hire recruiters, pay them salaries, and then adjust salaries
(upward or downward) depending on the numbers of students enrolled in the last six months. This merely
delays the payment of commissions and also encourages last-minute recruiting as employees approach the
six month salary adjustment period.
(b) 668.14(b)(22)(ii)(B) would exempt from the " incentive compensation" prohibition
compensation to recruiters based upon their r ecruitment of students who enroll only in non-Title
IV programs.
This provision threatens to open the door to abuses by schools luring students in to private loan products
that they cannot afford. Serious problems might also arise if students, once enrolled, are then encouraged
to sign up for title-IV programs.
(c) 668.14(b)(22)(E) would exempt from the " incentive compensation" prohibition compensation
based upon students successfully completing the educational program.
This provision does not eliminate the types of problems that have occurred in the past. Tying commission
to completion rather than enrollment will just as easily lead to abuses, particularly by schools with
inferior educational services. In these cases, a student's completion of the program is not a measure of
success and should not be considered as such for incentive compensation purposes.
ln contrast with the 1980's and early 1990's, vocational schools are increasingly recruiting high school
graduates who are more likely to complete the programs even if they are dissatisfied. ln many cases, they
are told they wi ll still owe the full amount on their loans even if they withdraw. Unscrupulous vocational
2
h I ft d fr d h
.
sc oo operators o en e au t ese students eve'ti mougu many complete the programs. They are left m
most cases without job prospects and with unmanageable student loan debt burdens.
This provision would encourage recruiters and other school personnel to make misrepresentations to
enrolled students so that they will complete the programs. The school will then collect the tuition and the
recruiter will collect his commission. Under these circumstances, the recruiters and other employees have
a monetary incentive to make misrepresentations in order to keep dissatisfied students in school. As with
the other provisions discussed in these comments, this situation would undermine the power of the
incentive compensation ban and encourage fraud.
(d) 668.14(b)(22)(F) would exempt from the "incentive compensation" prohibition compensation
for " pre-enrollment" activities.
Allowing commissions to be paid for these activities is a bad idea. It merely encourages the same types of
aggressive and deceptive advertising practices that have caused problems n the past.
(e) 668.14(b)(22)(G) would exempt compensation to managerial or supervisory employees who do
not directly mange or supervise employees who are directly involved in recruiting.
This provision would provide an end-run around paying commissions to those directly involved in
recruitment. It would also be very difficult for the Department to enforce. In most cases, detem1ining
whether commissions were paid to a school's managers or supervisors as opposed to employees will
require detailed investigations of the school's internal personnel structures."
Marketplace/Pro Publica have produced a two part series based on their investigations of a for-profit
institution. Here is how one recruiter described his role:
"One thing we would be told to do is call up a student who was on the fence and say, 'Alright, I've only
got one seat left. I need to know right now if you need me to save this for you, because this class is about
to get full.' Well, that wasn't true," Burke said. "We were told to lie ... recruiters also led students to believe
that course credits could be readily transferred, even to top schools such as Stanford University ... They
became more focused on numbers. You had to enroll this amount of people all the time, and it started to
become a little bit more about money," said Burke. "Not about find ing the right students and helping the
right students get into the program."
As for what we can expect from the negreg sessions, the issues document on incentive compensation lists the
twelve "safe harbors" currently in place for incentive compensation (pages 7 -12) and the following
commentary:
"The Department has received complaints from students and enrollment advisors about the high-pressure
sales tactics of some postsecondary institutions. Some argue that tying staff compensation to the number
of students enrolled is an inherent conflict of interest and that the safe harbors undermine the statutory
ban on incentive compensation. The Department has also heard from a number of educational institutions
that the lack of clear guidance prior to establishment of the safe harbors made it very difficult for
institutions to be confident of their compliance with the rule. ShouJd the safe harbors be maintained,
amended, or eliminated in whole or in part from the regulations?"
Notably, the for-profit sector has one of the fourteen seats designated for non-federal negotiators. Stay tuned ...
3
I couldn't help but notice a few recommendations Nunn Report eighteen years ago:
On correspondence courses: "Congress should specify that proprietary school correspondence courses
should no longer be eligible to participate in federal student financial aid programs. Education by
correspondence can be a valuable method of instruction for those who are self-motivated. However, the
Subcommittee received overwhelming evidence that extensive abuse has occurred in these programs and
that effective regulation of correspondence courses has proved nearly impossible ... "
o Fast forward 18 years to House subcommittee bearing and written testimony from Acting
Inspector General of US Dept. of Education, Mary Mitchelson, which highlights the
challenges of on-line or distance education: "Determining what constitutes a class and class
attendance in the on-line environment is a challenge in the absence of defined class times or
delivery of instruction by instructors. The on-line environment also creates challenges for
determining whether a student has enrolled for purposes of obtaining a credential or is just
completing sufficient on-line activity to receive a disbursement of Federal student aid to use for
other purposes. On-line instruction typically consists of posted reading materials and
assignments, chat-room and email exchanges, and posting of completed student work. The point
at which a student progresses from on-line registration to actual on-line academic engagement or
class attendance is often not defined by institutions and is not defined by Federal regulations."
On consumer disclosures: "The Secretary of Education, through the Department's accreditation
recognition process, should require accrediting agencies to: ... develop and make public uniform
performance-based consumer protection standards, including, but not limited to, criteria on enrollments,
withdrawal rates, completion rates, placement rates, and default rates."
o In case you missed it, yesterday the Center for American Progress recommended a Consumer
Protection Agency for Education. You know what they say, the more things change ...
Talk later,
Sent: Thursday, November 12, 2009 3:25PM
To: Jenkins, Harold; Wolff, Russell; Finley, Steve
Subject: FW: Propublica's defense of Apollo's reaction to the origi nal Propublica article
http://www.propublica.org/feature/university-of-phoenixs-curious-take-on-the-law-llll
The company said this view was "recently confirmed" by the 9th U.S. Circuit Court of Appeals. Claiming to
quote the "Court," Apollo said, "If acaderruc institutions could not pay recruiters based upon their ability to
recruit students, 'you could never have any performance criteria for that particular job.' (5]"
4
Here's the problem: The quote came from an oral
the court's final decision. ln fact, the final

ruling [6] was procedural. The judge's statements did not "confirm" Apollo's views, according to Jack
Beermann, a law professor at Boston University.
"That's an inaccurate statement because if it's only one judge making a comment in argument, it certainly wasn't
confirmed by the court," he said.
Knowing the difference between what a judge says in oral argument, and what the court writes in its official
opinion, is one of the first and most fundamental lessons taught at law school, Beermann said.
"This communication may contain privileged or confidential information. If you are
not the intended recipient(s), you are hereby notified that you have received this
message in error and that any review, dissemination, distribution or copying of this
message is strictly prohibited. Any views or opinions presented are solely those of
the author and do not necessarily represent those of Third Point LLC or its
affiliates. If you have received this communication in error, please notify us
immediately by email, and delete the original and any copies of the message. We do not waive
confidentiality if you have received this communication in error. In the UK, this
communication is directed to those persons who are market counterparties
or intermediate customers (as defmed in the rules of the Financial Services
Authority).
This is not an offer, or solicitation of any offer, to buy or sell any security,
investment or other product."
5
Page 92 of 212
Woodward, Jennifer
From: McDade, John
Sent:
To:
Tuesday, June 22, 2010 10:54 AM
Woodward, Jennifer
Subject: RE: FYI
No problem, and people tend to wear suits.
YF*W
Sent: Tuesday, June 22, 2010 10:53 AM
To: McDade, John
Subject: RE: FYI
Thanks SO much for letting me know.
From: McDade, John
Subject: FYI
F
One hint: unless you know somebody from the Department (OIG) that will get you in reserved seating, you will need to
arrive early to stand in line. Since the hearing starts at 10:00, you probably will need to get there at least at 8:00
and stand in line. FYI -people have a habit of cutting in line- I remember some New York analysts doing such at last
Fall 's hearing. Also, some people are paid to stand in line until the suits such as the esteemed MPelesh then jump in their
place.
People are aggressive so be aware.
Talk later,
YF w
To: McDade, John
Subject: RE: Steven Eisman
Page93of212
Wow- such short notice. I have the week from hell, but I think I must go.
From: McDade, John
Subject: Steven Eisman
F
Since I am going to a training ali-day Friday and have training today, I don't think my boss wil l approve me going to this
hearing. Please note that one of the main characters in Michael Lewis' s Big Short wi ll be testifying. Also testifyi ng on
behalf of the CEC Corporation, is Area Case Director Parrott's wife.
Talk later,
YF w
++++++++++++++++++++++++++++++++++++++++++++++++++++++++
HELP Committee to Hold First Hearing on Oversight of Federal
Education Dollars at For-Profit Colleges
Monday, June 21, 2010Kate Cyrul I Bergen Kenny (202) 224-3254
WASHINGTON, D.C.- Senator Tom Harkin (0-IA}, Chairman of the Health, Education, Labor and Pensions (HELP)
Committee, today announced the witnesses for the first hearing in a series intended to examine federal education
spending at for-profit higher education institutions. The series will examine a broad range of issues related to the growing
role of the for-profit higher education sector, including the scope and rapid growth of the federal investment in for-profit
higher education and the corresponding opportunities and risks for students and taxpayers. The first hearing, titled
"Emerging Risk? An Overview of the Federal Investment in For-Profit Education," will be held Thursday, June 24,
at 10:00 AM in room 124 of the Dirksen Senate Office Building. It will also be webcast at http://help.senate.gov.
"More than two decades have passed since Congress last examined the for-profit education sector and in that time, we
have seen an explosion in growth in for-profit colleges, and in the federal taxpayer dollars they receive," said Harkin.
"With students, families and taxpayers investing so heavily in for-profit institutions through large loan debt and billions of
dollars in federal student aid, we must ensure that student are actually getting the knowledge and skills they need to pay
off the debt.
"While for-profit colleges have a responsibility to their shareholders, they also have a responsibility to provide educational
value to their students, and an obligation to ensure that the federal dollars they receive are well spent, particularly now
that Congress has made an historic investment in student aid."
2
Page 94 of212
Witnesses will include:
Kathleen Tighe, Inspector General, Office of the Inspector General, U.S. Department of Education, Washington, DC
Panel II
Steven Eisman. Portfolio Manager, FrontPoint Financial Services Fund, LP, New York, NY
Yasmine lssa, former Sanford Brown Institute student, Yonkers, NY
Sharon Thomas Parrott, Senior Vice President, Government and Regulatory Affairs and Chief Compliance Officer,
DeVry, Inc., Chicago, IL
Margaret Reiter, former Supervising Deputy Attorney General, Office of the Attorney General, California Department of
Justice, San Francisco, CA
3
Woodward, Jennifer
From:
Sent:
To:
Subject:
F
Hope all is well.
Page95of212
McDade, John
Friday, August 20, 201 0 1 :31 PM
Woodward, Jennifer
Response To: Near And Dear To Your Heart
I have enclosed a brief article from today below.
Regarding meeting, I would love to also, just let me know when and where.
Talk later,
YF w
+++++++++++++++++++++++++++++++++++++++++++++++
http://www. m arketwatch. com/story/corinthian-falls-again-on-regulatory-outlook -20 1 0-08-20 ?siteid=yhoof
By Steve Gelsi, MarketWatch
NEW YORK (MarketWatch) --Corinthian Colleges Inc. shares fell as much as 18% Friday, retreating as the
company missed Wall Street targets and said it didn't yet know the impact of possible changes in the
regulatory landscape for private-education firms.
U.S. regulators have been taking a closer look at for-profit educators because of clai ms that the institutions have
been preying on low-income students, setting them up with loans they cannot pay back.
Educating Tomorrow's Ethical leaders
'We are actively monitoring proposed changes in federal regulation and congressional actions which pertain to
private sector education," the Santa Ana, Calif.-based company said. "Given the information currently available, we
are unable to gauge the full impact of these proposals on our students and the company."
1
Page 96 of 212
Corinthian Colleges (COCO 4.55, -0.86, -15.83%) dropped 15% to $4.59 at midday, after having set a 52-week low
at $4.42 on an intraday basis. The company's shares plunged 22% on Monday on fresh concerns about tighter
regulations on student loans. See: For-profit education stocks plunge.
Shares of other private-education firms also fell to close out the week, but more modestly.
DeVry Inc. (DV 37.35, -1.47, -3.79%) lost 5.5.%, while ITT Educational Services Inc. (ESI 51.80, -2.00, -3.72%)
skidded 5% and Career Education Corp. (CECO 17 .53, -0.76, -4. 16%) gave up 3.4%. Shares of Washington Post
Co. <YY.EQ 345.00, -0.61, -0.18%), the parent of Kaplan Inc., fell 1%.
Also Friday, Corinthian Colleges reported a profit of $33.9 million, or 38 cents a share, for the fourth quarter ended
June 30, up 46% from $23.2 million, or 26 cents, earned in the same period during fiscal 2009.
tltIIIl4.55, -0.86, -15.83%
rm 37.3s. -1.47. -3.79%
~ 51.80, -2.00, -3.72%
[11'J:r.tJ 17.53, -0.76, -4.16%
~ 4 0 . 7 3 , +0.14, +0.34%
Quarterly revenue increased to $482.7 million, up from the prior year's $353.5 million.
Analysts had expected a profit of 39 cents a share, on revenue pegged at $477.3 milli on, according to a survey of
estimates by FactSet Research.
For the first quarter of fiscal 2011, the company said it expects earnings of 38 cents to 41 cents a share, below the
Wall Street consensus target of 44 cents a share.
The company said it's "in the process of reducing the risk profile of our student population" to lessen prospects for
defaults on student loans.
As of Sept. 1, the company said it will no longer serve new students enrolled i n the federal Ability to Benefit
program, known as ATB, at its Everest and WyoTech campuses.
At the end of fiscal 2010, ATB students represented 15% of the company's total student population, down from 24%
at the same point in the prior year.
"A TB students drop out at a higher rate, are more challenging to assist with career placement, and default on their
loans at a higher rate than high-school graduates," the company said. "Although serving ATB students has
historically been a part of Corinthian's mission ... we will no longer be able to serve these students" at two
campuses.
On the regulatory front, Corinthian said it has fonnally responded to proposed rules from the Department of
Education on incentive compensati on for admissions representat ives, misrepresentation, and gainful
employment disclosures.
2
Page 97 of 212
Corinthian also plans to file a written response by Sept. 9 to a second notice of proposed rule making that focuses
exclusively on gainful employment.
It's also responding to a request for information from the Senate Health, Education, Labor and Pensions
Committee, which sent queries to 30 private-sector education companies including Corinthian.
The committee, chaired by Sen. Tom Harkin (D. , Iowa), has requested that a portion of the information be provided
by Aug. 26 and the remainder by Sept. 16.
The panel has been looking into federal oversight of for-profit colleges and universities, including student default
rates and the proportion of money that private-education providers spend on education as opposed to recruitment,
marketing and administration.
Steve Gefsi is a reporter for MarketWatch in New York.
Sent: Thursday, August 19, 2010 6:25 PM
To: McDade, John
Subject: RE: Near And Dear To Your Heart
Thanks, I had t he perfect vacation! It's very hard to come back to DC heat, rain, and humidit y, and lots and lots of
work. Everywhere I went in Seattle, it smelled like sage (this lovely dry air scent), and here, it smell s like a sewer!
I did read the GAO report on the plane and have been t rying to get caught back up. I just read t he transcript for t he ABC
segment. You should see what UOP is saying to try to get an absolution. What a joke!
Hope you are doing well. We have GOT to find time to get together.
From: McDade, John
Sent: Thursday, August 19, 2010 10:44 AM
Subject: Near And Dear To Your Heart
F [!:
I hope you enjoyed Seattle, and had a relaxing time. In D.C., all you missed was oppressive heat and blackouts. I've had
3 so far that have lasted more than 6 hours.
Defini tely check out the GAO hearing on incentive compensation:
Here is the link:
http://www.c-spanvideo.org/videolibraN/event.php?id=185756
Definitely worth your while to watch the whole thing.
3
Check out today' s arttcle (below) about an ABC
of the post-secondary educational institutions near

and dear to your heart.
Talk later,
YF w
+++++++++++++++++++++++++++++++++++++++++
http :1/abcnews. go. comrrhelaw/profit-ed ucation-abc-news-undercover -i nvestigate-recru iters-university/story?id= 11411379
ABC News Investigates For-Profit Education:
Recruiters at the University of Phoenix
ABC News Gets An.swers for Student Who Claims She Was Duped by Online School
By CHRIS CUOMO, GERRY WAGSCHAL and LAUREN PEARLE
Aug. 19,2010-
Ads for online schools are all over the Internet, plastered on billboards in subway cars and on television. The
University of Phoenix, with nearly 500,000 students, is the biggest for-profit college. But some former students
said they were duped into paying big bucks and going deeply in debt by slick and misleading recruiters.
"I don't want anyone else to be sucked in," said Melissa Dalmier, 30, of Noble, Ill.
The mother of three had big dreams to be an elementary school teacher, so when she saw ads for the University
of Phoenix pop-up on her computer, she e-mailed them for more information. A few minutes later, Dalmier said
she got a call from one of the school's recruiters, who she said told her that enrolling in the associate's degree in
education program at the University of Phoenix would put her on the fast-track to reaching her dream.
"[The recruiter said] they had an agreement with lllinois State Board of Education and that as soon as I finished
their program I'd be ready to start working," she recalled.
Within 15 minutes, Dalmier was enrolled. Since she didn't have enough money to pay for tuition, she said the
recruiter helped her get federal student aid. In total, she took out about $8,000 in federally-guaranteed student
loans.
But just a few months after Dalmier started, she said she learned the horrible truth: the degree program she was
enrolled in would not qualify her to become a public school teacher upon graduation in Illinois.
"It was an outright lie. A bold faced lie," she said.
Watch more of the undercover investigation tonight on "World News" at 6:30 p.m. ET and later on
"Nigbtline" at 11:35 p.m. ET
4
It's not the first time that the controversial school,

almost 90 percent of its revenues from students
paying tuition from federal aid, has come under fire for its recruiting methods.
The University of Phoenix was one of 15 for-profit schools whose aggressive recruiting practices were the
subject of hearings held by Sen. Tom Harkin, D-Iowa. The Government Accountability Office sent
investigators to for-profit schools across the country and found that all of them were misleading potential
students.
In 2004, the University of Phoenix paid nearly $10 million to the Department of Education to settle allegations
that it had violated rules about its recruiting practices. The school did not admit any wrongdoing.
"I think maybe the whole orchard is contaminated," Harkin said. "There's a systemic problem with the system
itself that needs to be addressed."
University of Phoenix Recruiter's False Promise
ABC News wanted to know firsthand whether what Dalmier said happened to her, would happen to us, so we
sent one of our producers undercover to meet with a University of Phoenix recruiter.
Our producer told the recruiter, who was working out of an office in Houston, Texas, that he aspired to be a
teacher and planned to live in either Texas or New York. The recruiter told him to enroll in the Bachelor's of
Science in Education program, and with that degree and some student teaching, he would be set.
Producer: I just want to tmderstand clearly. I can go to University of Phoenix, do my bachelor's degree, and
l 00 percent for sure I can go back to either Texas, or New York and I can sit for those exams and once I finish
those exams .. .I can teach.
Recruiter: Then you can become a teacher. Yes. That is true. What's your e-mail address?
Despite her assurances, the recruiter's claim was not true. Even with successful completion of the required
certification testing, a degree from the University of Phoenix does not guarantee a teaching certificate in either
of those states.
When we confronted Dr. William Pepicello, president of the University of Phoenix, about the recruiter's false
promise, he said it was "indefensible."
"It's wrong. Can we do better? Absolutely. Do we train our people to give that kind of misadvice? Absolutely
not. And we can do better, we will do better, you know, we already have some initiatives that we talked about
that we're putting in place because at the end of the day, we have to get it right."
But this was not the first time that the university's rectuiting practices have come under scrutiny. In December
2009, after two former employees came forward and accused the university of violating federal financial aid
regulations with its recruiting practices, without admitting wrongdoing the school agreed to pay $67.5 million to
resolve the accusations. The two whistleblowers received $19 million in the settlement.
When asked if the 2009 settlement was a sign that "we got caught," Pepicello disagreed.
"No, I wouldn't say it's proof that we got caught. I mean, it's certainly proof that we weren't doing as well as we
could. We could do better," he said.
5
,. !;P9e 100 ol 212
RecrUiter Tells Student to Borrow to the 1v1ax
The recruiter also told our undercover producer he could take out as much as $35,000 in federal financial aid to
pay for school. She also said that there might even be some money left over after tuition was paid.
Recruiter: I tell students to take out the max and whatever you don't need or you don't use then use it [for
whatever]. But it's easier to take out more than you need and send back the excess versus you didn't take out
enough.
Producer: What are the kinds of things though? I mean in terms of like that I could use it for? I mean, what ifl
just... because you're going to have to have money to walk around.
Recruiter: They don't care. Right. They don't. They just tell you use it for educational purposes.
Producer: And they don't .. .They don't what?
Recruiter: No one follows up. No one says, What happened to this money? You received a check for $562,
where did you spend it?
Producer: It's your business.
The university president said that there was no excuse for a recruiter to push someone to borrow to the max.
'It's absolutely indefensible. It is not the way that I intend to run this university," Pepicello said.
For-Profit Universities Contributing to Financial Crisis?
Experts say recruiters who are misleading students may only be the tip of the iceberg. Students who have
attended for-profit schools are defaulting on their loans at an alarming rate, which experts say may be
contributing to the next big fmancial crisis.
At the University of Phoenix's headquarters, the loan repayment rate was 44 percent, according to data from
2009 provided by the Department of Education; students at their Nellis Air Force location had a repayment rate
of 36 percent. At the headquarters of Brown Mackie College, another for-profit school, the repayment rate was
27 percent. Harris Miller, who heads the for-profit industry's lobby group, told Chris Cuomo that default rates at
for profit schools are comparable to other schools which service similar student populations.
Recruiters from for-profit schools obtained $24 billion in student loan and grant money for the 2008-2009
school year, according to Government Accountability Office and Senate reports.
"These schools are marketing machines masquerading as universiti es," said Steve Eisman, a renowned hedge
fund investor who predicted the last big mortgage crisis. "I thought there would never again be an opportunity
to be involved in the short side as an industry as social destructive and morally bankrupt as the sub-prime
mortgage industry ... Unfortunately, I was wrong."
Though for-profits get the lion's share of their tuition from financial aid, the default rates on loans for students
who attended for profit schools are alarming. About 50 percent of the students at for-profits drop out, according
to Eisman, so schools need to keep adding new students, and have to try to recruit just about anyone -- even
those most vulnerable in society, he says.
6
University of Phoenix Recruiter Goes to

Benson Rawlins was considered homeless last year when be met two recruiters from the University of Phoenix,
who gave three seminars at Y-Haven, a shelter for transitional men in Cleveland, Ohio, or in effect, a homeless
shelter.
Rawlins doesn't have aGED, but said the recruiters had no qualms trying to sell him an expensive associate's
degree.
"It seems like it is just too much all about money," he said, "Instead of helping someone get an education."
The university told ABC News it does not tolerate recruitment at facilities like Y-Haven.
"We can assure you that anyone who participated in the recruitment of residents from homeless facilities in
Cleveland no longer works for the University," said Alex Clark, a spokesperson for the University of Phoenix.
"Any such activity is strictly forbidden by our Code of Business Conduct and Ethics, and employees who
violate this policy face disciplinary action up to and including termination."
Harris Miller said even though the schools serve an important role by providing higher education to students
who wouldn't ordinarily get one, many schools' recruiting practices need to be changed.
Miller claimed that universities began to change even before the GAO's report on their misleading practices,
including changing how recruiters are compensated (so they do not receive bonuses or prizes for recruiting
students), offering "test drive" programs to help people figure out if higher education is for them and focusing
more on consumer protection.
When asked why for-profit universities don't return money back to those who have been misled by their
solicitations, Miller said: "There are other countries in the world like Canada which have a different system and
it's something we're going to look at."
But Miller admitted that the industry has no plan in place to pay back those who are carrying a debt from for-
profit schools.
Whatever the industry's plans for future, Dalmier said it won't help heal what happened.
"If they tell you something, investigate it before you enroll in their program. You really need to find out the
truth and how to further your passion or your dream," she said. "That way, you don't end up like me."
After ABC News' interview with Pepicello, the University of Phoenix offered Dalmier a scholarship for a
bachelor's degree of her choosing. Dalmjer said she is considering their proposal.
Pepicello also said he plans to change the school's recruiting practices, especially the current model of
compensation, and will be offering students a "test drive."
Click HERE to read a letter to ABC News from William Pepicello.
7
Page 102 of 212
Woodward, Jennifer
From:
Sent:
To:
Subject:
It do go quick.
McDade, John
Friday, July09, 20101: 17 PM
Woodward, Jennifer
RE: Articles
Interesting that the CCA attachment did not include anything on incentive compensation.
Anyway, you take care, and of course, I'll keep you posted if I see anything else.
YF*W
Sent: Friday, July 09, 2010 1:12 PM
To: McDade, John
Subject: RE: Articles
Thanks so much. 1){5)
Nonre pons1ve
From: McDade, John
Sent: Friday, July 09, 2010 11:17 AM
Subject: Articles
F !!:
Hello there! I hope all is well.
2 news items below. b {5)
Have a good weekend!
Talk later,
YF w
1
onr spon 1ve
Page 103of212
++++++++++++++++++++++++++++++++++++++++++++++++
http://higheredwatch.newamerica. net/blogposts/201 0/higher ed watch exclusive career college association strategy
memo revealed-3411 0
Higher Ed Watch Exclusive: Career College Association Strategy
Memo Revealed
Author(s):
Stephen Burd
Published: July 8, 2010
Issues:
The for-profit higher education sector is coming under a level of scrutiny unmatched since the early 1990s. But judging
from an internal Career College Association (CCA) strategy memo that Higher Ed Watch has obtained, all of the
controversy surrounding proprietary schools appears to have done little to temper the organization' s ambitions. In fact, the
document, which CCA distributed to its members during its national convention in Las Vegas last month, shows that the
group is fighting as hard as ever to get Congress to gut key consumer protection provisions in federal law that aim to
prevent unscrupulous for-profit colleges and trade schools from taking advantage of financially needy students.
These proposals are part of what has been a nearly 20 year campaign by the career college group to chip away at
provisions that Congress added to the Higher Education Act in 1992 to protect students and taxpayers from trade schools
that were set up to reap profits from the federal student aid programs. In this effort, CCA, with its high-priced lobbyists and
bountiful campaign contributions, has been remarkably successful.
But it appears that the association's luck has finally run out. With the Senate Health, Education, Labor and Pensions
[HELP] Committee holding a high-profile series of hearings examining waste, fraud, and abuse in the proprietary school
sector, it's extremely unlikely that lawmakers will have any appetite for weakening the government' s ability to oversee the
schools any further. [Not to mention that any such changes would have to be approved by Sen. Tom Harkin, the Iowa
Democrat who has spearheaded the hearings.]
Still, the strategy memo provides a revealing look into the mind-set of an organization that has grown all too-accustomed
to flexing its muscles on Capitol Hill and getting its way -- no matter how much controversy is swirling around its schools.
CCA's #1 Legislative Priority
At the top of CCA's legislative agenda is to get Congress to further weaken the "90-1 on rule, which has long required for-
profit colleges to obtain at least 10 percent of their revenue from sources other than federal student aid in order to
continue participating in the government' s financial aid programs.
Congress introduced the requirement in 1992 (at the time it was the "85-15 rule") as part of a broader effort to crack down
on unscrupulous trade schools. At the time, lawmakers felt that the provision was important because it required
proprietary institutions to prove that the training they offered was valuable. They figured that schools that offered
worthwhile training would be able to derive at least a small portion of their revenue from students willing to spend their
own money on it.
Career college lobbyists have spent years and lots of campaign cash trying to get lawmakers to eliminate the requirement
or at least take the teeth out of it. And they have largely succeeded in this effort. When the Democratic-led Congress
reauthorized the Higher Education Act in 2008, for example, it stopped requiring schools that exceeded the 90 percent
limit to become automatically ineligible to participate in the federal student aid programs. Instead, schools now have to
exceed the threshold for two consecutive years before they can be penalized. And while the legislation, known as the
Higher Education Opportunity Act (HEOA). allows the U.S Department of Education to strip such schools of their eligibility
to participate in the government's financial aid programs, it does not require the agency to do so.
2
The reauthorization legislation also widened the sources'OftJRi:fsWat schools could count towards the 10 percent
threshold, including tuition discounts they provide to their students, and temporarily exempted from the 90-10 calculation
federal student loan increases Congress had approved earlier that year as part of the Ensuring Continued Access to
Student Loans Act (ECASLA).
But career college lobbyists were not satisfied with those victories. So last summer, Rep. Rob Andrews (D-NJ), one of
CCA's most zealous supporters in Congress, persuaded the House Education and Labor Committee to approve an
amendment to the student loan refonn legislation it was considering at the time that would have further gutted this
important consumer protection provision. The legislation proposed lengthening to three years the amount of time that
schools could be out of compliance with the law before being punished. It also proposed extending the exemption for the
earlier student loan limit increases. These proposals, however, did not make it into the final student loan reconciliation bill.
No Surrender
Despite the setback, career college lobbyists have not given up the fight. According to the strategy document, they are
continuing to push these changes with the blessing, they claim, of the Democratic chairman of the education committee:
Chairman [George] Miller's staff has indicated to CCA that there may be another higher education legislative vehicle
moving in Congress that could include items that were excluded from the reconciliation bill, including 90110 temporary
relief. Rep. [John] Spratt has recently introduced H.R. 5448, co-sponsored by Rep. Miller, which would make technical
amendments to HEOA. CCA is working with House members to urge inclusion of 90110 relief in that bill.
Chairman Miller's aides, however, deny the association's account. "This memo inappropriately attributes this statement to
Chainnan Miller's staff," a committee spokesperson stated.
Regardless, even if the association gets what it wanted, it would still not be satisfied. "CCA's goal is a long-tenn fix or
replacement to the 90/10 calculation due to the serious weaknesses in the 90/10 rule as a metric for the quality of a
school," the document states.
To that end, the association reports that both Reps. Andrews and Tim Bishop (0-NY) have expressed interest to the
group "in assisting with the development of either a foc or an alternative to 90/10 that provides a better quality of
measurement. Andrews has_recently indicated that he is working on a proposal that would rank all colleges according to
their success in graduating students, placing them in j obs, and getting them to repay their loans. Colleges that scored low
on this ueducation quality index'' - which would be weighted to provide an advantage to the schools that enroll the most
low-income students (i.e. for-profrt colleges) - could lose access to at least some federal student aid dollars.
In the current environment. it is extremely unlikely that this plan, which seems to be aimed primarily at scaring traditional
colleges away from supporting efforts to reform for-profit higher education, will go anywhere.
Taking on the New Default Rate
The Career College Association is also trying to roll back changes Congress made in the reauthorization legislation that
aimed to help the government more accurately measure the rate at which borrowers default on their federal student loans.
Starting next year, the Education Department will officially include in the annual cohort default rate all borrowers who fail
to make payments on their loans within three years of college, rather than two, as in current law. The Department will
begin holding colleges accountable for the three year rates in 2014. At that time, a default rate of 40 percent in one year
or 30 percent (up from 25 percent in current law) for three consecutive cohorts will result in a school losing access to
federal student aid funds.
For-profit colleges vigorously fought this change when it was first proposed and, according to the strategy memo, are now
looking to stop it from taking effect:
Similar to the search for an alternative to the 90110 rule, CCA staff and the Federal Legislative Committee are in the
process of developing ideas on various legislative fixes and potential technical corrections to take to Capitol Hill to
address weaknesses in the Cohort Default Rate measurements.
The association says that with the economy in turmoil, the new standard is too harsh - particularly for judging the
performance of schools that predominantly serve low-income and non-traditional students. While lawmakers made some
fixes to try and mitigate the impact of the change, CCA argues that they did not go far enough:
3
Congress also increased the threshold from 25 to 30 consecutive years and allowed schools to file an
appeal after their 2"'' year above 30 percent, but these measures are insufficient to counter the increase in default rates
that most certainly will occur based on the current economic conditions.
But at Higher Ed Watch, we believe that CCA has an ulterior motive for wanting to reverse the changes Congress made to
the default rate: the new standard makes it at least somewhat more difficult for their member institutions to skirt the rules.
To get around the cap on student loan default rates, proprietary schools have been hiring companies to aggressively push
high-risk students to get forbearances and deferments on their loans. Their sole purpose has been to prevent these
students from going into default during the two-year window when defaults are counted against the school by the
Education Department. Ironically, the schools' intervention has left many of these borrowers worse off. While obtaining
forbearance allows borrowers to stop making payments temporarily, interest continues to accrue on the loans, ballooning
the size of their overall debt load.
The Education Department showed how successful these schools have been in artificially lowering their rates during the
two-year window when it released preliminary three-year default rates for all colleges last fall . Overall, the proportion of
for-profit college students who defaulted on their loans nearly doubled, from 11 percent to 21 .2 percent. Meanwhile, 65
percent of for-profit colleges had three-year default rates of 20 percent or more, compared to 4 percent of private colleges,
3 percent of public four-year colleges, and 22 percent of community colleges, according to analysis of the data by Student
Lending Analytics. And just 16 percent of these institutions had three-year rates of 15 percent or less, compared to 86
percent of private colleges, 74 percent of public four-year colleges and 36 percent of community colleges.
With all of the scrutiny on for-profit colleges, and particularly the Senate hearings, it would be shocking if CCA got its way.
At this point, lawmakers are much more likely to seek to strengthen the government's ability to measure default rates than
to weaken it.
Conclusion
For years, CCA has been a "Teflon" lobbying group. Despite all of the serious charges that have surrounded its schools
over the last decade, the association has been remarkably successful in pushing its agenda on Capitol Hill and at the
Education Department. Thankfully, those days appear to be coming to an end. We certainly hope so-- for the
benefit students and taxpayers alike.
+++++++++++++++++++++++++++++++++++++++
Thursday, July 08, 2010
http:llwww.foxbusiness.com/st oryl markets/industries/financelupdat e-grand-canyon-educati on-subject-reviewl
UPDATE: Grand Canyon Education To Be Subject Of Review
By Melissa Korn
Dow Jones Newswires
{Updates with comments from Grand Canyon, Department of Education; updates after-hours share price).
Of DOW JONES NEWSWIRES
NEW YORK -(Dow Jones)- Grand Canyon Education Inc. (LOPE: 21 , -1 .39, -6.21%) will be the subject of a U.S.
Department of Education program review investigating the for-profit college's administration of federal student aid, the
school disclosed in a filing with the Securities and Exchange Commission late Thursday.
The school derived about 83% of its revenue from federal funds in 2009, according to an analysis by BMO Capital
Markets.
According to the SEC filing, Grand Canyon was notified on July 6 of the Education Department's intent to conduct a
review.
4
Bill Jenkins, executive director of the school's office of in$fflotWMM1:fdvancement, said the program review was "a normal
course of review'' and "is related to our growth over the last five years." He said the government agency last visited the
school more than five years ago.
The Department of Education said it doesn't discuss ongoing reviews, but if there is a final determination letter, it will be
made available to the public.
Program reviews aren't uncommon and can be conducted at any school that receives Title IV federal aid, but being the
subject of one can weigh heavily on a school no matter the outcome. Reviews often drag out for months or even years
with little or no communication from the Department of Education, Grand Canyon warned in its filing.
Shares of Grand Canyon were at $22.41 in after-hours trade after closing at $22.39, up 1.5%. The company's stock is up
nearly 18% so far this year.
"If the [Department of Education] were to make significant findings of non-compliance in the final program review
determination, it could have a material adverse effect on the Company's business, results of operations, cash flows, and
financial position," Grand Canyon said in the SEC filing.
Other for-profit schools have been subjects of program reviews, too, as the Department of Education comes under
pressure to ensure its loans are being used properly.
Corinthian Colleges Inc. (COCO: 9.79, 0.34, 3.6%) in May disclosed that it had received a program review report on its
Everest College Phoenix and was conducting an investigation into the findings, some of which it disputed. The report
found the school breached its fiduciary duty and made misrepresentations to students regarding its financial aid
administrat.ion, according to an SEC filing. It will respond to the report, and then a final determination letter will be issued
by the Department of Education.
More recently, Apollo Group. (APOL: 44.3, 0.24, 0.54%) announced that its University of Phoenix received the final
determination linked to its February 2009 program review. The school had to post a $125 million letter of credit after the
report cited the untimely return of some unearned funds. Apollo also made $660,000 in reimbursements in its second
fiscal quarter.
Grand Canyon said in its filing that its policies and procedures are planned to comply with federal regulations and it would
work to resolve any compliance issues, were any to be found.
Copyright 2009 Dow Jones Newswires
5
Woodward, Jennifer
From:
Sent:
To:
Subject:
F
Page 107of212
McDade, John
Thursday, May 27, 2010 11:21 AM
Woodward, Jennifer
Response To: "Socially Destructive and Morally Bankrupt"
I figured it would definitely pique your interest.
From Bloomberg:
http://www. bloom berg. com/apps/news ?sid=azUv Zh Se lvOE&pid=2060 1 087
Hedge Fund Sees 'Big Short' in Education Stocks With New Rules
By Daniel Golden and John Hechinger
May 27 (Bloomberg)-- Steven Eisman, a hedge-fund manager whose bet against the housing market was chronicled
in a bestselling book, said he has found the next "big short": higher education stocks.
The stocks of companies operating for-profit colleges could fall much as 50 percent if the U.S. tightens student-loan
rules, said Eisman, manager of the financial-services fund at FrontPoint Partners, a hedge-fund unit of New York-
based Morgan Stanley.
An Obama administration proposal to limit student debt would slash earnings of Apollo Group Inc., ITT Educational
Services Inc. and Corinthian Colleges Inc. by forcing them to reduce tuition and slow enrollment growth, Eisman
said yesterday at a New York investment conference. Without new regulation, students at for-profit colleges will
default on $275 billion of loans in the next decade, he said.
Eisman is shorting, or betting against, shares of higher- education companies because of the parallels he sees to the
housing market, where prices began to fall in 2006 as loan defaults by homeowners with poor or limited credit
history began to climb, he said. like the lenders to these subprime borrowers, for-profit colleges boomed by saddling
low-income people with debts they can't repay, he said.
"Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially
destructive and morally bankrupt as the subprime mortgage industry" said Eisman, 47, one of the sellers featured in
"The Big Short: Inside the Doomsday Machine" (Norton, 2010), Michael Lewis's book about investors who
anticipated the housi ng bust. "I was wrong. The for-profit education industry has proven equal to the task."
'Absolute Nonsense'
A comparison between higher education companies and the subprime mortgage industry is "absolute nonsense,"
Harris Miller, president of Washington-based Career College Association, which represents more than 1,400 for-profit
1
Page 1 08 of 212
colleges, said in an interview. Mortgage brokers had no stake in t he ulti mate success of t hei r borrowers since they
sold t he loans to Investors, while colleges will succeed only if their students graduate and find j obs, Miller said.
Eisman didn't name the companies whose stock he has sold short, or say over what period he expects them to lose
value. I n a short sale of stock, an investor seeks t o profit by selling borrowed shares, with the expectation of replacing
them later at a cheaper price. Bets against subprime mortgages helped FrontPoint double the size of its fund to $1.5
bi llion by the end of 2007, Lewis wrote in his book.
Like Subprime
"Default rates are already starting to skyrocket," Eisman said at the Ira Sohn Investment Research Conference,
in New York. "It's just like subprime, which grew at any cost and kept weakening its underwriting standards to grow."
Just as bond-rating firms gave high grades to securities backed by ri sky mortgages, so the accrediting associations
responsible for monitoring educational quality of for-profit colleges don't provide thorough and independent scrutiny,
said Eisman. Because accreditation is a peer-revi ew syst em, in many instances representatives of for- profit colleges
sit on the board of the body that certifi es t hem, he said.
Peer review is a rigorous process that ensures quality i n medicine, as well as education, Anthony Bieda, director of
external affairs for the Washington-based Accrediti ng Council for Independent Colleges & Schools, which oversees
many for- profit schools, said in an interview.
Stellar Job
"We believe that for every bad actor or marginal institution that holds a grant of accreditation, three or four or 10 do a
stellar job," Bieda said.
One difference between the higher education and mortgage industries is that, while investors betting against subprime
lenders only had to wait for credit quality to deteriorate, for- profit colleges don't suffer the consequences of lowered
underwriting standards, Eisman said.
The U.S. government is on t he hook when former st udents don't pay their loans. Federal aid for students at U.S. for-
profit colleges rose to $26.5 billion in 2009 f rom $4.6 billi on in 2000, according to the Educat ion Department.
Wit hout new regulation, it will reach $89 billion in 2020 as more low-income students attend for-profit colleges, which
peg tuitions to the maximum federal grants and loans available, Eisman said. More than half of st udents at most for-
profit colleges drop out within a year, he said.
Gainful Employment
Preliminary versions of the Obama admi nistration proposal would require for- profit colleges to show that graduates
earn enough money to pay off student loans. If for-profit colleges can't meet the standard, they could lose federal
financial aid, which typically makes up three-quarters of their revenue.
The proposed rules, which are expected to be released this month for public comment, may disqual ify for-profits from
receiving federal financial aid if their graduates must spend more than 8 percent of their starting salaries on repaying
student loans. Had this rule, known as "gainful employment," been in effect in 2009, earnings of higher-education
companies would have been lower, Eisman said. Assuming the companies would have cut tuition and kept costs the
same, Apollo Group would have earned $1.32 a share instead of the $4.22 a share it reported excluding certain costs
for the fiscal year ended Aug. 31, he said.
2
Page 109of212
Majority Employed
Sara Jones, an Apollo spokeswoman, declined to comment on Eisman's analysis. The company is " closely monitoring"
the gainful employment legislation and analyzing its impact, Jones said.
"The majority of students served by our educational institutions are employed, and many report salary increases well
above national averages while enrolled," she said inane- mailed statement.
ITT Educational Services Inc., based in Carmel, Indiana, would have lost 22 cents a share rather than reporting a
profit of $7.91 a share, Eisman said. Washington Post Co., which operates Kaplan Higher Education, would have lost
$33.2S a share, instead of earning $9.78 a share. Pittsburgh-based Education Management Corp., which is 38
percent owned by Goldman Sachs Group Inc. and earned 87 cents a share in the year ended June 30, would have lost
$5.50 a share, Eisman said. In the year ended June 2009, Corinthian Colleges earned 81 cents per share in 2009
from continuing operations, though would have posted a loss of 76 cents, he said.
The companies have the flexibility to cut costs by about 10 percent, which would offset a portion of the effect on
earnings from the revenue declines, said Eisman. Hal Jones, chief financial officer of Washington Post, declined to
comment. Representatives of m, Education Management and Corinthian coul dn't be reached.
Drew Parallels
In an April 28 speech, U.S. Deputy Undersecretary of Education Robert Shireman drew parallels between the higher-
education and subprime-mortgage industries. Eisman has met with federal education officials and members of
Congress to discuss for-profit colleges, according to people close to him. Justin Hamilton, a spokesman for the U.S.
Department of Education, declined to comment.
While Shireman is steppi ng down next month, it would be "absurd" to think that his departure signals that the
Education Department is backing down from the gainful-employment rule, Eisman said.
" We just loaded up one generation of Americans with mortgage debt t hey can't afford to pay back," Eisman said. "Are
we going to load up a new generation with student loan debt they can never afford to pay back?"
To contact the reporter on this story: Daniel Golden in Boston at dlgolden@bloomberg.net; John Hechinger in
Boston at jhechinger@bloomberg.net
Last Updated: May 27, 2010 00:01 EDT
Talk later,
YF w
Sent: Thursday, May 27, 2010 11:16 AM
To: McDade, John
Subject: RE: "Socially Destructive and Morally Bankrupt"
3
This is AMAZING.
From: McDade, John
Sent: Thursday, May 27, 2010 9:27AM
Page 110of212
Subject: "Socially Destructive and Morally Bankrupt"
F
...
Hello, I hope all is well. I am not sure if you are familiar with Michael Lewis's book on the recent financial crisis
called the Big Short. One of the main characters in his book, had this to say about for profit schools. "Until
recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally
bankrupt as the subprime mortgage industry," said Eisman, of FrontPoint Financial Services Fund. "I was wrong. The For-Profit
Education Industry has proven equal to the task."
Full article is below.
Talk later,
YF w
http://www. insidehighered. com/news/20 1 0/05/27/qt#228602
High-Profile Trader's Harsh Critique of For-Profit Colleges
Steven Eisman, the Wall Street trader who was mythologized in Michael Lewis's The Big Short as that rare person who saw the
subprime mortgage crisis coming and made a killing as a result, thinks he has seen the next big explosive and exploitative financial
industry -- for-profit higher education - and he's making sure as many people as possible know it. In a speech Wednesday at the Ira
Sohn Investment Research Conference. an exclusive gathering at which financial analysts who rarely share their insights publicly are
encouraged to dish their "best investment ideas," Eisman started off with a broadside against Wall Streers college companies.
"Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and
morally bankrupt as the sub prime mortgage industry," said Eisman, of FrontPoint Financial Services Fund. "I was wrong. The For-Profit
Education Industry has proven equal to the task." Eisman's speech lays out his analysis of the sector's enormous profitability and its
questionable quality, then argues that the colleges' business model is about to be radically transformed by the Obama administration's
plan to hold the institutions accountable for the student-debt-to-income ratio of their graduates. "Under gainful employment, most of the
companies still have high operating margins relative to other industries," Eisman said. "They are just less profitable and significantly
overvalued. Downside risk could be as high as 50 percent. And let me add that I hope that gainful employment is just the beginning.
Hopefully, the DOE will be looking into ways of improving accreditation and of ways to tighten rules on defaults." Stocks of the
companies appeared to fall briefly in the last hour of trading Wednesday, after news of Eisman's speech made the rounds.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
IRA SOHN CONFERENCE
Presentation by Steve Eisman
4
SUBPRJM{G5ES
1
Tcn:oLLEGE
May 26,2010
Good Afternoon. I would like to thank the Ira Sohn Foundation for the honor of speaking before this audience. My
name is Steven Eisman and I am the portfolio manager of the FrontPoint Financial Services Fund. Until recently, 1
thought that there would never again be an opportunity to be involved with an industry as socially destructive and
morally bankrupt as the subprime mortgage industry. I was wrong. The For-Profit Education Industry has proven equal
to the task.
The title of my presentation is "Subprime goes to College". The for-profit industry has grown at an extreme and unusual
rate, driven by easy access to government sponsored debt in the form of Title IV student loans, where the credit is
guaranteed by the government. Thus, the government, the students and the taxpayer bear all the risk and the for-profit
industry reaps all the rewards. This is similar to the subprime mortgage sector in that the subprime originators bore far
less risk than the investors in their mortgage paper.
In the past 10 years, the for-profit education industry has grown 5-10 times the historical rate of traditional post
secondary education. As of 2009, the industry had almost 10% of the enrolled students but claimed nearly 25% of the
$89 billion of Federal Title IV student loans and grant disbursements. At the current pace of growth, for- profit schools
will draw 40% of all Title IV aid in 10 years.
How has this been allowed to happen?
The simple answer is that they've hired every lobbyist in Washington D.C. There has been a revolving door between the
people who work or lobby for this industry and the halls of government. One example is Sally Stroup. She was the head
lobbyist for the Apollo Group- the largest for-profit company in 2001-2002. But from 2002-2006 she became Assistant
Secretary of Post-Secondary Education for the DOE under President Bush. In other words, she was directly in charge of
regulating the industry she had previously lobbied for.
From 1987 through 2000, the amount of total Title IV dollars received by students of for-profit schools fluctuated
between $2 and $4 billion per annum. But then when the Bush administration took over the reigns of government, the
DOE gutted many of the rules that governed the conduct of this industry. Once the floodgates were opened, the
industry embarked on 10 years of unrestricted massive growth.
[Federal dollars flowing to the industry exploded to over $21 billion, a 450% increase.)
At many major-for profit institutions, federal Title IV loan and grant dollars now comprise close to 90% of total revenues,
up significantly vs. 2001. And this growth has driven even more spectacular company profitability and wealth creation
for industry executives. For example, ITI Educational Services (ESI}, one of the larger companies in the industry, has a
roughly 40% operating margin vs. the 7%-12% margins of other companies that receive major government contracts.
ESI is more profitable on a margin basis than even Apple.
This growth is purely a function of government largesse, as Title IV has accounted for more than 100% of revenue
growth. Here is one of the more upsetting statistics. In fiscal 2009, Apollo, the largest company in the industry, grew
total revenues by $833 million. Of that amount, $1.1 billion came from Title IV federally-funded student loans and
grants. More than 100% of the revenue growth came from the federal government. But of this incremental $1.1 billion
in federal loan and grant dollars, the company only spent an incremental $99 million on faculty compensation and
instructional costs- that's 9 cents on every dollar received from the government going towards actual education. The
rest went to marketing and paying the executives.
But leaving politics aside for a moment the other major reason why the industry has taken an ever increasing share of
government dollars is that it has turned the typical education model on its head. And here is where the subprime
analogy becomes very clear.
5
Page 112 ol 212
There is a traditional relationship between matching means and cost in education. Typically, families of lesser financial
means seek lower cost institutions in order to maximize the available Title IV loans and grants- thereby getting the
most out of every dollar and minimizing debt burdens. Families with greater financial resources often seek higher cost
institutions because they can afford it more easily.
The for-profit model seeks to recruit those with the greatest financial need and put them in high cost institutions. This
formula maximizes the amount of Title IV loans and grants that these students receive.
With billboards lining the poorest neighborhoods in America and recruiters trolling casinos and homeless shelters (and I
mean that literally), the for-profits have become increasingly adept at pitching the dream of a better life and higher
earnings to the most vulnerable of society.
But if the industry in fact educated its students and got them good jobs that enabled them to receive higher incomes
and to pay off their student loans, everything I've just said would be irrelevant.
So the key question to ask is - what do these students get for their education? In many cases, NOT much, not much at
all.
Here is one of the many examples of an education promised and never delivered. This article details a Corinthian
Colleges-owned Everest College campus in California whose students paid $16,000 for an 8-month course in medical
assisting. Upon nearing completion, the students learned that not only would their credits not transfer to any
community or four-year college, but also that their degree is not recognized by the American Association for Medical
Assistants. Hospitals refuse to even interview graduates.
But let's leave aside the anecdotal evidence of this poor quality of education. After all the industry constantly argues
that there will always be a few bad apples. So let's put aside the anecdotes and just look at the statistics. If the industry
provided the right services, drop out rates and default rates should be low.
Let's first look at drop out rates. Companies don't fully disclose graduation rates, but using both DOE data, company-
provided information and admittedly some of our own assumptions regarding the level of transfer students, we
calculate drop out rates of most schools are 50%+ per year. As seen on this table, the annual drop out rates of Apollo,
ESI and COCO are 50%-100%
How good could the product be if drop out rates are so stratospheric? These statistics are quite alarming, especially
given the enormous amounts of debt most for-profit students must borrow to attend school.
As a result of these high levels of debt, default rates at for profit schools have always been significantly higher than
community colleges or the more expensive private institutions.
We have every expectation that the industry's default rates are about to explode. Because of the growth in the
industry and the increasing search for more students, we are now back to late 1980s levels of lending to for profit
students on a per student basis. Back then defaults were off the charts and fraud was commonplace.
Default rates are already starting to skyrocket. It's just like subprime - which grew at any cost and kept weakening its
underwriting standards to grow.
By the way, the default rates the industry reports are artificially low. There are ways the industry can and does
manipulate the data to make their default rates look better.
6
But don't take my word for it. The indust ry is quite

t he default rates truly are. ESI and COCO
supplement Title IV loans with their own private loans. And they provision 50%-60% up front for those loans. Believe
me, when a student defaults on his or her private loans, they are defaulting on their ntle IV loans too.
[Let me just pause here for a second to discuss manipulation of statistics. There are two key stati stics. No school can
get more than 90% of its revenue from the government and 2 year cohort default rates cannot exceed 25% for 3
consecutive years. Failure to comply with either of these rul es and you lose Title IV eligibility. Lose Title IV eligibility and
you' re company's a zero.
Isn't it amazing that Apollo's percentage of revenue from Title IV is 89% and not over 90%. How lucky can they be? We
beli eve (and many recent lawsuits support) that schools actively manipulate the receipt, disbursement and especially
t he return of Title IV dollars to their students to remain under the 90/10 threshold.]
The bottom line is that as long as the government continues t o flood the for profit education industry with loan dollars
AND the risk for these loans is borne solely by the students and the government, THEN the industry has every incentive
to grow at all costs, compensate employees based on enrollment, influence key regulatory bodies and manipulate
reported statistics -ALL TO MAINTAIN ACCESS TO THE GOVERNMENT'S MONEY.
In a sense, these companies are marketing machines masquerading as universities. And when the Bush administration
eliminated almost all the restrictions on how the indust ry is allowed to market, the machine went into overdrive. [Let
me quote a bit from a former employee of BPI.
Ashford is a for profit school and makes a majority of its money on federal loans students take out. They conveniently price tuition at the exact amount
that a student can qualify for in federal loan money. There is no regard to whether a student really belongs in school, the goal is to enroll as many as
possible. They also go after Gl bill money and cun-enl/y have separate teams set up to specifically target military students. If a person has money
available for school Ashford finds a way to go alter them. Ashford is just the middle man, profiting off this money, like milking a cow and working the
system within the limits of whars technically legal, and paying huge salaries while the student suffers with debt that can't even be forgiven by
banl<rtJptcy. We mention tu1tion prices as little as possible .. this may cause the student to change their mind.
While it is illegal to pay commissions for student enrollment, Ashford does salary adjustments, basically the same thing. We are given a matrix that
shows the number of students we are expected to enroll. We also have to meet our quotas and these are high quotas.
Because we are under so much pressure, we are forced to do anything necessary to get people to fill out an application - our jobs depend on it.
It's a boiler room - selling education to people who really don't want it.
This former employee then gives an example of soliciting a sick old lady to sign up for Ashford to meet his quota.
"The level of deception is disgusting - and wrong. When someone who can barely afford to live and feed kids as it is, and doesn't even have the time or
education to be able to enroll, they drop out. Then what? Add $20,000 of debt to their problems - what are they gonna do now. They are officially
screwed. We know most of these people will drop out, but again, we have quotas and we have no choice."]
How do such schools st ay in business? The answer is to control the accreditation process. The scandal here is exactly
akin to the rati ng agency role in subprime securitizations.
There are two kinds of accreditation -- national and regional. Accreditation bodies are non-governmental, non-profit
peer-reviewing groups. Schools must earn and maintain proper accreditation to remain eligible for Title IV programs. In
many instances, the for-profit institutions sit on the boards of t he accrediting body. The inmates run the asylum.
Historically, most for profit schools are nationally accredited but national accreditation holds less val ue than regional
accreditation. The latest trend of for profit institutions is t o acquire the dearly coveted Regional Accreditation through
the outright purchase of small, financially distressed non-profit institutions and then put that school on-line. In March
2005, BPI acquired the regionally accredited Franciscan University ofthe Prai ries and renamed it Ashford University.
[Remember Ashford. The former employee I quoted worked at Ashford.] On the date of purchase, Franciscan (now
Ashford) had 312 students. BPI took that school online and at the end of 2009 it had 54,000 students.
SOLUTIONS
7
While the conduct of the industry is egregious and

mortgage sector in j ust so many ways, for the
investment case against the industry to work requires the government to do something --whereas in subprime all you
had to do was wait for credit quality to deteriorate.
So what is the government going to do? It has already announced that it is exploring ways to fix the accreditation
process. It will probably eliminate the 12 safe harbor rules on sales practi ces implemented by the Bush Administration.
And I hope that it is looking at everything and anything to deal with t his industry.
Most importantly, the DOE has proposed a rule known as Gainful Employment. In a few weeks the DOE will publish the
rule. There is some controversy as to what t he proposed rule will entail but I hope that the DOE will not backtrack on
gai nful empl oyment. Once t he rule is published in the federal registrar, the industry has until November to try to get the
DOE to back down.
The idea behind the gainful employment rul e is to limit student debt to a certain level. Specifically, t he suggested rule is
that the debt service-to-income-ratio not exceed 8%. The industry has got ten hysterical over this rule because it knows
that to comply, it will probably have to reduce tuition.
[Before I turn to the impact of the rule, let me discuss what happened last week. There was a news report out t hat Bob
Shireman, the Under Secretary of Education in charge of this process was leaving. This caused a massive rally in the
stocks under the t hesis that this signaled that t he DOE was backing down from gainful employment. This conclusion is
absurd. First, of all, inside D.C. it has been well known for a whil e that Shireman always intended to go home to
Cal ifornia after a period of time. Second, to draw a conclusion about t he DOE changing its policy because Shireman is
leaving presupposes that one government official, one man, drives the entire agenda of the U.S. government.]
I cannot emphasi ze enough that gainful employment changes t he business model. To date t hat model has been
constant growth in the number of students coupled with occasional increases in tuition. Gainful employment will cause
enrollment levels t o grow less quickly. And the days of raising tuition would be over; in many cases, tuit ion will go
down.
To illustrat e the impact of gainful employment, I' ve chosen 5 companies, Apollo, ESI, COCO, EDMC and the Washington
Post. Yes, the Washington Post, whose earnings are all driven by this industry.
Assuming gainful employment goes through, the first year it would impact would obviously be 2011. However, because
the analysis is so sensitive to tui tion levels per school, it's best t o have as much i nformation as possible. So for analytical
purposes, we are going to show the impact on actual results in fiscal 2009 and this year's estimates under the
assumption that gainful employment was already in effect.
We employ 2 scenarios. Scenario 1 is static. It takes actual results and then reduces tuition costs to get down to the 8%
level. Scenario 2 is dynamic. It assumes t he same thing as scenario 1 but then assumes the companies can reduce costs
by S%-15%.
Results for each company depend largely on the mix of students, the duration of each degree and the price of t uition at
each institution
For each company, I show the results under the two scenarios and t he corresponding P/Es. Needless to say, the P/E
multiples look quite a bit different under either scenario.
Apollo- In fiscal 2009, the company earned $4.22. The consensus esti mate for fiscal 2010 is $5.07. Under scenario 1,
fiscal 2009 and the fiscal 2010 esti mate get cut by 69% and 57%, respectively. Under scenario 2, it gets cut 50% and
41%, respectively.
8
. Page 115 of 212 . .
ESI - In flscal2009, the company earned $7.91. The consensus est1mate for fiscal 2010 1s $11.05. Under scenano 1,
fiscal 2009 turns slightly negative and the fiscal2010 estimate gets cut by 74%. Under scenario 2, fiscal 2009 declines
by 75% and the 2010 estimate gets cut by 53%.
COCO -In fiscal2009, the company earned $0.81. The consensus estimate for fiscal2010 is $1.67. Under scenario 1,
fiscal 2009 turns negative and the fiscal 2010 estimate gets cut by 94%. Under scenario 2, fiscal 2009 declines by 79%
and the 2010 estimate gets cut by 38%.
EDMC -- In fiscal 2009, the company earned $0.87. The consensus estimate for fiscal 2010 is $1.51. Under scenario 1,
fiscal 2009 and the fiscal 2010 estimate turns massively negative. Under scenario 2, fiscal 2009 and the fiscal 2010
estimate are also massively negative, just less massively than scenario 1. The principal reason why the numbers are so
bad for EDMC is that they have a lot of debt and that debt has to be serviced and cannot be cut.
Washington Post- The Post's disclosure of Kaplan metrics is slight. Thus, analyzing the impact from gainful employment
is much more difficult and we have confined our analysis solely to fiscal 2009. In fiscal 2009, WPO earned $9. 78. Under
scenario 1, a loss of $33.25 per share occurs. Under scenario 2, there is still a loss of $6.19. The principal reason why
the numbers are so bad for the Post is that more than 100% of its EBIDTA comes f rom this industry through its Kaplan
division.
[let me just add one caveat to our analysis. Implementation of gainful employment could result in a cut in marketing
budgets. Given the high drop out rates of this industry any such cuts could turn a growth industry into a shrinking
industry. The numbers that I just showed do not assume that the industry shrinks but grows at a slower pace.]
Under gainful employment, most of the companies still have high operating margins relative to other industries. They
are just less profitable and significantly overvalued. Downside risk could be as high as 50%. And let me add that I hope
that gainful employment is just the beginning. Hopefully, the DOE will be looking into ways of improving accreditation
and of ways to tighten rules on defaults.
let me end by driving the subprime analogy to its ultimate conclusion. By late 2004, it was clear to me and my partners
that the mortgage industry had lost its mind and a society-wide calamity was going to occur. It was like watching a train
wreck with no ability to stop it. Who could you complain to? -- The rating agencies? -they were part of the machine.
Alan Greenspan?- he was busy maki ng speeches that every American should take out an ARM mortgage loan. The
OCC? -- its chairman, John Dugan, was busy suing state attorney generals, preventing them from even investigating the
subprime mortgage industry.
Are we going to do this all over again? We just loaded up one generation of Americans with mortgage debt they can't
afford to pay back. Are we going to load up a new generation with student loan debt they can never afford to pay back.
The industry is now 25% ofTitle IV money on its way to 40%. If its growth is stopped now and it is policed, the problem
can be stopped. It is my hope that this Administration sees the nature of the problem and begins to act now. If the
gainful employment rule goes through as is, then this is only the beginning of the policing of this industry.
But if nothing is done, then we are on the cusp of a new social disaster. If present trends continue, over the next ten
years almost $500 billion of Title IV loans will have been funneled to this industry. We estimat e total defaults of $275
billion, and because of fees associated with defaults, for profit students will owe $330 billion on defaulted loans over the
next 10 years.
[Bracketed Sections might be deleted during the verbal speech becau
I I I I I I 1++++++++++++++1 I I I I I 1+++++++++ 1 I I I l l I++++++
http:/ I deal book. blogs.nytimes.com/20 1 0/05/26/live-from-the-ira-sohn-201 0-conference/?src=busln
9
Hedge Funds
Page 116 ol 212
Live From the Ira Sohn 2010 Conference
May 26, 2010, 3:28pm
8:29p.m. I Updated Unlike previous years, this year's Ira Sobn Investment Research Conference didn't have
any blockbuster revelations- certainly nothing on the order of David Einhorn's bet against Lehman Brothers
or William A. Ackman's assault on MBIA, the bond insurer.
But several themes emerged from the conference, one of the most heralded in the investing world, where top-
name executives deliver 15-minute presentations of their top trading ideas. (Or in Mr. Ackman's case this year,
a little closer to 30 minutes.)
Chief among them was the idea that the credit ratings agencies have yet to face an overhaul that addresses their
weaknesses. (For the full rundown, check out my Twitter coverage of the conference.)
Mr. Einhorn, the head of Greenlight Capital reiterated his short bet against the Moody's Corporation. He
argued- as did others like Mr. Ackman of Pershing Square Capital Management and Seth Klarman of
Baupost the Group - that the credit ratings agencies remain beholden to the banks whose products they are
supposed to analyze independently.
Nearly every fund manager who spoke at the conference expressed a bearish position on Western economies,
arguing that they are simply too over-leveraged and unable to address their liabilities to stay on top. A few
executives, including Daniel Arbess of Perella Weinberg Partners, expressed instead a deep interest in China.
" We like shaking hands with China," Mr. Arbess said.
Gold also proved popular with the likes of Mr. Arbess and Mr. Einhorn, who said he had acquired shares in
African Barrick Gold, a spinoff of gold miner Barrick Gold.
A memorable bearish bet came from Steve Eisman, the FrontPoint Financial Services Fund founder who
gained fame with Michael Lewis's book "The Big Short." Mr. Eisman devoted much of his presentation to a
highly critical analysis of for-profit education companies, showing his hand with the
very title of his PowerPoint deck: "For Profit Education: Subprime Goes to College."
Original post: DealBook is on hand for the Ira W. Sohn Investment Research Conference, the famous annual
meeting of high-profile investors where some of the biggest trades of the year are discussed. (It's where David
Einhorn of Green light Capital delivered his polemic against Lehman Brothers, for example.)
Below is DealBook' s live twittering of the goings on at the conference, being held in Midtown Manhattan.
10
Woodward, Jennifer
From:
Sent:
To:
Subject:
F [!:
Page 111 of 212
McDade, John
Wednesday, May 26, 201 0 3:12 PM
Woodward, Jennifer
Response To:
No problem. I would have sent you much earlier if I had known. Very interesting, and am sure a walk down
memory lane.
Do you see this for (scroll down):
1
118of212
The Flyers future? I am sure you probably don't although this year I am getting a funny feeling that they might
win it. Who knows?
YF*W
Sent: Wednesday, May 26, 2010 3:04PM
To: McDade, John
Subject: RE: Thank You!
HOW DID I MISS THIS?? HE IS THE BEST.
THANKS! !!!!!!!!!
___ ,._ ---- --------
From: McDade, John
Subject: Thank You!
F
2
Page 119of212
Thank you! Definitely scary.
Oh by the way, I trust you had read this May 18, 2010 blog referencing incentive compensation last week?
One of those favorite topics of yore was mentioned.
http:l/ higheredwatch.newamerica.net/blogposts/2010/ the_art_of_spin_career_college_style-31942
The Art of Spin Career-College Style
Author(s):
Stephen Surd
Published: May 18, 2010
Issues:
For years, career college lobbyists pushed the U.S. Department of Education to look the other way while some of the
largest for-profit higher education companies deliberately violated a federal law prohibiting colleges from compensating
recruiters based on their success in enrolling students. Now, with the Obama administration preparing to strengthen its
rules banning incentive compensation, these very same lobbying groups are pointing to that lax enforcement to suggest
that there weren't any problems in the sector to begin with.
To support their claims, these lobbyists point to a report that the U.S. Government Accountability Office (GAO) issued in
February that took a detailed look at "i ncentive compensation violations substantiated by the Education Department over
the last decade. The GAO reported that between 1998 and 2009, the Department penalized 32 colleges for violating the
ban, 19 or which were proprietary schools. However, the GAO found that the differences between the sectors have
disappeared since 2002, when the Bush administration rewrote the Department's student aid regulations to significantly
weaken the prohibition by adding loopholes- or "safe harbors"- to the rules. Over the last seven years, 14 colleges have
been penalized, with an equal number coming from the non-profit and for-profit college sectors.
The Career College Association in recent weeks has touted these results to argue that the Obama administration's plan to
toughen the rules by eliminating the "safe harbors" that the previous administration put into place is unwarranted. "The
Department is now proposing wholesale elimination of all those regulations and all the guidance previously provided
without documenting problems with specific parts of the incentive compensation regulation," Harris Miller, CCA's
president, wrote in a "briefing memorandum" he sent to Congressional staff members last week. "This is notwithstanding a
report mandated by Congress done by the Government Accountabi lity Office, issued after the negotiated rule making
continued, showing that violations of the incentive compensation ban are a) rare, b) have not increased or decreased
since the regulations were adopted in 2002, and c) are fairly evenly split among traditional colleges."
You have to hand it to the lobbyists at the Career College Association. They certainly have a gift for spin. Unfortunately for
Miller, his claims about the GAO report's conclusions are entirely misleading.
For one thing, the GAO went out of its way to make clear that the report had an extremely narrow focus- simply
documenting "the number of violations substantiated by the Secretary of Education since 1998, the nature of these
violations, and the names of the institutions involved"- and that the report should not be read to suggest that the agency
had reached any conclusions about the extent of the problem or the Department's effectiveness in dealing with it. "While
this report provides data on violations substantiated by Education, it does not examine the penalties associated with these
violations or assess the overall impact of the safe harbor regulations on Education's efforts to enforce the incentive
compensation ban, the report stated. [Emphasis added]
3
Page 120 of 212
But even more fundamentally, the idea that policymakers can judge the scope of the abuses by looking solely at the
Education Department's enforcement actions over the last decade is completely absurd. After all, the Bush administration
officials who led the Department for much of this time had little interest in enforcing the ban in the first place. These
officials, some of whom had close ties to the for-profit sector, arrived at the Department outraged that the agency had
effectively shut down the giant publicly traded trade school chai n Computer Learning Centers for violating the incentive
compensation prohibition, and vowed that it would never happen again (see pages 4 and 5 of the document). At first, they
worked closely with allies in Congress to try and push through a bill that would have substantially weakened the law. But
after that effort failed, they decided to do the job themselves.
Under their leadership, the Education Department in November 2002 issued the new regulations creating the 12 ''safe
harbors" for colleges that wished to provide incentive payments to their admissions employees. The agency's leaders took
this action over the objections of a negotiated rulemaking panel made up of college officials, advocates for students, and
consumer groups that had been assembled to consider the rule changes and of the two main national organizations
representing college admissions officials (see here and here).
Among other things, the revised rules allowed colleges to adjust the annual or hourly wages of recruiters up to twice a
year, as long as the adjustment was "not based solely on the number of students recruited, admitted, enrolled, or
awarded financial aid." In other words, the Department' s leaders allowed colleges to expressly violate the law, which bars
schools from providing any commission-based compensation to their recruiters.
Around the same time, the then-Deputy Education Secretary Bill Hansen sent a memo to the head of the Federal Student
Aid office announcing that the agency would treat violations of the incentive compensation ban less seriously than it had
before. In the memo, the Deputy Secretary said that in most cases ''the appropriate sanction" should "be the imposition of
a fine," rather than the limitation, suspension, or termination of Title IV student aid eligibility. "The direction provided by
this memorandum should result in the imposition of appropriately measured sanctions for improper incentive payments by
institutions [emphasis added]," he wrote.
In the years since, some of the largest for-profit higher education companies have been charged with engaging in
misleading recruiting and admissions tactics to inflate their enrollment numbers. For example:
In 2007, the California Attorney General settled a deceptive practices case against Corinthian Colleges, requiring
the company to pay a $6.5 million fine and provide some restitution to students. The lawsuit charged Corinthian
with misleading prospective students about its schools' job placement rates and the starting salaries of their
graduates; running 11 sub-standard programs, and falsifying record provided to the government. As part of the
agreement, Corinthian, which serves nearly 70,000 students at more than 100 colleges in the United States and
Canada, did not admit to any wrongdoing.
In 2009, the trade school chain Alta <?alleges agreed to pay the U.S. Department of Justice $7 million to settle
allegations raised in a False Claims lawsuit that its Texas campuses had engaged in practices "designed to
mislead prospective students and to misrepresent material facts to them." Among other things, the government
found that the school recruiters had lied to prospective students about their job placement rates (saying that they
were more than 90 percent when they actually just over 50 percent) and about their ability to transfer credits to
other schools (even though no other accredited college in Texas would take them). Alta, which is the parent
company of Westwood College, did not admit to any wrongdoing. Westwood serves 15,000 students at 17
campuses around the country.
In December, the owners of the University of Phoenix agreed to pay $78.5 million to settle a False Claims lawsuit
brought by former recruiters that accused the giant for-profit higher education chain of routinely violating the
4
Page 121 ol 212
incentive compensation ban. The University of Phoenix, which serves more than 400,000 students at some ninety
campuses and 150 learning centers worldwide, also did not admit to any wrongdoing.
Similar accusations of recruiting abuses have also been raised in recent class action and False Claims lawsuits against
Career Education Corporation, Education Management Corporation, and Kaplan University.
Sorry Harris, but there is a serious problem no matter how you spin it. At Higher Ed Watch, we hope that the Obama
administration moves forward with its proposal to eliminate the safe harbors. Because as David Hawkins, the director of
public policy and research for the National Association for College Admission Counseling, wrote on our blog last week,
abiding by the law seems like a small price to pay for for-profit higher education companies that receive nearly 100
percent of their billions of dollars in revenue from taxpayer-supported dollars.
Talk later,
YF w
To: Finley, Steve
Subject: RE: interesting article from I nside Higher Ed on MOU between california community colleges and Kaplan
It is beyond interesting. It is amazing on so many levels. Thanks.
From: Finley, Steve
Sent: Wednesday, May 26, 2010 11:11 AM
Jennifer; Wolff, Russell; Sann, Ronald; Wanner, Sarah; Varnovitsky, Natasha
Subject: interesting article from Inside Higher Ed on MOU between california community colleges and Kaplan
From Inside Higher Ed: http:/ /www.insidehighered.com/news/2010/0S/26/kaplan
California's Deal With Kaplan
May 26,2010
Last fall, the California Community Colleges Chancellor's Office announced what some perceived as a partial
solution to the budget-related enrollment restrictions that threatened to disrupt the educational plans of many
students. Under a memorandum of understanding with Kaplan University, students at certain community
colleges would be able to take specific online courses- at a steep discount off the for-profit institution's normal
tuition rates, though still paying significantly more than they would at their own college- with the assurance
that the credits would transfer back to their home institutions, allowing them to stay on track to earn an
associate degree.
5
Six months later, though it is unclear how many taken advantage of the option, critics view the
deal as at best an "evil necessity" and at worst a dereliction by community college and state leaders of their
responsibility to ensure a low-cost postsecondary education for state residents. Some also worry that Kaplan's
marketing of the agreement gives prospective students the appearance of a state endorsement of the company in
particular and for-profit education in general.
Kaplan's California Education Assistance Programs give associate-degree students at California community
colleges with which Kaplan has an articulation agreement -- the program is being tested only at a limited
number of institutions right now- a 42 percent tuition discount when they enrol1 in individual courses.
Textbooks are included in the cost of tuition.
Still, this is not a cheap endeavor. A standard three-credit online course at Kaplan costs $1,113, and a
discounted three-credit course there costs California students $645. By comparison, a three-credit course at a
California community college costs a mere $78. Despite the cost, Kaplan officials believe they are helping the
state's community colleges at a difficult time.
"Kaplan University recognized that California Community Colleges were facing unprecedented challenges and
we knew there was an opportunity to help," Jaime Cocuy, vice president for Kaplan's Strategic Alliances
Organization, wrote in an e-mail. "Offering single online courses provides students with an innovative
opportunity to complete their education on time. It's a solution to a problem. We didn't come into this
arrangement with any preconceived expectations. If we can help one student, that's good enough for us.
However, offering single course options is not our primary mission. We came to an agreement with the
Chancellor's Office that we thought would help students and focus on student success. Once students have an
experience with Kaplan University, they might decide that what we're offering is the best option for them, in
which case they may choose to attend Kaplan for their bachelor's degree. We are all about expanding access to
higher education."
Scott Lay, president of the Community College League of California, a nonprofit advocacy group representing
the state' s 72 local two-year-college districts, doubts that the single-course option at Kaplan will appeal to many
of the state's community college students.
"Not many students are going to willingly pay [$645] for a class when they can pay $78," Lay said. "There are
some students who are saying, 'What's most important for me is getting a degree. ' For them, it may be a wise
investment. But I imagine interest in this program will wane as enrollment demand declines over the next few
years. Right now we' re at the peak of California high school graduation and, with 2.3 million unemployed in
the state, we hope we're at the peak of that as well ."
Lay believes the deal is an unfortunate consequence of the state's disinvestment in public higher education in
recent years. He noted that it was perceived as one of the few options -- though not an ideal one -- to keep the
path to degree completion open for some students.
"I think the initial reaction was surprise because this was a unique [MOU] with the for-profit sector, a perceived
competitor of community colleges," Lay said. "It's just a sign of the triage that's going on in California higher
education. We' re not always happy about the decisions we make in triage, but we want to make sure we keep
people in higher education. If we don't think outside of the box, that might not always be possible. Even though
it breaks the hearts of supporters of public education, we can't wait a decade until our budget situation remedies
itself. This model may help some students."
Jane Patton, president of the Academic Senate for California Community Colleges and a communications
professor at Mission College, is less forgiving in her assessment of the Kaplan deal.
6
"I know [Chancellor Jack Scott's) heart was in the f i g n F p f ~ ~ ~ when he made this agreement, but we' re just not
convinced this is the right way to do it," Patton said. "The initial concern faculty had with the [memorandum of
understanding] was that we were not consulted when it was written. A lot of [individual California community)
colleges were approached by Kaplan before then and told them, 'No, thank you.' We would have been more
than happy to let the chancellor know our concerns, but we weren't involved in the process, even though this is
an academic matter and affects students and their ability to transfer."
Patton added that faculty representation had been a part of ratifying prior memorandums of understanding. For
example, she noted that the Academic Senate vetted and ultimately approved an agreement with National
University, a San Diego-based private nonprofit institution with branches throughout the state, a few years ago.
In that case, she added that faculty were able to put in protections they thought necessary to ensure proper
transferability of credit. With the Kaplan deal, Patton says, students may not be getting the transferability they
think that they are getting.
"If a student takes five or so courses with Kaplan, they may be able to take these credits back to their
community college but there's no telling whether a [California State University] will take it or not," said Patton,
noting that a student may simply chose to forgo the stress of figuring out how to transfer these credits back to a
public institution and go on to pursue a baccalaureate with Kaplan instead. "ArticuJation is a major concern
here."
Terri Carbaugh, a spokeswoman for the California Community Colleges Chancellor's Office, argues that the
MOU should assuage some of these transferability concerns. As the Chancellor's Office cannot prevent Kaplan
from marketing itself to California community college students on a single-course basis, she believes the recent
agreement gives Kaplan guidance on how it should go about this process for those who are interested in taking
advantage of it.
"In the event students taking Single Courses wish to pursue their baccalaureate degree at a [California State
University] or [University of California] institution, [Kaplan] will ensure articulation agreements are in place
between [Kaplan] and the [California community college] that stipulate Single Courses provided by [Kaplan]
will be accepted by a CSU or UC in lieu of the community college's own transferable course," the
memorandum reads.
Carbaugh said it is incumbent on Kaplan to ensure that these articulation agreements exist and work as
intended.
"I think it's important to note that we don't have oversight authority over Kaplan, or any private for-profit for
that matter,'' Carbaugh said. "In the same way that we have a dialogue with UC and CSU, we want to make sure
we have a dialogue with Kaplan. We felt it better to work with them and try to educate those institutions on the
value of transferability. Whether or not (transfer works] 100 percent [of the time] or [Kaplan] gets these transfer
agreements, that's up to them."
The California Legislature is currently considering a bill that would change how and which credits are
transferable between the state's community colleges and institutions within the California State University
System. It is unclear whether this piece of legislation would ensure the seamless transferability of these Kaplan
credits, and Lay and Patton are divided in their interpretation of it.
Unlike the California State System, however, the University of California system is not beholden to the
Legislature on issues of credjt transferability, and the faculties at each institution determine which courses they
will and wi ll not accept. As many University of California campuses still do not accept certain community
college credits, it is likely that Kaplan credits would meet a similar fate.
7
"I'm hard pressed to see where we could modify
make it favorable to faculty," Patton said. "I

appreciate the chancellor trying to keep opportunities open, but we didn't need to do this. There are other
options out there. For instance, virtually every California community college offers courses online. Ifl'm in the
Bay Area and I want to take a philosophy course and can't get it at my college, then I bet there' s a college
somewhere in the state where I can take it online."
In spite of the criticism, Lay is encouraged by at least one portion of the agreement with Kaplan. The
memorandum requires that Kaplan provide to the Chancellor's Office ' 'the current number of enrolled students
and transfer students and their persistence rates for each transferring institution." Garnering this data from a for-
profit institution that does not often share it is a worthy outcome, Lay said.
"I think most people see this as an incentive from, at best, an evil necessity," Lay said. "But, if you have to go
down that road, then let's see what we can get out of it. This will allow for better tracking of our students who
are coming and going and taking classes at muJtiple institutions."
This data will also give the Chancellor's Office the necessary information to judge the success of this agreement
when the time comes to decide whether to renew it or not, Carbaugh said. To date, she said, the Chancellor' s
Office has not been able to track how many students transferred credits to and from Kaplan, but it was able to
do so for various other for-profit institutions.
"Data shows us a 10 year increasing trend line of transfers to for-profit universities - from 6 to 12.9 percent,"
Carbaugh noted via e-mail. "This data shows low income, black, Hispanic and women are more likely to make
this decision, even though it is an expensive option .... This is why the data portion of the [memorandum of
understanding] is important to the Chancellor's Office. We are paying close attention to where our transfer
students go-- public 4-year, private nonprofit 4-year, private for-profit, etc."
Carbaugh said that, in deciding whether to renew the deal in two years, the Chancellor's Office would also have
to consider the perception among critics that this agreement amounts to an explicit endorsement of Kaplan.
"I appreciate the gist of what critics are saying, that the nature of the [memorandum of understanding] gives
credibility to Kaplan," Carbaugh said. "By our partnering with them, there's an assumption that it's a good
thing. We' re sensitive to the fact that the perception exists. We're not trying to endorse one for-profit over
another or the for-profits in general. It's possible we underestimated the extent to which this would be marketed
by Kaplan. We can see it' s being used as a marketing tool for them. But, the extent to which this agreement
provides protection and assurance for students, the jury' s still out. We' ll just have to watch over a period of two
years and see how it has served students."
Whether the agreement with the Chancellor's Office is renewed or not, Kaplan officials are optimistic about
their institution's future in the Golden State.
"This is not a short term initiative," Cocuy wrote. "We've been serving California students for many years and
have a long-term commitment to helping them meet their academic and career goals. Before the [memorandum
of understanding], we had transfer agreements with 75 California community colleges. We'll continue to
support these and other new relationships that focus on student success in California.
8
Page 125 ol 21 2
Woodward, Jennifer
From: McDade, John
Sent:
To:
Thursday, April 29, 2010 4:42PM
Woodward, Jennifer
Subject: RE: Response
F
We're recommending second interviews, but not the final hiring authority.
There's 2 new positions here.
Talk later,
YF w
Sent: Thursday, April 29, 2010 4:40PM
To: McDade, John
Subject: RE: Response
Are you hiring new staff?
From: McDade, John
Sent: Thursday, April 29, 2010 4:37 PM
Subject: Response
Thanks! Excellent article, good find.
Been leading an interview panel all week and thus have been working ALOT.
Talk later,
1
YF
-Original Message--
w
Sent: Thursday, April29, 2010 2:39PM
To: McDade, John
Page 126 of 212
Subject: Inside Higher Ed article on Bob Shireman's speech on for-profit schools and accreditation
Did you see this?
Comparing Higher Ed to Wall Street
April29, 2010
Whenever worried leaders of for-profit colleges have implied in recent months that the U.S. Education Department is
gunning for the institutions, officials of the federal agency have discouraged such talk, offering evenhanded rhetoric about
treating all sectors the same in their push for increased accountability.
The words have provided little reassurance to the colleges, since they haven't always seemed to square with the
aggressive approach the Obama administration is taking in rewriting federal rules governing vocational and other
programs.
On Wednesday, in a speech to state regulators who oversee for-profit colleges, the chief architect of the Education
Departmenfs strategy, Robert Shireman, offered a much more critical assessment of the private sector institutions than
he has in his public comments to date, according to accounts given by several people who were in the room. He
compared the institutions repeatedly to the Wall Street firms whose behavior led to the financial meltdown and called them
out individually, one by one, for the vast and quickly increasing sums of federal student aid money they are drawing down.
While Shireman's comments were aimed most directly at the for-profit colleges themselves, they may be most noteworthy
for his indictment of accreditation, higher education's system of institutional peer review. In Shireman's narrative before
the annual meeting of the National Association of State Administrators and Supervisors of Private Schools, the accrediting
agencies are to the for-profit colleges what the Wall Street ratings agencies were to the misbehaving financial firms:
entities charged with regulating an industry that has grown too quickly and too complex for them to control, and that have
an "inherent conflict of interest" because their existence depends on financial contributions from those they regulate.
Accreditors lack the "firepower'' to regulate the for-profit sector, and the states and the federal government don't
necessarily have all the tools they need to do it either, Shireman said, according to the notes of several in the audience.
That, he suggested, is why the Education Department must toughen its rules in the way it is now proposing.
Shireman could not be reached for comment, and an Education Department spokesman said its officials did not wish to
comment on this article.
To several people in the audience, Shireman's comments represented a much more candid (and critical) appraisal of the
for-profit sector than he has offered publicly since he became deputy under secretary of education almost exactly a year
ago. Many supporters of the education companies feared his appointment because they believed his track record as an
advocate for low-income students and a foe of student debt would result in a crackdown on the institutions, whose
students are disproportionately needy and disproportionately go into heavy debt to finance their educations.
But with Wall Street analysts hanging on his every word looking for snippets that might threaten the publicly traded
companies' stock prices, Shireman has often seemed to go out of his way to avoid singling the institutions out for criticism.
A typical quotation, from last summer: "Our overall goal at the Department of Education in postsecondary education is to
make sure that students ... have the information they need to make good choices, and that they have good quality
postsecondary education that serves both them as students and taxpayers as well ," Shireman said. " ... If there is not
2
quality, we want to know about it and if we can, we want
about it. Whether that involves a public

institution, a nonprofit, a for-profit, a two-year, a four-year, a trade program, whatever type or sector of institution, we want
to do all we can to make sure that we have good quality."
Different Tone
In his comments Wednesday, Shireman laid out the context underlying the Obama administration's elevation of higher
education as a central focus of its domestic policies. The economic slide created in part by the collapse of the credit
markets has sent Americans streaming back to college in record numbers, and has made it more imperative than ever
that more Americans get a higher education to strengthen the country's economic base for the future, Shireman said.
The administration has poured tens of billions of dollars into Pell Grants and restructured the federal student loan
programs to try to ensure that Americans have access to higher education, Shireman said Wednesday. Many public
institutions, facing cuts in their state funding, have had to limit or even cut their enrollments, reducing their ability to meet
the increasing demand from students.
The for-profit colleges, by contrast, have stepped up, seeing their enrollments explode -- and with them, the amount of
Pell Grant money that follows the students to the institutions, Shireman said. Anyone in the audience from Corinthian
Colleges? Shireman asked the assembled audience Wednesday.
A hand went up. The California-based for-profit higher ed company has seen its revenue from Pell Grants grow by 38
percent in the first three quarters of this fiscal year compared to the last one, he said. Anyone from DeVry? Forty-two
percent, Shireman said. Strayer? ITT? One by one, he ticked through a list of publicly traded companies, pointing out the
increasing amounts of federal money the institutions were collecting ("It was like fourth grade, with a teacher scolding
students over their grades," said one person who was in the room}.
What are taxpayers and students getting in return for that investment? Shireman asked. It has historically been up to the
"triad" - the three-headed regulatory scheme involving the federal government, state governments and accrediting
agencies - to ensure access, quality and integrity in higher education, he said.
But is that regulatory system up to the job? To draw a parallel, Shireman noted that as this meeting was unfolding in St.
Paul, politicians back in Washington were debating possible reforms of Wall Street, to try to fix the "flawed" regulatory
process that allowed Goldman Sachs and other purveyors of subprime mortgages to engage in misbehavior that helped
devastate the economy.
One major reason the process was flawed, Shireman said, was because the bond rating agencies that were supposed to
be j udging the riskiness of the financial instruments were supported in large part by fees from the companies that were
asking the agencies to rate the financial instruments- "a clear, inherent conflict of interest," Shireman said, according to
the accounts of several in the room.
On top of that inherent conflict, the ratings agencies have been struggling to keep tabs on industries that grew quickly and
adopted increasingly complex practices, Shireman said, suggesting that the ratings agencies lacked the "firepower" to
regulate the financial markets.
In case anyone missed it, Shireman drove his point home, pointing out that higher education accrediting agencies are
made up of (and financially supported by} their member colleges, and see it as their mission both to help the institutions
"improve" and also to ensure, in what is essentially a subcontract from the federal government, that they are of sufficient
quality.
The peer review nature of higher education accreditation has an inherent conflict of interest similar to the ratings
agencies, Shireman said. Given that, he suggested, it is crucial for state and federal agencies, as the other two parts of
the triad, to step up their role in regulating higher education. But do state regulators think they have the "firepower" to
keep tabs on the big, growing and complex private market college sector? Shireman asked the state officials in the room.
The response was underwhelming.
The federal government's own powers may be insufficient to do the job, too, Shireman suggested, according to members
of the audience. That is why the department needs new approaches to ensuring integrity in the financial aid programs, he
said, such as requiring most for-profit colleges and non-degree vocational programs at nonprofit colleges to show that
they are preparing students for gainful employment.
3
Several people who heard the speech said they viewed more strident critique of for-profit colleges, and of
higher education accreditation, than Shireman has delivered before. But David Dies, who heads the Wisconsin
Educational Approval Board and just finished a term as president of the national group of state regulators, didn't hear it
quite that way.
"I think Bob was explaining why we need state regulation and [Education] Department oversight to be part of this three-
legged stool, not just accreditation, and why we all need to work together," said Dies. "He was pointing out some
limitations of accreditation, but I didn't really see it" as highly critical of accreditors or for-profit colleges.
- Doug Lederman
4
Woodward, Jennifer
From:
Sent:
To:
Subject:
Hello there!
Talk later,
YF w
Page 129ol212
McDade, John
Monday, March 15, 2010 3:05PM
Woodward, Jennifer
Thanks For Article
Sent: Monday, March 15, 2010 10:05 AM
To: McDade, John
Subject: FW: In Hard n mes, Lured Int o Trade School and Debt
FYI - This article was on the front page of yesterday's New York Times.
THE NEW POOR
In Hard Times, Lured Into Trade School and Debt
By PETER S. GOODMAN
Published: March 13, 2010
1
Page 130of212
One fast-growing American industry has become a conspicuous beneficiary of the recession: for-profit
colleges and trade schools.
At institutions that train students for careers in areas like health care, computers and food service,
enrollments are soaring as people anxious about weak job prospects borrow aggressively to pay tuition
that can exceed S3o,ooo a year.
But the profits have come at substantial taxpayer expense while often delivering dubious benefits to
students, according to academics and advocates for greater oversight of financial aid. Critics say many
schools exaggerate the value of their degree programs, selling young people on dreams of middle-class
wages while setting them up for default on untenable debts, low-wage work and a struggle to avoid
poverty. And the schools are harvesting growing federal student aid dollars, including Pell grants
awarded to low-income students.
"If these programs keep growing, you're going to wind up with more and more students who are
graduating and can't find meaningful employment," said Rafael I. Pardo, a professor at Seattle
University School of Law and an expert on educational finance. "They can't generate income needed to
pay back their loans, and they're going to end up in financial distress."
For-profit trade schools have long drawn accusations that they overpromise and underdeliver, but the
woeful economy has added to the industry's opportunities along with the risks to students, according to
education experts. They say these schools have exploited the recession as a lucrative recruiting device
while tapping a larger pool of federal student aid.
"They tell people, 'If you don't have a college degree, you won't be able to get a job,' " said Amanda
Wallace, who worked in the financial aid and admissions offices at the Knoxville, Tenn., branch of ITT
Technical Institute, a chain of schools that charge roughly $ 40,000 for two-year associate degrees in
computers and electronics. "They tell them, 'You'll be making beaucoup dollars afterward, and you'll
get all your financial aid covered.' "
Ms. Wallace left her job at ITT in 2008 after five years because she was uncomfortable with what she
considered deceptive recruiting, which she said masked the likelihood that graduates would earn t oo
little to repay their loans.
As a financial aid officer, Ms. Wallace was supposed to counsel students. But candid talk about job
prospects and debt obligations risked the wrath of management, she said.
"If you said anything that went against what the recruiter said, they would threaten to fire you," Ms.
Wallace said. "The representatives would have already conned them into doing it, and you had to just
keep your mouth shut."
2
Page 131 of 212
A spokeswoman for the school's owner, ITT Educational Services, Lauren Littlefield, said the company
had no comment.
The average annual tuition for for-profit schools this year is about $14,000, according to the College
Board. The for-profit educational industry says it is fulfilling a vital social function, supplying job
training that provides a way up the economic ladder.
"When the economy is rough and people are threatened with unemployment, they look to education as
the way out," said Harris N. Miller, president of the Career College Association, which represents
approximately 1,400 such institutions. "We're preparing people for careers."
Concerned about aggressive marketing practices, the Obama administration is toughening rules that
restrict institutions that receive federal student aid from paying their admissions recruiters on the basis
of enrollment numbers.
The administration is also tightening regulations to ensure that vocational schools that receive aid
dollars prepare students for "gainful employment." Under a proposal being floated by the Department
of Education, programs would be barred from loading students with more debt than justified by the
likely salaries of the jobs they would pursue.
"During a recession, with increased demand for education and more anxiety about the ability to get a
job, there is a heightened level of hazard," said Robert Shireman, a deputy under secretary of
education. "There is a lot of Pell grant money out there, and we need to make sure it's being used
effectively."
The administration's push has provoked fierce lobbying from the for-profit educational industry, which
is seeking to maintain flexibility in the rules.
A Lucrative Business
The stakes are enormous: For-profit schools have long derived the bulk of their revenue from federal
loans and grants, and the percentages have been climbing sharply.
The Career Education C01:poration, a publicly traded global giant, last year reported revenue of $1.84
billion. Roughly So percent came from federal loans and grants, according to BMO Capital Markets, a
research and trading firm. That was up from 63 percent in 2007.
The Apollo Group- which owns the for-profit University of Phoenix- derived 86 percent of its
revenue from federal student aid last fiscal year, according to BMO. Two years earlier, it was 69
percent.
3
Page 132of212
For-profit schools have proved adept at capturing Pell grants, which are a centerpiece of the Obama
administration's efforts to make higher education more affordable. The administration increased
financing for Pell grants by $17 billion for 2009 and 2010 as part of its $787 billion stimulus package.
Two years ago, students at for-profit trade schools received $3.2 billion in Pell grants, according to the
Department of Education, less than went to students at two-year public institutions. By the 2011-12
school year, the administration now estimates, students at for-profit schools should receive more than
$10 billion in Pell grants, more than their public counterparts. (Those anticipated increases may
shrink, depending on the outcome of wrangling in Congress over health care and student lending.)
Enrollment at for-profit trade schools expanded about 20 percent a year the last two years, more than
double the pace from 2001-7, according to the Career College Association.
Mr. Miller, the association's president, said for-profit schools were securing large numbers of Pell
grants because their financial aid offices were diligent and because the schools served many low-
income students.
But financial aid experts say the surge of federal money reaching such institutions reflects something
else: their aggressive, sometimes deceitful recruiting practices.
Jeffrey West was working at a pet store near Philadelphia, earning about $8 an hour, when he saw
advertisements for training programs offered by WyoTech, a.chain of trade schools owned by
Corinthian Colleges Inc., a publicly traded company that last year reported revenue of $1.3 billion.
After Mr. West called the school, an admissions representative drove to his house to sell him on classes
in auto body refinishing and upholstering technology, a nine-month program that cost about $30,000.
Mr. West blanched at the tuition, he recalled, but the representative assured him the program
amounted to an antidote to hard economic times.
"They said they had a very high placement rate, somewhere around 90 percent," he said. "That was one
of the key factors that caused me to go there. They said I would be earning $so,ooo to $70,000 a year."
Some 14 months after he completed the program, Mr. West, 21, has failed to find an automotive job. He
is working for $12 an hour weatherizing foreclosed houses.
With loan payments reaching $6oo a month, he is working six and seven days a week to keep up.
"I've got $30,000 in student loans, and I really don't have much to show for it," he said. "It's really
frustrating when you're trying to better yourself and you wind up back at Square One."
Corinthian says it bars its recruiters from making promises about pay.
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"The majority of our students graduate," said a spokeswoman, Anna Marie Dunlap, in a written
statement. "Most see a significant earnings increase."
The increase in market opportunities for the for-profit education industry comes as governments spend
less on education. In states like California, community colleges have been forced to cut classes just
when demand is greatest.
"This is creating a very ripe environment for the for-profit schools to pick off more students," said
Lauren Asher, president of the Institute for College Access & Success, a nonprofit research group based
in California that seeks to make higher education more affordable. "The risks of exploitation are higher,
and the potential rewards of those practices are higher."
For-profit culinary schools have long drawn criticism for leading students to rack up large debts. Now,
they are enjoying striking growth. Enrollment at the 17 culinary schools of the Career Education
Corporation - most of them operated under the name Le Cordon Bleu - swelled by 31 percent in the
fmal months oflast year from a year earlier.
When Andrew Newburg called the Le Cordon Bleu College of Culinary Arts in Portland, Ore., to seek
information, he was feeling pressure to start a new career. It was 2008, and his Florida mortgage
business was a casualty of the housing bust. An associate degree in culinary arts from a school in the
food-obsessed Pacific Northwest seemed like a portal to a new career.
The tuition was daunting- $41,000 for a 15-month or 21-month program- but he said the
admissions recruiter portrayed it as the entrance price to a stable life.
"The recruiter said, 'The way the economy is, with the recession, you need to have a safe way to be sure
you will always have income,'" Mr. Newburg said." 'In today's market, chefs will always have a job,
because people will always have to eat.'"
According to Mr. Newburg, the recruiter promised the school would help him find a good job, most
likely as a line cook, paying as much as $38,ooo a year.
Last summer, halfway through his program and already carrying debts of about $10,000, Mr. Newburg
was alarmed to see many graduates taking jobs paying as little as $8 an hour washing dishes and
busing tables, he said. He dropped out to avoid more debt.
"They have a basic money-making machine," Mr. Newburg said.
More Bills Than Paychecks
Career Education says admissions staff are barred from making promises about jobs or salaries. The
school requires students to sign disclosures stating that they understand that its programs afford no
guarantees.
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Page 134 of 212
But promotional materials convey a sense of promise.
"Our students are given the tools needed to become the future leaders in the industry," proclaims the
Le Cordon Bleu Web site. "Many graduates have attained positions of responsibility, visibility, and
entrepreneurship soon after completing their studies."
The job placement results that the school files with accrediting agencies suggest a different outcome.
From July 2007 to June 2008, students who graduated from the culinary arts associate degree program
landed jobs that paid an average of $21,000 a year, or about $10 an hour. Oregon's minimum wage is
$8.40 an hour.
The job placement list is cited in a class-action lawsuit filed against the Portland school - previously
known as Western Culinary Institute- by graduates who allege fraud, breach of contract and unlawful
trade practices. Executives at Career Education denied the allegations while asserting it would be
wrong to judge the school on the basis of its graduates' first jobs.
"You go out in the industry and work your way up," said Biian R. Williams, the company's senior vice
president for culinary arts.
On a recent morning at the campus in Portland, hundreds of students donning chefs whites labored in
demonstration kitchens stocked with stainless steel countertops and commercial gas ranges. A chef
inspected plates ofboeuf Bourgogne and risotto Milanese. Students melted and pulled sugar into
multicolored ribbons. Others used a chainsaw to sculpture blocks of ice into decorative centerpieces.
"It's employable skills; that's what we teach people here," said the school president, Jon Alberts. "We
try to give them as much of an industry experience in the classroom as possible."
But several local chefs said the program merely simulated what students could learn in entry-level jobs.
"When they graduate and come in the kitchen, I tell them, 'I'm going to treat you like you don't know
anything,'" said Kenneth Giambalvo, executive chef at Bluehour, an upscale restaurant in Portland's
Pearl District. "It doesn't really give them any edge."
What the school does give many students is debt, often at double-digit interest rates - debt that even
bankruptcy cannot erase without a lengthy, low-odds legal proceeding.
When TJ Williams arrived in Portland from his home in Utah to enroll at Le Cordon Bleu in 2007, he
was shocked by the terms of the aid package the school had arranged for him: One loan, for nearly
$14,000, carried a $7,327 "finance charge" and a 13 percent interest rate.
"They told me that halfway through the program, I could probably refinance to a lower rate," he said.
When he tried to refinance, the school turned him down, he says.
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Page 135of212
Career Education declined to discuss Mr. Williams's case, citing privacy restrictions and saying he had
not signed a waiver.
Mr. Williams has been jobless since last fall and recently returned to Utah, where he moved in with his
mother.
After Graduation
The Career Education Corporation e-mailed The New York Times names and contact information for
four graduates "with whom we hope you'll touch base for important perspective." One came with a
wrong number. A second had graduated 15 years ago.
A third, Cherie Thompson, called the program "a really positive experience" but declined to discuss her
debts or earnings. The fourth, Ericsel Tan, graduated in 2003 and later earned $42,000 a year
overseeing catering at a convention center near Seattle. He said his success reflected his seven years of
kitchen experience prior to culinary school.
Career Education notes that only 59 percent of the federal loans to students at the Western Culinary
Institute that began to come due in 2007- the latest available data- are listed in default by the
Department of Education.
But default rates have traditionally reflected only those borrowers who fail to pay in the first two years
payments are due.
The Department of Education has begun calculating default rates for three years. By that yardstick,
Western Culinary's default rate more than doubles, to 12.5 percent.
For-profit schools have ramped up their own lending to students to replace loans formerly extended by
Sallie Mae, the student lending giant.
These loans are risky: Career Education and Corinthian recently told investors they had set aside
roughly half the money allocated this year for private lending to cover anticipated bad debts.
Financial aid experts say such high rates of expected default prove that graduates will not earn enough
to make their payments, yet the loans make sense for the for-profit school industry by enabling the flow
of taxpayer funds to their coffers: they satisfy federal requirements that at least 10 percent of tuition
money come from students directly or from private sources.
"They're making so much money off their federal student loans and grants that they can afford to write
off their own loans," said Ms. Asher of the Institute for College Access & Success.
A version of this article appeared in print on March 14. 2010. on page A 1 of the New York edition.
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http://www.nvtimes.com/201 0/03/14/business/14schools.html
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Page 137 of 212
Woodward, Jennifer
From:
Sent:
To:
Subject :
F
YF
McDade, John
Friday, March 05, 2010 3:42 PM
Woodward, Jennifer
Follow-Up: Hello and 2 articles
--------------- --- ------
Sent: Friday, March 05, 2010 2:39 PM
To: McDade, John
Subject: RE: Hello and 2 articles
From: McDade, John
Sent: Friday, March OS, 2010 11:50 AM
SUbject: RE: Hello and 2 articles
1
Page 138 of 212
F L:
l(b)(5)
Any fun pl ans this weekend?
Talk later.
YF w
------- - -----------------. --
To: McDade, John
Subject: RE: Hello and 2 articles
~ ( 5 _ ) __ _
From: McDade, John
Subject: Hello and 2 articles
F L:
2
-- ----
Hello there! I hope you are doing well. FYI - I included that you may have al ready seen.
What's new in the World of Woodward? I finally purchased a home computer, I hope to get it set up sometime this
weekend.
Talk later,
YF w
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
http://higheredwatch.newamerica.neUblogposts/2010/are students really the no 1 concern of publicly traded career
colleges-28549
Students vs. Shareholders at Publicly Traded Career Colleges
Author(s):
Stephen Burd
Published: March 3, 2010
Issues:
Department of Education
For-Profit Colleges
Private Loans
Whose needs do most publicly traded for-profit higher education companies put first? If you have any doubt, look no
further than what Gary McCullough, the president and chief executive officer of Career Education Corporation, had to say
when he met recently with the editorial board at The Wall Street Journal.
In comments he made to the newspaper's reporters and editors, McCullough complained that recent efforts by the U.S.
Department of Education to rewrite its student aid regulations to better protect students from unscrupulous schools had
spooked Wall Street, driving down the share prices of his company' s stock and those of its competitors. "There's a pall
that hangs over the education space right now," he stated.
Of particular concern, he said, is a proposal that the Education Department has floated that seeks to prevent proprietary
schools from saddling their students up with unmanageable levels of student loan debt. Under the plan, the amount of
debt that most for profit college students {as well as those enrolled in other types of job training programs) could take on
would be directly tied to the annual starting salaries in the fields for which they sought training. According to the
Department (see p. 58). the goal would be to ensure that "a student's starting annual income is adequate to repay the
average debt service obligation for someone completing a specific program, while still having an adequate amount
available to meet living expenses."
If the Education Department moves forward with such a proposal, McCullough warned, it "would change the whole
landscape" of higher education. But what would the ramifications be for the tens of thousands of students who attend
Career Ed schools throughout the country? According to the newspaper:
McCullough said that if the proposal is implemented, Career Education may have to lower prices so as to limit the debt
load its students take on, or even cut some programs in which students graduate into low-paying jobs. [emphasis added]
Oh, the horror! Lower prices, less debt, and the elimination of programs that do not provide students with enough income
to cover their loan bills-- what could the Department possibly be thinking?
3
In reality, such changes are long overdue. As it is now, schools are among the most expensive proprietary
institutions in the country and the majority of students who attend do not complete their programs (as we recently pointed
out, only 16 percent of students who entered the main campus of Career Ed's American Intercontinental University in
2002 graduated within six years, according to data collected by the Department of Education). Meanwhile, many of these
students leave heavily indebted. In fact, for years, the company aggressively steered its most financially needy students to
take out high-cost private student loans from Sallie Mae, with annual interest rates as high as 20 percent Facing huge
losses on these loans, the student loan giant eventually terminated the deal it had with the company. Since then Career
Ed has been making these high-risk loans itself even though it expects nearly half of the funds it provides to students to
end up in default.
Clearly the schools' students would be much better off if the company could truly guarantee them the training they need to
obtain gainful employment in high-paying fields as their advertisements promise. We'd argue that the company would also
be better off in the long term, with substantially improved outcomes and a thriving alumni network that could help promote
the school (rather than heavily populating consumer complaint websites like ripoffreport.com).
Unfortunately, Wall Street doesn't see it that way. Instead, investors demand that these for-profit higher education
companies continue to grow at almost any cost. Any retrenchment, even if it is ultimately in the best long term interests of
the schools and their students, sets off alarm and panic. Just look at how the market has reacted so far to the welcome
news that the University of Phoenix is planning to slow down its enrollment growth in its undergraduate programs.
Keep this in mind the next time you hear the leaders of publicly traded for profit higher education companies such as
Career Ed claim that "students are their No. 1 concern," as The Chronicle of Higher Education recently put it. Their
shareholders know better than that.
I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I
http://www. bloomberg.com/apps/news?pid=washingtonstory &sid=a Y qphCv YXAal
Your Taxes Support For-Profits as They Buy Colleges (Update3)
By Daniel Golden
March 4 (Bloomberg) -- ITI Educational Services Inc. paid $20.8 million for debt- ridden Daniel Webster
College in June. In return, the company obtained an academic credential that may generate a taxpayer-
funded bonanza worth as much as $1 billion.
m Educational, the U.S.'s third- biggest higher education company with a market value of $3.8 billion,
may increase it by 26 percent, or $1 billion, within five years because of the purchase of 1,200-student
Daniel Webster in Nashua, New Hampshire, according to Michael Clifford, an investor in Del Mar,
California, who has participated in the acquisitions of four nonprofit colleges. At least 75 percent of new
revenue would come from access to the more than $100 billion a year in financial aid the U.S. hands out
to college students, he said.
Key to tapping that money is Webster's regional accreditation, which is the same gold standard of
academic quality enjoyed by Harvard University and helps students transfer course credits from one
college to another. Daniel Webster's accreditation was its "most attractive" feature to ITI Educational, said
Michael Goldstein, an attorney at Dow Lohnes, a Washington law firm that has represented the company.
"Companies are buyi ng accreditation," said Kevin Kinser, an associate professor at the State University of
New York at Albany, who studies for-profit higher education. "You can get accreditation a lot of ways, but
all of the others take time. They don't have time. They want to boost enroll ment 100 percent in two
years."
Exploiting Loopholes
The nation's for-profit higher education companies have tripled enroll ment to 1.4 million students and
revenue to $26 billion in the past decade, in part through the recruitment of low-income students and
active-duty military. Now they're taking a new tack in their quest to expand. By exploiting loopholes in
government regulation and an accreditation system that wasn't designed to evaluate for-profit takeovers,
they' re acquiring struggling nonprofit and religious colleges-- and their coveted accreditation. Typically,
the goal is to transform the schools into online behemoths at taxpayer expense.
4
For-profit education compani es, including m based in Carmel, Indiana, and
Laureate Education Inc., in Baltimore, have purchased at least 16 nonprofit colleges with regional
accreditation since 2004, according to corporate announcements and filings with the U.S. Securities and
Exchange Commission. Jack Welch, the former chief executive of General Electric Co., and Michael Milken,
the U.S. junk bond pioneer, have invested in for-profit companies that bought or formed partnerships with
nonprofit, regionally accredited schools.
Academic Status
By acquiring regional accreditation, trade and online colleges gain a credential usually associated with the
traditional academic culture of liberal arts, faculty scholarship and selective admissions. Normally the
accreditation process takes about five years and requires evaluations by outside professors. The regional
bodies examine financial stability, academic rigor and commi tment to "teaching, learning, service and
scholarship," according to the Web site of the Commission on Institutions of Higher Education, which
accredits colleges in New England.
Enrollment at Grand Canyon University, a Christian college in Phoeni x bought by investors in 2004, has
soared to 37,700, as of Dec. 31, up from 1,500, said Brian Mueller, chief executive of Grand Canyon
Education Inc. Ninety-two percent of students now take classes online, according to the company's most
recent 10- K. Bridgepoint Education Inc., based in San Diego, has boosted enrollment of two regionally
accredited colleges it bought in 2005 and 2007 to 53,688 students as of Dec. 31, up from 400 combined,
according to a company filing. Ninety-nine percent of those students take courses exclusively online.
Growth Potential
Daniel Webster "could parallel Grand Canyon or Bridgepoint's growth curve," said Clifford, who was part of
the investor group that purchased Grand Canyon.
m Educational rose two cents, or less than one percent, to $109.80 at 4:15p.m. today in Nasdaq stock
market trading. The company rose 2.5 percent in the 12 months ended today.
ITT Educational declined to comment for this story. The company plans to open more Daniel Webster
campuses and also expand online offerings, Kevin Modany, ITT Educational's chairman and chief executive
officer, said in a Feb. 22 presentation to analysts. The company expects t o introduce programs including
accounting, education and health sciences, he said.
Daniel Webster will attract more students "a little on the higher end" in income whose tuition would be
paid by private employers rather than federal financial aid, Modany said.
New Regulations
The U.S. Department of Education, which doled out $129 billion in federal financial aid to students at
accredited postsecondary schools in the year ended Sept. 30, is examining whether these kinds of
acquisitions circumvent a federal law that new for-profit colleges can't qualify for assi stance for two years,
Deputy Undersecretary of Education Robert Shireman said in a telephone interview.
Under federal regulations taking effect July 1, accrediting bodies may also have to notify the secretary of
education if enrollment at a college with online courses increases more than SO percent in one year.
"It's an area that we are watching closely," Shireman said. "It certainly has been a challenge both for
accreditors and the Department of Education to keep up with t he new creative arrangements that have
been developing."
Immediate Benefits
Buying accreditation lets the new owners benefit immediately from federal student aid, which provides
more than 80 percent of revenue for some for-profit colleges, instead of having to wait at least two years.
Traditional colleges are also more inclined to offer transfer credits for courses taken at regionally approved
institutions, making it easier to attract students nationwide.
The six nonprofit regional accrediting bodies, which rely on academic volunteers, bestow the valuable
credential with scant scruti ny of the buyers' backgrounds, Barmak Nassirian, associate executive director
of the American Association of Collegiate Registrars & Admissions Officers in Washington, said in a
telephone interview.
5
While accrediting bodies treat these purchases
ownership, the acquisitions, in reality, create

new colleges that should be required to earn certification from scratch, Kinser said.
Maintain Mission
For accreditation to continue once the col lege is sold, the buyer must promise not to change its mission,
Steven Crow, former executive director of the Chicago-based Higher Learning Commission, the largest
regional body, said in a telephone interview. Once accreditation is maintained, the acquirer seeks
permission, which is usually granted, to start branch campuses and online programs, Crow said.
"You knew by month six they would come back to you with a new game plan," said Crow, now a
consultant to publicly traded Corinthian Colleges Inc., based in Santa Ana, California. It acquired
regionally accredited San Francisco-based Heald College on Jan. 4.
Obama administration officials have recently questioned whether the accreditation system is effective in
protecting academic standards. Accrediting decisions lack transparency and take too long, Undersecretary
of Education Martha Kanter said in a Jan. 26 speech in Washington to the annual meeting of the Council
for Higher Education Accreditation.
Considering Termination
The inspector general of the Education Department in December urged the agency to consider terminating
recognition of the Higher Learning Commission, which has approved more for- profit colleges than its
counterparts around the country.
The inspector general criticized the commission's decision to accredit Career Education Corp.'s online
American Intercontinental University, citing concerns about how much time students spent in class. The
approval was appropriate, the commission and Hoffman Estates, Illinois-based Career Education said.
More vigilance by the Education Department and accrediting groups is likely to slow enrollment growth
and the share prices of higher education companies that rely on acquisitions, said Clifford. Whi le publicly
held postsecondary education companies rose 29.9 percent in the 12 months ended March 3, they lagged
behind the S&P 500, which increased 60.7 percent over the same period, said Jeffrey Silber, an analyst for
BMO Capital Markets in New York. The shortfall reflected investors' fears of tighter federal regulation of
for-profit colleges, Silber said.
Accreditation's Worth
Regional accreditation is worth $10 million to a for-profit acquirer, Clifford said in a telephone interview.
That's how much it would cost to start a regi onally accredited college, a process that can take 10 years
and has only a so-so chance of success, he said. On top of the $10 million, buyers typically pay $23,000
to $50,000 per enrolled student, making the purchase of Daniel Webster a bargain, Clifford said.
Clifford and his fellow investors popularized the strategy of acquiring nonprofit colleges with regional
accreditation by purchasing Grand Canyon University in 2004 and building online enrollment.
Grand Canyon "is the same institution," Mueller said in an e- mail. "It was important to the new leadership
group that the mission of providing a high-quality Christian- based education remain intact.''
Grand Canyon, which went public in November 2008, derived 83 percent of its revenue from federal
financial aid in 2009, according to a company filing .
Bridgepoint, Ashford
Bridgepoint Education bought the regionally accredited Franciscan University of the Prairies in 2005 and
Colorado School of Professional Psychology in 2007. It renamed them Ashford University and University of
the Rockies, respectively, and refocused them online. Ashford gained 86 percent of its revenue from
federal student aid in 2009 and University of the Rockies got 85 percent, according to a 10-K filing by
Bridgepoint, which went public in April.
"There are several meaningful continuities" from the colleges before they were acquired, including campus
athletic and social events, Shari Rodriguez, a Bridgepoint spokeswoman, wrote in an e-mail.
Clifford participated in the 2008 purchase of Myers University in Cleveland, which was renamed Chancellor
University. Chancellor attracted Welch as an investor last year and named its new online management
6
institute after him. Welch collaborated with curricula for a master's program in
business administration, Clifford said.
'Something New'
"We chose to work with Chancellor University because it gave us the flexibility to start something new, "
Welch said through a spokeswoman, Betsy Linaberger. "As a for-profit venture, we have the resources to
invest in the student experience and the very best faculty, and we want to provide a high quality business
education."
Knowledge Universe Learning Group, chaired by Milken, entered into a partnership in 2007 with regionally
accredited Sierra Nevada College in Incline Village, Nevada, agreeing to provide as much as $15 million in
return for an opportunity to share in online revenue, Geoffrey Moore, a senior adviser to Milken, said in an
e-mail. The company is a unit of Santa Monica, California-based Knowledge Universe Inc., of which Milken
is co-founder and chairman. Knowledge Universe Learning Group has three seats on the nonprofit
college's nine-member board, Moore said.
'Existing Character'
"This partnership preserved the existing character of Sierra Nevada College," he said. "That was important
to us and the college."
A 2006 regulatory change fostered online growth and made takeovers more attractive, said Silber, the
BMO analyst. That year, Congress eliminated a rule prohibiting colleges that offered more than half of
their courses online from receiving federal financial aid.
ITT Educational Services Inc. didn't buy Daniel Webster just for its 52-acre red-brick campus and science
and technology programs including training pilots and air traffic controllers.
"Regional accreditation was very important" to the company, said Goldstei n, co-leader of the higher
education practice at Dow Lohnes. "I don't think there's any question that was the most attractive
element."
Of the $20.8 million purchase price, $20.6 million went to pay off the college's debt, according to an ITT
Educational 10-Q filing.
Making Changes
ITT Educational Services, which was spun off from ITT Corp. in the 1990s, wasted no time making
changes at Daniel Webster. It renovated a main building and razed a dilapidated dormitory. It also
dismissed one fourth of the staff, fired President Robert Myers, and has been accused by faculty members
of misleading the New England accreditor, t he Commission on Institutions of Higher Education, based in
Bedford, Massachusetts.
"ITT didn't really have much interest in anything other than having acquired a regionally accredited
institution," said Myers, now president of the New England Culinary Institute in Montpelier, Vermont. "If I
had it to do all over again, I wouldn't have gone anywhere near ITT. The fundamental nature of the
college has changed. "
" We're making fantastic progress with the cultural assimilation" of Daniel Webster, Modany said in a Jan.
21 call with analysts. "Things are going really well there, great group of staff and faculty, and everybody is
getting on board."
'Something Different'
Barbara Brittingham, director of the Commission on Institutions of Higher Education, declined to comment
on its approval of the Daniel Webster sale.
In general, "when these institutions are bought, they are not at the moment successful in the financial
sense or they wouldn't be for sale," Brittingham said. "There's an understanding t hat whoever buys them
is going to want to do something different."
Accreditation is higher education's way of regulating itself. The nonprofit associat ions set standards on
financial stability, governance, faculty and academic programs and use volunteers from college presidents
to professors to assess quality. It is a peer review system: a marketing professor is more likely than a
poet to evaluate a business school.
7
For more than a century, regional organizations
most public and private universities.

Starting in the 1950s, leaders of for-profit colleges, which were then ineligible for regional approval,
established seven national accrediting bodies for career education and training. The regions dropped their
for-profit ban in the 1960s.
Cachet, Credits
Apollo Group Inc.'s University of Phoenix, whose enrollment of 455,600 makes it the nation's second-
largest university behind the State University of New York system, is accredited by a regional body, the
Higher Learning Commission. Students enrolled at both regionall y and nationally accredited colleges can
receive federal grants and loans.
Regional accreditation is important to for-profit colleges because students are attracted to its cachet and
can transfer course credits more easily. Only 14 percent of nonprofit universities accept credits transferred
from nationally certified schools, according to a 2006 study by the University Continuing Education
Association, in Washington.
The six regional associations scrutinize takeovers of nonprofit colleges in advance, and then follow up
afterward, accrediting officials said in telephone interviews. They could cite few, if any, cases in which
they refused to continue accreditation, they said.
Heald Purchase
Corinthian Colleges' past difficulties with California state regulators didn't matter to accredi tors when it
purchased Heald Capital LLC, parent company of Heald College, for $395 million. Corinthian, the country's
seventh-largest higher education company by market value, has more than 100 campuses in North
America, and had 106,052 students as of Dec. 31, including Heald, said Anna Marie Dunlap, a Corinthian
spokeswoman.
Corinthian paid a $6.5 million settlement in July 2007 to the California attorney general's office, over
allegedly misrepresenting graduates' job placement rates and salaries. It also agreed to cease enrolling
students in 11 programs at nine campuses. The Santa Ana, California-based Corinthian said in a 10-K
fi ling that it didn't admit wrongdoing.
"We strongly disagreed with the Attorney General's conclusions, but we are pleased to have settled the
matter," Dunlap said in an e-mail.
Exclusively Online
Regionally accredited Heald College had 11 campuses with 12,900 students, primarily in two-year health-
care and business programs, as of Dec. 31. The college was nonprofit before its purchase in 2007 by Palm
Ventures LLC, a Greenwi ch, Connecticut, investment company. Heald expects to start enroll ing exclusively
online students this year, Corinthian Chief Executive Peter Waller wrote in an e-mail.
The Accrediting Commission for Community & Junior Colleges in Novato, California, which certifies two-
year institutions in California and Hawaii, approved the change in Heald's ownership.
"We judge the college we accredit," said Barbara Beno, president of the commission. " It would be unfair to
say, 'Heald, you've been bought by a parent corporation that doesn't have as fine a track record as you
do. Therefore, we'll condemn you,"' she said in a telephone interview.
Heald will "continue to meet ACCJC's accreditation standards and eligibility requirements," Waller said.
The scruti ny "doesn't remotely satisfy the sloppiest of due-diligence requirements," said Nassirian of the
American Association of Collegiate Registrars & Admissions Officers. "There is no methodical review of who
has bought the college. If the Cosa Nostra applied, you would think you'd take a look."
'Same Animal'
The nation's biggest regional accreditor is starting to take a closer look. The Higher Learning Commission,
which certifies more than 1,000 colleges from Arkansas to Wisconsin, stiffened its rules on ownership
changes last year.
Buyers must wait from one to four years to reapply for accreditation if the college won't stay "the same
animal," President Sylvia Manning said in a telephone interview. The commission now charges $10,000 for
8
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owners 1p c anges to pay for more extens1ve researcn. New owners must be approved by 1ts board,
rather than at the staff level, Manning said.
The commission applied its newfound rigor to Mayes Education Inc.'s purchase of Waldorf College in Forest
City, Iowa, putting the brakes on online expansion. A subsidiary of online privately held Columbia
Southern University in Orange Beach, Alabama, Mayes agreed in May to buy the assets of Waldorf, an
Evangelical Lutheran college with 500 students, for an undisclosed sum. The deal closed on Jan. 8.
Approval Condition
As a condition of approval, the commission stipulated that Waldorf can't offer online-only degrees at least
unti l 2011- 2012. Mayes Education plans to boost Waldorf's enrollment to 2,300 students in three years
through programs combining online classes with face-to-face instruction at temporary sites around the
country, Jessica Brown, a spokeswoman for Columbia Southern, said in a telephone interview.
The sale "barely made it through" the commission, former Waldorf president Richard Hanson said in a
"Columbia Southern wanted to ramp up the online program quickly. The commissioners said, 'If we
maintain accreditation, Waldorf has to remain the college we know."'
Columbia Southern wasn't the only for-profit that expressed interest in buying Waldorf, Hanson said.
Another company that lacked regional accreditation also contacted him: ITT Educational Services.
ITT Educational, runs 120 nationally accredited technical institutes with 80,000 students, most of whom
pursue associate degrees.
Graduation Rate
The cost of attending an ITT Technical Institute, including tuition, fees and off-campus room and board,
was $26,775 in 2008-09, according to the National Center for Education Statistics. Of students who
entered ITT's two-year schools in 2004, 29 percent graduated. ITT derived 70 percent of its 2009 revenue
from federal financial aid, according to a company filing.
ITT Educational is in the preliminary stages of seeking regional accreditation for its t echnical institutes
through the Higher Learning Commission, which sent a team to visit the company in late 2009, a
commission spokeswoman, Susan Van Kollenburg, said in an e-mail. The commission hasn't acted on this
evaluation, she said.
Daniel Webster is ITT Educational's first regionally accredited campus. Founded in 1965 as the New
England Aeronautical Institute, t he college is tucked beside Nashua's municipal airport, and keeps its fleet
of Pipers and Cessnas there. The campus includes an aviation center, a library, an administration building,
classrooms, dormitories, and a student center called t he Common Thread.
'Good Reputation'
Over the years, the college expanded from flight instructi on into training air t raffic controllers and airline
managers, as well as teaching computer science, engineering, and business.
It has "a longstanding good reputation," said Gary Kiteley, executive director of the Aviation Accreditation
Board International in Auburn, Alabama, whi ch licenses the college's aviation programs.
Financially, Dani el Webster never enjoyed a cushion. With an endowment that peaked at about $3 million
in 2008, it relied on tuition revenue, Myers said. The airline industry's decline after 9/11 and the collapse
of Internet stocks hurt enrollment in aviation and computer science, said former provost Michael Fishbein,
who said he suffered a heart attack from the stress of keeping the college alive.
Red Ink
Just as trustees reached consensus on a strategic plan in 2008, fuel costs skyrocketed, and "we were
running red ink again," Rodney Conard, the former chairman of the board, said in a telephone interview.
The Commission on Institutions of Higher Education and the U.S. Department of Education expressed
concerns that Daniel Webster didn't meet their financial standards, placing its accreditation and eligibility
for federal aid in jeopardy, according to a filing last April 23, by the college in a New Hampshire court.
9
ITT Educational contacted Myers in December Modany visited Daniel Webster the next
month, and the parties reached agreement in April. The acquisition would enable the company to target a
more upscale audience, Modany told Wall Street analysts on April 23.
While ITT Educational's institutes drew unskilled "career changers," the regionally accredited college would
appeal to "career advancers" seeking to enhance their capabilities, Modany said.
The Commission on Institutions of Higher Education approved the safe that same month.
'Public Interest'
"It's in the public interest to have these small institutions continue to function," said Bruce Mallory, a
commission member and education professor at the University of New Hampshire in Durham. "If a
proprietary school can come in, continue to provide the same level of education and assure viability, that's
all for the better."
Modany promised to leave Daniel Webster's administrators in charge because they were experts in
running a four-year residential college, Myers and Fishbein said. At a campus event introducing the ITT
Educational chief executive to the college community, Modany said the company was growing and there
would be ample job opportunities, said Myers.
Growing Suspicions
As Myers negotiated the sale, he came to suspect that the company wasn't being forthright about its
intentions, he said. When he and Conard, who chaired the college's board of trustees, worked out at a
YMCA a week before the June closing, they discussed canceling the deaf, Myers said. Only after consulting
colleagues did they decide to go through with it, he said.
"We had lots of conversations when it was on the table," said Conard, a management consultant. "Should
we take it? We didn't have to take it. There was a point where we realized, they were going to be more
businesslike about it. It didn't feel as comfy as we were hoping."
Going through with the safe was the right decision, Conard said.
"ITT is in this for the long haul, and I'm very comfortable with where they plan to take Daniel Webster, "
Conard said.
Another former trustee, Cathy Trower, went along with the sale as a fast resort to save the college and
honor commitments to students, she said.
"A for-profit should not be able to buy accreditation," Trower, a research director at Harvard University's
Graduate School of Education in Cambridge, Massachusetts, said in a telephone interview. "To me, that's
almost like buying a degree and not actually earning it."
Duplicating Functions
In July, m Educational dismissed more than 20 Daniel Webster employees, Myers said. It believed they
were duplicating functions that the company's corporate offices in Indiana could provide, two people
familiar with the company's thinking said. m Educational also replaced Conard, Trower and the other
trustees.
Appointees to the college's new board included Charles Cook, former director of the Commission on
Institutions of Higher Education, which accredits Daniel Webster. Cook soon resigned because of a
potential conflict of interest with his position as a director of Corinthian's Heald College, he said in a
"I was never substantively involved with Daniel Webster," Cook said.
Questioning Changes
At the time of the firings, Myers was circulating a draft report questioning whether some of ITT
Educational's changes were in accord with the standards of the accreditation commission, which call for a
faculty role in curriculum and governance, he said.
"ITT came in and said, 'We only want faculty to teach,"' Myers said. "We'll develop curricula in Carmel,
Indiana, and give them to you."
10
. Page 147 .of 2,1 2
On August 5, ITT Educatronal ousted htm, Myers sa1a. Naaine Dowling, director of the Woburn,
Massachusetts, campus of ITT Tech, became interim president.
In an unusual move in credential-conscious academia, ITT Educational also named an assistant professor
without an advanced degree to a deanship. When Triant Flouris, who has a doctorate and has written four
books, resigned as dean of aviation sciences, he was replaced by David Price, who only has a bachelor's
degree.
Price is weeks away from completing a master's degree at Daniel Webster, and will enroll in a doctoral
program in the coming academic year at President Dowling's request, he said in a tel ephone interview.
"ITT has continued the strong emphasis we've always had on getting a higher degree," he said.
Fewer Worries
The biggest difference at Daniel Webster under new ownership is "worrying less," Price said.
"There are a lot of schools that would just go under, students would be out of a school, faculty and staff
would be out of a job that they love passionately. I'm allowed to stay in the position I'm in because of
ITT."
In November, faculty members told a team from the New England commission visiting the campus that
ITT Educational had rewritten a college self-study report prepared by professors and staff for the
accrediting group. Faculty members complained that the company's revisions glossed over inadequacies in
such areas as governance, according to two people who attended the session.
When asked about the allegations concerning the self-study report, Richard Schneider, president of
Norwich University in Northfield, Vermont, who chaired the team, said that in his experience colleges don't
try to deceive accrediti ng bodies.
Facebook Group
About 450 people have joined a Facebook group entitled, "I went to Daniel Webster before it sold out,"
including Chad Los Schumacher, 20. After his sophomore year at Daniel Webster, where he majored in
homeland security and joined the paintball club, Los Schumacher transferred for the current academic
year to Saint Leo University in Saint Leo, Florida.
"It was a very hard decision to come to, but I knew I could not stay there," Los Schumacher said.
Los Schumacher was bothered by an ITT Educational policy that students receiving financial assistance
through work-study programs sign an agreement that the company owned their intellectual output, he
said.
"If I created the next Facebook or Twitter, it would be thei rs," Schumacher said.
Matthew Mcinnis, a flight operations major, stayed at Daniel Webster.
"A lot of big names in aviation have come through here and taught here, " the senior from Beverly,
Massachusetts, said as he headed to the aviation center on Jan. 27. "Looking in the long term, the ITT
buyout should add value. Hopefully, it wi ll attract better professors and more students. "
Personnel Moves
The personnel moves took New Hampshire regulators aback, the officials said.
ITT Educati onal "did give me the sense they would continue as before," said Kathryn Dodge, executive
director of the New Hampshire Postsecondary Education Commission, in Concord, which approved the sale
in May. "We did not expect to see the turnover in staffing happen when it happened."
As a result of the Webster case, Dodge said, she is proposing to require colleges in ownership transition to
outline plans for faculty and staff contracts and internal governance.
"It's a cultural issue," Dodge said. "Unless we're extremely specific in our requests, for-profits aren't as
forthcoming as nonprofits."
To contact the reporter on this story: Daniel Golden in Boston at dlgolden@bloomberg.net
Last Updated: March 4, 2010 17:02 EST
11
Woodward, Jennifer
From:
Sent:
To:
Subject:
F L:
friends as a result.
Page 148 of 212
McDade, John
Friday, February 05, 2010 11 :43 AM
Woodward, Jennifer
Blog Reference
From Tim Ranzetta's website below - 5
Have a great weekend!
Talk later,
YF
+++++++++++++++++++++++++++++++++++
has been making his views known.
http:/ /studentlendinganalytics. typepad.com/student lending analvtics/20 1 0/02/what -do-forprofit -schools-think-
of-recent-negotiated-rulemaking-sessions.htmJ
February 04, 2010
What Do For-Profit Schools Think of Recent Negotiated Rulemaking Sessions?
Here is an early indication, from Corinthian College's earnings call (from Seeking Alpha) earlier this week:
Expects earliest implementation of any new regulations to come in July 2011 while identifying gainful
employment and incentive compensation as key issues:
As expected, based on the nwnber of controversial issues and the divergence of use among many other
negotiators in the Department of Education, the committee did not reach consensus.
Importantly, the unresolved issues did not relate solely to private sector institutions. (inaudible) failed
because of disagreements at a multiple issues from a variety of interest. The Department must now
determine whether to move ahead with the proposed regulations on its own.
If it decides to go forward, the regulations the ~ e p ~ ~ H t decides to propose will be published in a
Notice of Proposed Rule Making or NPRM. The timing of the NPRM is uncertain. That notice will be
followed by a comment period, further requirement of the regulations and then final adoption. On the
cover schedule, July 2011 is the earliest effective date for any of the new regulations.
As part of our ongoing legislative or Regulatory Affairs program, we along with others in the sector, will
continue to make our views on gainful employment, incentive compensation and other issues of
importance.
Expect big lobbying push to voice concern over gainful employment (see discussion of final negreg session
here):
"We're going to participate in meetings with appropriate officials at the Education Department, and then
of course we'll between the association and individually meet with them as a congress and their staffs.
And so it will be a broad-based communications plan as to why the proposed gainful employment is not
the way to think about the value proportion."
Raises differences between 8% debt to income figure proposed by Dept. and Obama's proposed 10%
student loan cap:
"Even the President seems to be at different place to the proposal being made in NegReg where he is
proposing to use the existing income based repayment (IBR) plan as a vehicle, and he's actually setting a
10% monthly debt payment to income ratio."
On incentive compensation proposals coming out of negreg:
"We continue to express our concerns about the latest proposals the Department of Education put on the
table. And we do have concerns, frankly around the ambiguity that the removal of the safe harbors will
create, and that will create problems in their proposal around compensating Admissions and Financial
Aid personnel for their performance, for their core functions are."
On the challenges of implementing income-based repayment:
"I will say that we' ll be coaching the department and the administration on the income based repayment
(IBR) plan because it is very tough bureaucratically, and there is a lot of paper work. The frrstjob is that
they have to go into forbearance, and when they do have that system of hardship, they are in forbearance
and then we can then go to the second stage of getting them into what 's called the IBR program."
Posted at 11 :46 PM in For-Profit Education, Market Buzz, Regulation I Permalink
2
Woodward, Jennifer
From:
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F
Nonrespons "
l(b)(5)
I Nonresponsive
Tal k later,
YF
Page 150 of 21 2
McDade, John
Monday, February 01 , 2010 1 :23 PM
Woodward, Jennifer
Response
Sent: Monday, February 01, 2010 10:29 AM
To: McDade, John
Subject: FW: FYI -- I nside Higher Ed article on the end of the negotiations on incentive comp, gainful employment
Good Morning!
Here's one of two articles I' ve seen t hus far on neg reg, neither of which I think are very good.
) 5)
J
-- -- ---- -- ---------------
From: Siegel, Brian
Sent: Monday, February 01, 2010 8:27 AM
To: Jenkins, Harold; Marinucci, Fred; Sann, Ronald; Finley, Steve; Wolff, Russell; Woodward, Jennifer
Subject: FYI -- Inside Higher Ed article on the end of the negotiations on incentive comp, gainful employment
1
News
Page 151 ol 212
It's Up to the Department Now
February 1, 2010
WASHINGTON- Months of negotiations on the U.S. Department of Education's proposed revisions to
regulations intended to guard against abuses of the federal fmancial aid program ended Friday with no
agreement on the most controversial issues under consideration.
Under federal regulatory procedures, the panel of negotiators -- representing two- and four-year nonprofit
institutions, for-profit colleges, students, consumer advocates and campus administrators -- needed to reach
consensus on the full package of 14 issues for the revisions to be adopted unchanged by the Education
Department unchanged. But the group could not strike compromises on five proposals during the third and fmal
week of negotiated rule making.
Negotiations were most hopelessly stuck on the two issues to which the panel had devoted the most time over
their months of work, and that department officials most dramatically revised: the definition of"gainful
employment" and how to maintain Congress's ban on incentive compensation for recruiters. Negotiators also
could not reach agreement on issues related to institutions' return of Title IV funds to departments and on state
authorization of an institution as a requirement for Title IV eligibility.
Without overall consensus, the department is free to revise all 14 rules as it sees fit before releasing them for a
final round of public comment. The department is likely to adopt the revisions to the nine rules on which the
panel reached "tentative agreement" unchanged or with only minor changes.
But on the five issues left unresolved, the department will have to balance its policy goals with the realities of
politics. Depending on how the department chooses to revise it, the proposed 8 percent debt-to-income ratio as
the primary definition of whether a vocational program or institution prepares its graduates for gainful
employment could garner opposition from multiple constituencies within higher education and from Congress.
On incentive compensation, the department risks being seen as attacking only the for-profits, a charge that
emerged as the Obama administration took control, and that further intensified with the realization that just four
of the 28 primary and alternate negotiators on the panel to discuss all the issues at play in this rule making
session represented for-profit institutions.
On the first day of rule making, Elaine Neely, senior vice president of regulatory affairs for Kaplan Higher
Education, tried to add two more primary negotiators to the panel, both of whom represented for-profit
institutions different in size and management from Kaplan, which is owned by the Washington Post Co.
Margaret Reiter, a former California deputy attorney general who prosecuted cases against for-profit
institutions, opposed the additions.
Throughout the rule making process, debates on issues large and small often pitted Reiter against Neely.
Though some panelists' hearts may have been with Reiter' s position seeking to leave for-profit colleges little
room to potentially skirt the regulations, their minds were swayed by Neely' s arguments.
On several issues, including gainful employment and incentive compensation, Neely was able to effectively
corral the support of panelists from nonprofit colleges by questioning the department' s statutory authority,
2
asking for specific examples of the kind of abuses t111'!9fibl}m1Htent was trying to prevent, and warning of a
"slippery slope" of regulations that might begin by targeting for-profits but expand to affect nonprofit colleges
and universities, too.
If the department opts to take on regulatory positions that would do particular damage to for-profit institutions,
it risks facing not just the wrath of the proprietary sector, but also of nonprofit institutions and associations that
have come to see the rules' weaknesses, in large part because ofNeely's persuasiveness.
The panel was also unable to reach agreement on the return of Title IV issues because of concerns about how to
calculate repayment of aid for module-based courses and issues of taking attendance. State authorization ended
up being a sticking point for Reiter, who worried about the role of accreditors.
Gainful Employment
Going into the rule making process, it was unclear what the department might do to address consumer
advocates' concerns that some programs that promised to prepare students for employment in specific fields
were actually leading graduates toward debt and jobs they could have gotten without the credentials that saddled
them with that debt.
Non-degree vocational programs at nonprofit institutions and most offerings at for-profit colleges and
universities qualify for participation in the federal financial aid program because, as the Higher Education Act
puts it, they "prepare students for gainful employment in a recognized occupation."
The regulations already in place did not define "gainful employment," and the department included no proposed
changes to those regulations, instead questioning whether the term needed to be defined. If so, the department's
initial issue paper on incentive compensation said, "what should be the relationship between tuition and fee
charges (and/or loan debt) and expected earnings?
"For programs where this relationship is not reasonable, when and how should the department no longer
consider the program to be an eligible program for title IV purposes?"
Neely, of Kaplan, saw the potential for any proposal from the department to blow up into "price controls" that
might start out targeting programs at for-profits but could start down a ''slippery slope" toward price controls
for all institutions of higher education. "This is the first step, folks, into an even bigger issue about cost and debt
load," she said, prefacing a mantra she'd use many more times in the weeks to come. "This is an issue for
Congress."
There was, during the fust round, some debate over what gainful employment might look like and whether
tuition or debt load ought to be linked to graduates' salaries. Rule making is intended to be a series of
negotiations on the principles and specific details of regulations, but without any regulations to negotiate, it was
difficult for the panel to see the true issues at play during the first round.
By the second round, in December, the department sti ll had not come forward with any proposed regulatory
language, but did bring up two potential means for defining gainful employment: a tuition-to-salary ratio and a
debt-to-salary ratio. Most of the discussion focused on the first approach and came with criticisms leveled not
just by Neely but by the alternate representing college presidents, Bob Moran, director of federal relations and
policy analysis at the American Association of State Colleges and Universities; the alternate representing
financial aid officers, Val Meyers, associate director of financial aid at Michigan State University; and the
alternate representative for business officers, Anne Gross, vice president of regulatory affairs at the National
Association of College and University Business Officers.
3
Panelists questioned the specific details of the

any definition of gainful employment was
even needed. "You can Google 'gainful employment,'" Gross said. "It's something that's been used for years
and has a fairly well-understood definition. It's been used in the Higher Education Act for 40 years without
difficulty." Neely again said she didn't think Congress had given the department the authority to regulate on the
issue and other negotiators voiced their agreement.
It seemed possible that, in the interest of consensus, the department might drop the issue of gainful employment
altogether going into the third week of negotiations, but when draft regulations were released in mid-January
ahead of the final round, they included the surprise of a new proposal capping annual debt repayments at no
more than 8 percent of a program graduate's salary. Though less controversial during the December round of
negotiations than the tuition proposal, this plan, spelled out in the clear black and white of regulatory language,
garnered substantial opposition during last week's discussions.
Again, it was not just Neely who spoke in opposition. On Monday, the primary representative for college
presidents, Terry W. Hartle, senior vice president for government and public affairs at the American Council on
Education, leveled a laundry list of concerns about the proposal, including about cost and privacy and the
potential for "unintended consequences." Todd Jones, of the Association of Independent Colleges and
Universities of Ohio, who worked in the Education Department during the second Bush administration, worried
about the potential for lawsuits.
Throughout, non-federal negotiators seemed hell-bent on getting the department to drop its proposal entirely.
Rather than suggesting workable emendations, they focused on trying to persuade department officials to
wholly eviscerate the proposal, an idea that Fred Sellers, a senior policy analyst in the Office of Postsecondary
Education, and others from the department seemed unwilling to consider.
At the same time, Reiter and the primary representative for students, Rich Williams, the U.S. Public Interest
Research Group's higher education associate, continued to push for the debt-to-income ratio to be adopted with
only minor edits. But they were unable to persuade the rest of the panel, even while sharing stories of students
whose lives had been ruined by debt accrued while working toward meaningless vocational credentials.
After mulling panelists' views for the better part of Monday and Tuesday, department officials came back to the
negotiations Wednesday morning to say they remained unwilling to drop the proposal. For two hours, panelists
voiced more concerns about the regulation and seemed far away from agreement. By the end of the day
Wednesday, it was clear the sides would not be able to find compromise on whether and how the department
ought to regulate on gainful employment.
One department official said late Wednesday that the department would never propose regulations "we don't
think we have the legal authority to do," which suggests final regulations will stil1 include the debt-to-income
ratio. The department agreed in negotiations to take on more of the work in determining graduates' incomes and
in calculating ratios, but it's unclear how that will translate into final regulatory language.
As onerous as the proposal seems and as much as Neely was able to gamer support from panelists with little
direct interest in its outcome, it may not actually get aU that much opposition from higher education as a whole
or from the general public. Within the nonprofit higher education world, most of the programs that would be
regulated by the rule are at community colleges, which are generally far less expensive than for-profits'
offerings and are often so affordable that they don't even require students to take out loans.
Incentive Compensation
During the first two rounds of negotiations, incentive compensation was the issue that got the greatest attention
from panelists and observers (many representing fmancial firms that invest in for-profit colleges) alike. After a
4
string of scandals involving for-profit colleges that
to have aggressively recruited unqualified

students, a 1992 amendment to the Higher Education Act banned financial aid-eligible colleges and universities
from paying commissions, bonuses or any other incentives to admissions and aid officers that were based in any
way on success in getting a student to enrolL
But the ban's lack of clarity on how recruiters could be compensated led to more confusion and lawsuits,
according to some critics, and resulted in the adoption of a series of 12 "safe harbors" generated in 2002 by a
negotiated rule making panel. Seeking to define the forms of compensation that were permissible, the key safe
harbor specified that employees could receive no more than two annual pay adjustments and that those
adjustments could not be "solely" based on recruiting or enrolling students.
Even with the safe harbors in place for the better part of a decade, the department was still receiving a steady
stream of complaints about aggressive recruiting practices, Carney McCullough, a senior policy analyst in the
Office ofPostsecondary Education, said during the first round of negotiations in November. The fact that
students still seemed to be aggressively pursued without regard for their interests and abilities, at for-profit and
nonprofit institutions, seemed to suggest "a lack of clear guidance still" on how recruiters could and couldn't be
paid.
Heading into the negotiations and through the fust round, the lines seemed to be drawn between Neely and the
for-profits, and everyone else.
When discussions began, one of the most vocal opponents of aggressive recruiting tactics was David Hawkins,
director of public policy at the National Association for College Admission Counseling, who argued that the
methods used by some for-profit colleges and universities reached far outside the professional code of conduct
that guided his organization. He wanted to see most, if not all, of the safe harbors eliminated, with Congress's
ban speaking largely for itself. This sentiment was echoed by Hartle, of ACE, and several other panelists.
In its first set of revisions, the department proposed eliminating all 12 safe harbors and replacing them with
nothing other than"Dear Colleague" letters, as needed, to address problems as they arose. But the department's
ali-or-nothing approach seemed to be a bit too much for most negotiators during December's round of
discussions.
Hartle said he thought Congress had not intended "to ban any form of merit-based compensation for people in
admissions and financial aid" and that without any regulatory guidance, "the language of the statute ... is
ambiguous enough that it is very hard for institutions to know what is legitimate to do and what is not
legitimate." Other panelists, too, worried about lack of guidance, and it was out of that concern that Hartle
formed a subgroup that tried to draft new regulatory language between the second and third weeks of
negotiations.
The proposal, released on Tuesday morning of the final week, permitted institutions and contractors to make no
more than two merit-based pay adjustments annually so long as they were "not based on success in securing
student enrollments on a per student basis." But adjustments could consider "performance against institutional
goals, such as total enrollment, completion or graduation, but shall be primarily based on qualitative factors as
determined by the institution."
The problem, though, was that while Hartle and his four coauthors -- Hawkins; Neely; Michale McComis, of
the Accrediting Commission of Career Schools and Colleges; and SuSan Lehr, of Florida State College at
Jacksonville --were able to draft language to which they all agreed, neither department officials nor the students
and consumer advocates had been included in the negotiations.
5
McCullough, of the department, said she and her
institutions know what merit-based

adjustments are" and don't need further regulatory guidance. "We don't need to get so prescriptive, because
that's where we get into trouble," with institutions using that language to find loopholes that essentially permit
incentive compensation.
On Tuesday afternoon, when the department produced its own draft based on the proposal that came from
Hartle's group, the substantive difference was the deletion of the draft' s definition of merit-based adjustments to
include institutional goals including total enrollment. That deletion seems to have prevented the negotiators
from reaching any kind of agreement on the issue.
McCullough said Friday morning that she thought "we the department have come a very long way" in agreeing
to merit-based adjustments of any kind. " We were happy eliminating safe harbors and repeating statutory
language" and adding no new language to the regulation.
As discussion continued Friday, it was clear that any movement toward agreement on the issue wouldn' t be
unanimous. Hartle, Hawkins, Reiter and other panelists expressed concerns with the department's language and
with proposed revisions that came from Neely.
Hartle, who had been so instrumental in getting Hawkins and Neely to agree on their sub-group's proposal, said
that, "speaking on behalf of college and university presidents, we can live with the department's language."
Other panelists, too, expressed reluctant acceptance of the plan.
But Neely came back to the table just 10 minutes before negotiations were set to end at 2 p.m. Friday with a
draft that retained all the small tweaks and loopholes that would still make it possible for for-profit institutions
to substantially compensate their recruiters based on their ability to get large numbers of students to enroll.
The department's final regulations could end up looking like the proposal that Hartle said he supported, which
at once struck the safe harbors but still permitted annual adjustments to pay.
To everyone but Neely, it began to seem acceptable.
-Jennifer Epstein
6
Woodward, Jennifer
From:
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5
Interesting article!
Page 156of212
McDade, John
Friday, November 13, 2009 9:23AM
Woodward, Jennifer
Response To: Propublica article
I am not sure if you keep up with the Student Lending Analytics blog, but it contains a lot of good information. In fact,
while I was away on November 3, 2009, they had a blog on your favorite topic- the Safe Harbor Incentive Topics.
Here is the link: http://studentlendinganalytics. typepad. com/student_lend ing_ analytics/2009/11/incentive-compensation-
and-the-forprofit-education-sector -a-history. html
Below is the text of the blog.
++++++++++++++++++++++++++++++++++
November 03,2009
As the frrst set of negotiating rulemaking sessions kicks into gear this week (Inside Higher Ed reported on the
drama surrounding who should be at the table for the negotiating sessions), I thought it would be useful to
review one of the central issues that the negreg teams will be tackling, that of incentive compensation.
Here is a bit of the history. The original incentive compensation ban in the 1992 HEA reauthorization stemmed
what became known as the Nunn Report (or the report from the Permanent Subcommittee on Investigations
ti tled "Abuses in Federal Student Aid" is Linked here) and their 1991 hearings which cast a cloud on practices in
the for-profit education sector at that time. Here is what the report written 19 years ago had to say about
admissions/recruitment practices:
"One of the most widely abused areas of those observed during the Subcommittee's investigation lies in
admissions and recruitment practices. Among these practices three stand out in terms of they adverse effects
they generate: false and/or misleading advertising; unethical and/or illegal recruitment efforts; and, falsification
of information used to satisfy GSLP (Guaranteed Student Loan Program) ability-to-benefit requirements (here
is what a recent GAO report had to say about ability-to-benefit tests circa 2009)."
As a result of this report, this incentive compensation ban found its way into the I 992 HEA reauthorization:
"The institution will not provide any commission, bonus, or other incentive payment based directly or indirectly
on success in securing enrollments or financial aid to any persons or entities engaged in any student recruiting
1
or admission activities or in making decisions

of student financial assistance, except that
this paragraph shall not apply to the recruitment of foreign students residing in foreign countries who are not
eligible to receive Federal student assistance. [HEA 487(a)(20), 20 USC 1094]."
And that is the way it remained until 2002, when twelve exceptions (some might even use the word "loopholes)
were introduced to weaken the incentive compensation ban. Here are the rules that the National Consumer Law
Center found most troubling in 2002:
a) 668.14(b)(22)(ii)(A) would exempt from the "incentive compensation" prohibition payment of ftxed
compensation (such as a fixed salary) as long as that compensation is not adjusted up or down more than
twice during any twelve month period.
This provision would for the first tiine exempt "salary" compensation from the commission ban if
adjusted no more frequently than every six months. This provision would invite schools and recruiters to
game the system. For example, they could hire recruiters, pay them salaries, and then adjust salaries
(upward or downward) depending on the numbers of students enrolled in the last six months. This merely
delays the payment of commissions and also encourages last-minute recruiting as employees approach the
six month salary adjustment period.
(b) 668.14(b)(22)(ii)(B) would exempt from the "incentive compensation" pr ohibition
compensation to recruiters based upon their r ecruitment of students who enroll only in non-Title
IV progr ams.
This provision threatens to open the door to abuses by schools luring students in to private loan products
that they cannot afford. Serious problems might also arise if students, once enrolled, are then encouraged
to sign up for title-IV programs.
(c) 668.14(b)(22)(E) would exempt from the " incentive compensation" prohibition compensation
based upon students successfully completing the educational program.
This provision does not eliminate the types of problems that have occurred in the past. Tying commission
to completion rather than enrollment will just as easily lead to abuses, particularly by schools with
inferior educational services. In these cases, a student's completion of the program is not a measure of
success and should not be considered as such for incentive compensation purposes.
In contrast with the 1980's and early 1990's, vocational schools are increasingly recruiting high school
graduates who are more likely to complete the programs even if they are dissatisfied. In many cases, they
are told they will still owe the full amount on their loans even ifthey withdraw. Unscrupulous vocational
school operators often defraud these students even though many complete the programs. They are left in
most cases without job prospects and with unmanageable student Joan debt burdens.
This provision would encourage recruiters and other school personnel to make misrepresentations to
enrolled students so that they will complete the programs. The school will then collect the tuition and the
recruiter will collect his commission. Under these circumstances, the recruiters and other employees have
a monetary incentive to make misrepresentations in order to keep dissatisfied students in school. As with
the other provisions discussed in these comments, this situation would undermine the power ofthe
incentive compensation ban and encourage fraud.
(d) 668.14(b)(22)(F) would exempt from the "incentive compensation" prohibition compensation
for " pre-enrollment" activities.
2
Allowing commissions to be paid for these bad idea. It merely encourages the same types of
aggressive and deceptive advertising practices that have caused problems n the past.
(e) 668.14(b)(22)(G) would exempt compensation to managerial or supervisory employees who do
not directly mange or supervise employees who are directly involved in recruiting.
This provision would provide an end-run around paying commissions to those directly involved in
recruitment. It would also be very difficult for the Department to enforce. In most cases, determining
whether commissions were paid to a school's managers or supervisors as opposed to employees will
require detailed investigations of the school's internal personnel structures."
Marketplace/Pro Publica have produced a two part series based on their investigations of a for-profit
institution. Here is how one recruiter described his role:
"One thing we would be told to do is call up a student who was on the fence and say, 'Alright, I've only
got one seat left. I need to know right now if you need me to save this for you, because this class is about
to get full.' Well, that wasn't true," Burke said. "We were told to lie ... recruiters also led students to believe
that course credits could be readily transferred, even to top schools such as Stanford University ... They
became more focused on numbers. You had to enroll this amount of people all the time, and it started to
become a little bit more about money," said Burke. "Not about finding the right students and helping the
right students get into the program."
As for what we can expect from the negreg sessions, the issues document on incentive compensation lists the
twelve "safe harbors" currently in place for incentive compensation (pages 7-12) and the following
commentary:
"The Department has received complaints from students and enrollment advisors about the high-pressure
sales tactics of some postsecondary institutions. Some argue that tying staff compensation to the number
of students enrolled is an inherent conflict of interest and that the safe harbors undermine the statutory
ban on incentive compensation. The Department has also heard from a number of educational institutions
that the lack of clear guidance prior to establishment of the safe harbors made it very difficult for
institutions to be confident of their compliance with the rule. Should the safe harbors be maintained,
amended, or eliminated in whole or in part from the regulations?"
Notably, the for-profit sector has one of the fourteen seats designated for non-federal negotiators. Stay tuned ...
I couldn't help but notice a few recommendations buried in the Nunn Report eighteen years ago:
On correspondence courses: "Congress should specify that proprietary school correspondence courses
should no longer be eligible to participate in federal student financial aid programs. Education by
correspondence can be a valuable method of instruction for those who are self-motivated. However, the
Subcorrunittee received overwhelming evidence that extensive abuse has occurred in these programs and
that effective regulation of correspondence courses has proved nearly impossible ... "
o Fast forward 18 years to House subcommittee hearing and written testimony from Acting
Inspector General of US Dept. of Education, Mary Mitchelson, which highlights the
challenges of on-line or distance education: "Determining what constitutes a class and class
attendance in the on-line environment is a challenge in the absence of defined class times or
delivery of instruction by instructors. The on-line environment also creates challenges for
determining whether a student has enrolled for purposes of obtaining a credential or is just
3
l
. uffi .
1
. . . PaiJe159of212 di b fF d J d d ~
comp etmg s 1c1ent on- me act1v1ty w recetve a s ursement o e era. stu ent at to use 10r
other purposes. On-line instruction typically consists of posted reading materials and
assignments, chat-room and email exchanges, and posting of completed student work. The point
at which a student progresses from on-line registration to actual on-line academic engagement or
class attendance is often not defined by institutions and is not defined by Federal regulations."
On consumer disclosures: "The Secretary of Education, through the Department's accreditation
recognition process, should require accrediting agencies to: ... develop and make public uniform
performance-based consumer protection standards, including, but not limited to, criteria on enrollments,
withdrawal rates, completion rates, placement rates, and default rates."
o In case you missed it, yesterday the Center for American Progress recommended a Consumer
Protection Agency for Education. You know what they say, the more thjngs change ...
Talk later,
YF w
Sent: Thursday, November 12, 2009 3:25PM
To: Jenkins, Harold; Wolff, Russell; Finley, Steve
Subject: FW: Propublica's defense of Apollo's reaction to the original Propublica article
So, now what do you have to say, Terry Bishop?
http://www.propublica.org/feature/university-of-phoenixs-curious-take-on-the-law-1111
The company said this view was "recently confirmed" by the 9th U.S. Circuit Court of Appeals. Claiming to
quote the "Court," Apollo said, "If academic institutions could not pay recruiters based upon their ability to
recrujt students, 'you could never have any performance criteria for that particular job.' [5]"
Here's the problem: The quote came from an oral argument-- not the court's final decision. In fact, the fmal
ruling [6] was procedural. The judge's statements did not "confirm" Apollo's views, according to Jack
Beermann, a law professor at Boston University.
"That's an inaccurate statement because if it's only one judge making a comment in argument, it certainly wasn't
confirmed by the court," he said.
Knowing the difference between what a judge says in oral argument, and what the court writes in its official
opinion, is one of the first and most fundamental lessons taught at law school, Beermann said.
"This cornmtmication may contain privileged or confidential information. If you are
not the intended recipient(s), you are hereby notified that you have received this
message in error and that any review, dissemination, distribution or copying of this
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Page 160 of 212
message is strictly prohibited. Any views or opinions presented are solely those of
the author and do not necessarily represent those of Third Point LLC or its
affiliates. If you have received this communication in error, please notify us
immediately by email, and delete the original and any copies of the message. We do not waive
confidentiality if you have received this communication in error. In the UK, this
communication is directed to those persons who are market counterparties
or intermediate customers (as defined in the rules of the Financial Services
Authority).
This is not an offer, or solicitation of any offer, to buy or sell any security,
investment or other product."
5
Woodward, Jennifer
From:
Sent:
To:
Subject:
F L:
::
Page 161 of 212
McDade, John
Thursday, October 22, 2009 1 :23 PM
Woodward, Jennifer
Article
Below is an article about the proposed Consumer Protection Agency and oversight of non-Federal student loans implying
the gap loans that the for-profits are issuing.
Talk later,
YF w
+++++++++++++++++++++++++++++++++++++++++++++++++++++++
Written by: Zeeshan Aleem
Published: 10/21/2009
http://www.aacrao.org/transcri pt/ index.cfm?fuseaction- show view&doc id- 4466
Bill to Tighten Regulations on Private Student Loans
Advocates for students are urging Democrats to have pri vate student loans issued by for- profit ~ o l l e g e s fall under the
purview of a new federal consumer protection agency currently being fashioned by Congress.
A bill, taken up by the House Financial Services Committee this week, would give the new agency, known as the Consumer
Financial Protection Agency (CFPA), authority over all forms of consumer credit, including private student loans.
A coalition of consumer groups recently wrote a letter to Committee Chairman Rep. Barney Frank (0-Mass. ) expressing
concern that t ens of millions of dollars in small loans provided to students by for-profit colleges will escape the scrutiny
of the new agency.
"A private student loan can pose the same serious risks whether Issued by a financial institution or by a school. The CFPA
should apply and enforce standards based upon the product and not the issuing institution," the groups wrote in the letter to
Frank.
The groups are specifically concerned that an exemption intended to protect smaller merchants from excessive
regulation might end up shielding for- profit colleges from being monitored for their loans.
we just want to make sure that the risky financial products that some colleges, for-profits in particular, have been making
to students are still covered by this agency, and not undercut by a well -intentioned suggestion of how to make sure that the
1
neighborhood grocer isn't unfairly and unduly impacted"
regulation, Lauren Asher, president of the Institute for

College Access & Success, told Inside Higher Ed.
Student advocates say the risks are not negligible. Private student loans lack the fixed rates, consumer protections and
flexible repayment options of federal student loans. According to the Associated Press, Corinthian Colleges, Inc., and ITT
Educational Services, Inc., noted in recent securities reports that they expected students to default on as many as half
of their small loans, based on the students' credit scores.
2
Woodward, Jennifer
From:
Sent:
To:
Subject:
Page 163 of 212
McDade, John
Monday, October 05, 2009 2:13 PM
Woodward
Follow-Up:
Included 1 long Comment (there are 3 pages of them on the website article). The lana comment is oostP.rl rioht hP.Inw
here in black tP.xt I likP hP fiiPrl complaint against UoP.
I posted some of them immediately below.
FYI - I was reading the NegReg Philadelphia Transcript yesterday night.
Please let me introduce myself. My name is Stephen G. I am currently a Doctoral of Organizational Management in Leadership
student with the University of Phoenix. I am also a 2008 University of Phoenix graduate with a Master of Business Administration
and specialization in Public Administration and a former Online Academic Counselor located at the main campus in Phoenix, AZ.
BACKGROUND HISTORY
On April 10, 2009, I resigned from my position after three years with Apollo Group, Inc. In March Of 2009, I filed an age
discrimination charge with the EEOC and the Arizona Attorney General's Office. After filing the charge, my work environment
immediately turned hostile and efforts were being made to terminate my employment. Prior to going to the EEOC. I informed my
manager that I needed a day off. I informed him via email that I was going to go to the EEOC to file a charge. Within 2 days after
filing my charge with the EEOC, I was immediately put on a performance plan.
In essence, this was a form of retaliation for going to the EEOC and filing a charge. Once I was placed on the performance plan.
I immediately informed my attorney. During this time frame, my attorney was negotiating with the University of Phoenix legal
counsel. While my attorney was negotiating the terms for a transfer to a different division. I continued to work in a hostile
environment.
I was continually harassed by my manager, James M. and senior manager, Jennifer B. The meetings were explained to me as a
requirement for the performance plan; however, I know the meetings were held as a method to make my work environment as
uncomfortable as possible in an effort to force me to resign. When I was placed on the performance plan. I was leading my team
and 3rd in the division in regards to performance numbers. How does that justify a performance plan? I was also explicitly told
not to communicate with any of my colleagues at any time regarding my performance plan or the charges I submitted to the
EEOC.
Furthermore, I later found out after I left the company that some of my colleagues were specifically told by management not to
communicate with me during or after work. If the organization found out that they were corresponding with me. they were
informed t hat they would lose their jobs. The reason for this was to prevent me from informing other colleagues of my situation
and charges to the EEOC in an attempt to beat down any support for my case. While I went to work and completed my duties, I
was told on a daily basis that my request was being considered and that I would be transferred soon. After 1 week, I still did not
receive the transfer that was promised and negotiated by my attorney and the University of Phoenix attorney.
In hindsight, (we) my attorney and I realized the delay in transfer was a stall tactic to allow my manager and senior manager to
enforce the performance plan within a two week period of time. If I did not perform according to the performance plan within
those 2 weeks, I would be terminated. As a result, I knew that the performance plan was unattainable and subjective to the
requirements of my manager and senior manager. Therefore, on the day that I was to receive the results of my performance
plan I decided to submit my resignation and leave under my own terms.
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While I was leaving the facility, I decided to stop by and speak with Vice-President Nikki M. She was unaware of my resignation;
however, she did inform me that she was aware to get me transferred. After our brief meeting, she said 1 could go home and that
I could use my vacation until the transfer was completed. When my vacation had expired, I finally heard back from the human
resources department in a conference call with the Vice-President and the HR representative. In less than 30 seconds, they
informed me that the company was going to accept my resignation and the transfer was not going to be awarded.
Since my resignation at the University of Phoenix, I have decided to make it a life long crusade for me to inform the public about
the practices of this deceptive organization. As of today, I have gone to numerous lengths in speaking out against the
organization. I have posted on similar sites such as Rip Off Report, Complaints Board, and Facebook. Shortly after creating the
Facebook account, I was informed by Facebook that my account would be terminated for violating policy. Ironically, I wrote
Facebook for an explanation and they failed to respond.
As of today, I continue to get inquiries through different emails and websites about my experiences as a student and employee
with the University of Phoenix. I intend to convince as many students and employees not to attend and/or work for Apollo Group,
Inc. and its institutions in an effort to compensate for the financial, educational , and personal damage the institution has caused
me.
Today, I have changed the minds of over 100 students and 20 to 30 potential employees from attending or working at the
organization. Based on those numbers alone, I would propose that I have eliminated about $3, 600, 000 from its revenue base.
A far cry from my humble $35, 000 a year academic counseling position. So maybe it wasn't in the best interest of Apollo Group,
Inc. to accept my resignation? Or at least, I'm going to think that way!
I'm not stopping at those numbers either. I have made this a life ambition and will continue to encourage individuals both
students and employees to become active in speaking out against the organization. My personal advice is that if you are an
employee and feel as though you have an issue, go to the EEOC, make a charge, be strong, and stand firm. If you are a student
and feel the you have been wronged, write your Legislator's and the Department of Education. If you are a potential student
gathering information, I would suggest that you attend elsewhere. GOOD LUCK.
The following is my account of the operations at Apollo Group, Inc:
HOW APOLLO GROUP, INC. OPERATES FROM AN INTERNAL VIEW
My intent with this report is to offer current or prospective students some insight to the University of Phoenix and its parent
group, Apollo Group, Inc. The bottom line with Apollo Group and its educational institutions (AXIA, University of Phoenix, and
Western International University) is the bottom line. The company's mission is to profit at the expense of those who cannot
attend elsewhere. Ask yourself, why is it so easy to get into the University of Phoenix, Axia College, or Western International
University? The answer: Apollo Group makes it easy for the student to start quickly by maintaining an open enrollment policy.
Once the student is enrolled, the company keeps the student in attendance by using sales strategies (promise of a better job),
scare tactics (collections}, unearned grades (A's), and financial hooks or gimmicks (Title IV misappropriations). These practices
generate the billions of dollars in revenue for the organization which more than 70% of that revenue comes from Tille IV funding.
As a student, I was not aware of these strategies. I began my education with the University of Phoenix by entrusting those within
the organization and believed everything I was told. When I became an employee on January 29, 2007, I was thrilled to be in a
position of helping fellow students. However, I quickly became disenchanted with the organization. Within the first 6 months of
my employment, I was witness to students receiving grades by faculty that were unearned, employees given preferential
treatment based on their religion, employees unjustly promoted to positions above colleagues with better qualifications, age
discrimination, and substandard business ethics.
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I put together the following statistics for the audience to consiaer in forming their own opinion about the intentions of Apollo
Group. As an Online Academic Counselor, I was assigned a student load of approximately 400 students. Of which, 300 to 350 of
those students would be active at any given time. During my tenure, I held a retention percentage between 60 to 65 %. On
average, the cost of tuition is $2, 000 per class taking into consideration the cost of attendance for all the institutions under the
Apollo Group umbrella. Using my highest retention percentage as a peak indicator, 65 % of 400 equals 260 active students. 260
active students paying roughly $2, 000 a class generates approximately $520, 000 in tuition for a 6 week block. The University of
Phoenix refers to classes taken in blocks with blocks being 5, 6, or 9 weeks in duration depending upon the institution. For this
illustration, I use the 6 week block which coincides with the length of graduate courses.
Using the 6 week length of time for classes results in 8.66 blocks in one academic year. Using 8.66 t imes $520, 000 equals $4,
506, 666 annual dollars from 1 online academic counselor. In my division, the Online Southeast Division had 8 academic
counseling teams during the time of my employment. Each of those teams had a minimum of 8 academic counselors resulting in
approximately 64 academic counselors; however. this number will vary from time to time due to turnover and growth factors.
Using these numbers an overall projection of annual retention revenue can be generated for the Online Southeast Division and
that figure is $288, 426, 666.
Staggering? These figures are for only 1 division. There are 8 divisions that comprise University of Phoenix Online (Southeast,
Northeast, Midwest, Mountain, Southwest. West, Military, and International). Using the dollar figures as an average from the
Online Southeast Division, the total revenue generated for all divisions with the University of Phoenix complex would exceed $2,
307, 413, 333. YES! Over 2 billion dollars and this does not include ground campus revenue. These dollars are the ONLY
concern by Apollo Group Inc. and its management.
SALES, SALES, SALES
I think the following might be of interest to many of the readers, but about a month (March, 2009) prior to resigning I attended
our division awards ceremony. During the ceremony, the Vice-President, Nikki M., of the Online Southeast Division, spoke on
the growth of student enrollments for the division. This is a subtle way of referring to the monetary growth for the company.
During the ceremony, the management team gave out awards and distributed them to enrollment, finance, and academic
counselors. [At the time of this original report, Ms. M. was still employed with the University of Phoenix; however, I now
understand that she resigned shortly after I filed my EEOC charge. She is now employed by Grand Canyon University along with
a number of other former Apollo Group employees. I find this to be a little queer!]
Prior to the ceremonies, I had decided to take note of how the ceremony broke down in regard to the award distribution. After
the awards were distributed, I calculated that approximately 100 awards were distributed. The breakdown of the award
distribution was as follows: 70% Enrollment Counselors/Managers, 20% Academic Counselors/Managers and the remaining
10% to Finance Counselors/Managers. The results of this breakdown clearly suggest that the emphasis of the Apollo Group
institutions is primarily focused on enrollment (or the proper term: sales). The reader may also find it interesting that the awards
were titled Platinum, Gold, Silver, and Bronze. As a former sales representative who attended sales conventions and award
ceremonies in the past, I felt as though I had gone back in time to a place I had been before.
THE DEPARTMENT OF EDUCATION AND THE POLITICS
Due to the enormous revenue generated by this organization, the company has become so powerful that it can manipulate
political entities. One such entity is the Department of Education. If the Department of Education decided to perform due
diligence and complete a rigorous audit of the companies accounting practices and uses of TITLE IV funding, the Department of
Education would have no other choice than to strip the organization of TITLE IV funding. In 2008, the Department of Education
could have used the organizations latest legal issue regarding rel igious discrimination (preference to Mormon's) as a basis to
eliminate TITLE IV funding; however, as usual this body of government choose to look the other way. Furthermore, the
organization continues to walk a thin line in complying with TITLE IV funding in addition to other compliance issues such as
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FERPA (Federal Education Rights Privacy Act) and DNC (Do not call) violations. Due to these ongoing compliance issues, the
Department of Education should strip the university of its accreditation and Title IV funding; however, the Department of
Education much like many of its other political counterparts choose to ignore the problem through oversight rather than
enforcement.
So why does the Department of Education stand idly by and let the organization do as it pleases? There are three reasons for
the Department of Education's a Hands Offa policy as it relates to Apollo Group, Inc and the University of Phoenix. Those
reasons are as follows: 1) The power struggle between government entities and corporate America. The financial wealth of the
organization has become so massive and powerful that it can and does influence the political institution that governs its
behavior. 2) The power of money extends to its lobbyists, shareholders, and the political influence of those shareholders. Those
pol itically influential shareholders have a self-interest in the financial well-being of Apollo Group, Inc. The list of shareholders
includes politicians as well. Thus, those individuals will use that power to prevent any financial harm to the organization because
it will impact their financial stake in the organization as well. 3) Due to the company being the largest private educational
institution, the company has the largest number of students that could be negatively impacted. If the Department of Education
decided to stop TITLE IV funding, chaos would ensue due to the mass exodus of students to other institutions. In addition, how
does the Department of Education manage the funds previously and currently distributed to existing students? Again, in the final
conclusion the Department of Education prefers to monitor the situation rather than enforce.
THE QUESTION OF ACCREDITATION
Apollo Group, Inc. educational institutions are not accredited at the same levels of other prestigious institutions for certain
disciplines such as business degrees. The university misleads students into believing that its MBA degree and other business
degrees are on PAR with other institutions such as Harvard and other prestigious educational institutions. For this practice
alone, the University should be chastised by the Department of Education for using substandard business practices in the
recruitment of its business students. This does not only apply to business students, but students in other programs such as
Nursing, Counseling, and Education. Remember, INTEL dropped their affiliation with the university for some of these reasons
and more.
Alii can say is BUYER BEWARE.
HOW TO GET OUT AFTER YOU GET IN!
# 1: Ignore your financial, academic, and enrollment counselors. These individuals are trained and coached in sales strategies to
discourage students from dropping out or transferring. Also, do not fall for the Financial Aid/Student Loan/Return to Lender scare
tactic. These are strategies used to put fear into students in order to keep them in class and not to leave the institution. [I was
forced to use this strategy with my students on a regular basis.] Another tactic is the two week break tactic. Counselor's are
trained and coached to keep students from not taking a break longer than two weeks. If a student takes a break longer than two
weeks, the student is considered a t-drop [UOPX terminology] student which affects the performance matrix of the counselors.
The performance matrix is a measure or device in which counselors are evaluated for raises. The matrix can be manipulated in
several ways and often times done so by management. The intent of the matrix is to force a sales-based, pay for performance
strategy at the university. The performance pay structure travels a thin line in being compliant with the Department of Education
requirements for paying counselors. Again, the Department of Education has turned its head away from discouraging this
practice and forcing the university to use another pay structure.
#2: Make sure your account is paid in full at the time you take your last class. DO NOT spend your financial aid money if you
know that you will be leaving the school. If you have funds on account or received an excess check, DO NOT spend these funds
either. THIS IS THE HOOK. lf you do not have the ability to pay this back at the t ime that you quit, you will not be able to obtain
financial aid at another institution or have your transcripts sent to another institution for evaluation to be admitted. If you owe
money to any institution at Apollo Group, be prepared for a tumultuous journey of leaving the institution. You will continue to be
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harassed by all your counselors and at some point the collections department.
#3: Demand an Official Withdrawal Form and make sure to get confirmation that it has been submitted to University Services by
any of your counselors. DO NOT violate any student code of conduct policy. Violating this code could prevent you from being
accepted as a potential transfer student at another institution.
#4: DO NOT let them intimidate you.
SOLUTIONS
DO NOT refer people to the institution. Prevent them from attending out of their best interest.
Trust me when I say look for other institutions. Today, many traditional schools including junior colleges offer online classes that
are convenient for all learners. In the past, Apollo Group, Inc. had a monopoly on the industry resulting in its rapid growth over
the last 20 years. In addition, beware of other similar online institutions such as Grand Canyon University, Kaplan University,
The Art Institute, and South University with the later two belonging to EDMC. EDMC current president is Todd Nelson. Mr.
Nelson is the former president of Apollo Group, Inc. I recommend googl ing Todd Nelson, University of Phoenix, and learn the
history of his administration and the legal battles incurred under his administration prior to attending or working for any institution
under the EDMC umbrella. Also, I would recommend googling Brian Mueller, University of Phoenix, and Grand Canyon
University too. Mr. Mueller replaced Mr. Nelson at Apollo Group, Inc. and recently left Apollo Group, Inc. to become the
President of Grand Canyon University.
If you want a quality education from a respectable institution. search out those institutions that were brick and mortar schools
that now have established online classes. A few examples of these types of schools to consider would be University of Texas,
University of Tennessee, and the University of Nebraska-Omaha. You may need to meet a more stringent entrance requirement
and be required to take a graduate entrance exam, but in the long-run you will definitely receive a better ROI (return on
investment) on your education and institution.
++++++++++++++++++++++++++++++++++++
ArizonaWatchDog45
Oct-04 @ 7:49 PM
Report abuse
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cr
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3
Hello Wally.
First, I would argue with you that most employees are happy at the university. The university has one of the highest turnover rates in
the industry. The recession has forced many to stay to earn a living and live with conditions still employed at the institution. I still have
several friends that work there and most of them say that they would leave but can't due to the economy. Its not the job, work
environment, or benefits that is keeping them at the school. Its the economy. Many of us will forgo our integrety and values to maintain
a living.
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Second, The university's problems are not in the past. The problems still exist today.
Third, I was like many students I counseled as an Academic Counselor. I was enamored with the possibility of getting my graduate
degree and failed to investigate the school prior to starting. Like many students, I was very successful in the dassroom which distracted
me from looking deeper into the accrediting issues of the business programs. I did not realize this until I actually became an employee;
however, by that time I was almost done with my program. I continued with the OM program simply due to financial reasons and the
tuition waiver benefit. I continued to overtook the obstacles of the accreditation. I acknowledge this was a failure on my part. However, I
have made plans to transfer to Boston Uni versity Online to finish my OM after I finish my current block of dasses. I, too. am a victim of
the Title IV strategies used by the school .
Four, I have counseled almost 900 students during my tenure at the school. I can say with great confidence that the majority of those
students will not end up in the same situation as yourself. In all honesty, the types of students that enter and complete the program
actually diminish the quality of the degree not me.
Finally, if you have to rationalize the value of your own degree that is completely your right. However, the reality is that a UOPX degree
DOES NOT stand on its own merits in comparison to an ASU degree for example. Heck, lleamed more in my Bachelor's degree
program from a small, private college in the midwest than I did in my Master's program at the University of Phoenix. I looked at the
program simply as review material.
As far as taking a positive step about the university, why should I? People like you are the reason in which our economy is in the
situation it is by allowing corporate America to run amuk. You claim that individuals need to take accountability for their education and
make it work for them. I am making the institution that provides that education to take accountablility for its actions. Until people like me
continue to take a stand, confront, and conquer those corporate evils than individuals such as yourself will continue to be puppets and
not free individuals.
+++++++++++++++++++++++++++++++++++++++++++++++
It's about time, I spent 2 years with University Of Phoenix in Arizona I did "Student Support" and Apollo Group "Corporate
Support" I always wondered when these practices would catch up to them, I'm glad someone stepped forward the other
counselors didn't care they were making money they would pawn students off on us in 'Technical Support" to do their "walk to
classes" as they were called for first start days.
Some of the people I spoke to I felt horrible for because they really shouldn't of been attending classes online they were
struggling from what a lot told me didn't have much money to begin with but were assured they would do fine in class. It was
known enrollment counselors made more depending on how many students they enrolled so they would concentrate on that and
not even how their students were doing.
Pretty much as long as they could get them approved for a student loan regardless of other requirements they were allowed to
attend classes. I stayed for 2 years before I couldn't take it any more and up and quit.
+++++++++++++++++++++++++++++++++
6
Lynnaz77
Page 169 ol 21 2
Oct-05@ 7:52AM
Report abuse
EDMC, Education Management Corp., operates the exact same way. I am amazed these schools are allow to operate this way.
I won't discount the schools serve certain demographics in terms of helping them obtain a degree, but trying to enroll as many
people as possible? Even those who don't qualify? To me that is unethical and the schools owners should be ashamed of
themselves.
At the end of the day, guess where that$ goes. To the corporate shareholders. Not back into the schools.
It will be interesting to see how this plays out.
+++++++++++++++++++++++++++++++
Also counselors had the highest roll over rate because if they did not meet enrollment quotas they would be let go, Us in IT were given
a 7 minute average handle time to get students off the phone. I spoke to students who said their enrollment counselor or academic
counselor hadn't spoken to them since they were enrolled and they didn't even take the time to explain how posting and assignments
worked.
They would call us in IT and just transfer them over to us, I had 1 actually say he wanted to go to lunch and transfered a student directly
to me for a walk to class which was not my job.
The online studies are great for some people but their are some it is great they are trying to better themselfs but they should have some
sort of trial for them to go through before enrolling to see if it is something for them because the counselors are trained to be
misleading.
+++++++++++++++++++++++++++++++
The UPX meets the same requirments as every other school , they do not enroll people that do not qualify because they would lose their
accredidation which means they would lose their business ..
With over 500,000 gradutates I am fairly sure they are not that desperate for enrollments, also the guy who claimed to work in IT has
not clue what he is saying as well becuase if we did fire you over lack of enrollments we would lose our accredidation as well ..
Now of course at a for profit university enrollments are important and as in "every" other business, those who perform the best do make
more, but it is because they perform on many levels. One of them is in the area of responisble borrowing. Unlike the rumor police who
sound smart but really are only speaking with a lack of knowledge. Traditional schools avg around 5 - 10% of students not taking out
the max when it comes to student loans, which is what leads to debt issues once they graduate, and the UPX is at 33% which kind of
debunks the whole we are trying to gouge or students notion ..
Listen we are a billion dollar company about to open campus's all over the world, we have over 600,000 students in class right now and
have had endorsements from many areas including the white house, senators, and other prestigous people. There is no way we would
be this big and successful if all we were doing was trying to hurt people, that is just stupid. Now there are over 16,000 employees and
just like companies with 10 people, there can be bad apples, but only the ignorant would think with such a limited mind ..
++++++++++++++++++++++
7
This is a crock ... attomey's seek out employees or former

what is called a 'Key Tam' case (sue the king) and
then the goverment takes the case over the conduits that sued originally (former employees) get a mil or two for their trouble.
Lets be real about this ... Education sales positions are just that 'sales' ... and sales are performance based positions. The
goverment is well aware of this and they are the ones who provide the titleV funding ... and it is their agency 'The US Dept of ED'
that allows these colleges to function!
All this madness about people going into debt...EDUCATION costs ... it is a debt! This is not Baracket Science!
If the goverment wants the 'sales' aspect out of education then they need to do it and quit 'pretending' like they don't support it.
I've been in this industry alooong time and University of Phoenix is not doing ANYTHING that EVERY OTHER private FOR
PROFIT school is doing!
If this planet wants people to make informed, solid education decisions then how about high school counselors do SOMETHING
other than just making class schedules and making sure that the top 10% of a graduating class gets to college! I'm jest saying!
I don't 'sale' education ... but I provide guidance and attempt to work for two ... the school I work for .. . and the prospective student
that I am providing guidance to. I do it ethically .. .for BOTH! (which may be why I don't make alot of money in an industry that I've
been in for years ... but the bottom line is this ... no one makes you unethical but YOU! If you can't or don't want to do the job
without crossing the line ... don't do the job!
I'm jest saying ...
++++++++++++++++++++++++++++++++++++++++++++
OHHH DANG, I read the headline incorrectly, I though it said "University of Phoenix may get close" -- I was already popping the
champagne that this embarrassment to education was finally closing ...
+++++++++++++++++++++++++++++++++++
I worked there and I hated every moment of it. It really was about the sale, not about the student... I had to get a "REG" to get
keep my job or I would have to be sent for re-training. Many of my co-workers talked about "college" but some had only a high
school degree. I made 200 calls a day to prospective students, but all I got were dead lists- who weren't interested .. or were
really dead--that's how old my lists were! Thank goodness I had a much better opportunity 6 months later --by leaving this call
center!
+++++++++++++++++++++++++++++++++++++++++++++
YF*W
Sent: Monday, October 05, 2009 2:01PM
To: McDade, John
Subject: RE: Close Ties
Awesome, thanks, F*W!! 1 did read the article, but not the comments yet. And, it was a lovely weekend. (By the way,
could you cut and paste your comments? They don't appear to be in a different font...or maybe I'm just blind .... )
From: McDade, John
Sent: Monday, October 05, 2009 1:47 PM
Subject: Close Ties
F*L:
I hope you had a good weekend, and enjoyed some of the beautiful weather.
8
Page 171 ol 21 2
I trust you probabl y already saw this article from the Arizona Republ ic.
http: I fwww. azcentral. co m/arizonare pu bl icfbusi ness/ a rticles/2009/ 1 0/04/2 0091 004biz-
universityofphoen ix1 004. html#comments
It looks like the UoP alleges that ClOSe tieS between department investigatOrS and
those involved in the whistle-blower case.
You should check out some of the comments after the article as well. I have posted one in purple text at the bottom of
this e-mail.
Talk later,
YF*W
++++++++++++++++++++++++++++++++++++++++
Recruiter lawsuit may get closure
University of Phoenix case involves pay, perks
12 commentsby Dawn Gilbertson - Oct. 4, 2009 12:00 AM
The Arizona Republic
Six years ago, two University of Phoenix enrollment counselors filed a lawsuit accusing the for-profit school of illegally rewarding
them with fat raises and prizes based on the number of students they enrolled.
The whistle-blowers are long gone. The corporate executives in charge at the time are now at different schools. But the case
continues to dog the nation's largest private university.
A costly end appears to be in sight: University of Phoenix parent Apollo Group Inc. announced Wednesday that it was in
settlement talks to resolve the litigation befor.e the scheduled March trial.
The Phoenix company did not disclose potential terms, but one Wall Street analyst estimates a settlement could run as high as
$250 million.
That is 25 times the record fine the University of Phoenix paid the U.S. Department of Education to settle similar charges in
2004.
But it is seen as a manageable price to pay to avoid a high-profile trial and the potential of a much larger payout given the size of
the school and allegations the practices have gone on for years and continue today.
A jury verdict with big damages could put a chill on for-profit schools' aggressive recruiting tactics and slow the industry's eye-
popping growth at a time when federal regulators also are increasing their scrutiny.
Patrick Burns, spokesman for the whistle-blower-advocacy group Taxpayers Against Fraud, said the University of Phoenix would
be "a fool" to go before a jury given the evidence in the case and national furor over big-business shenanigans.
"America is different than it was three or four years ago," he said. 'We want to send a message to corporate America that we
feel we have been given the shaft."
Long-running batt.le
The University of Phoenix pioneered the for-profit education industry in 1976 and has grown non-stop since, becoming a stock-
market star along the way. It domi nates the business, with 420,000 students and annual revenue approaching $4 billion. It is the
nation's largest recipient of federal financial aid by a wide margin- $3.2 billion in the 2007-08 school year.
9
Page 172 ol 212
The long-running legal battle over its compensation practices began quietly in 2003, when two enrollment counselors from the
University of Phoenix's San Jose campus filed the lawsuit in U.S. District Court in Sacramento on behalf of the federal
government.
They said the school has defrauded the government of billions of dollars of financial aid since 1997 because it pays recruiters
based on the number of students they sign up. The whistle-blowers said their pay and perks swelled when they enrolled a lot of
students.
Federal law bans schools from offering such incentives to prevent them from filling classes with unqualified students- students
who may not finish or be unable to pay off their loans.
The case was filed under seal, a common practice in whistle-blower actions. The government declined to join the case.
The University of Phoenix said it learned of the lawsuit in August 2003, by which time the allegations had sparked a U.S.
Department of Education review into its pay practices.
The school vigorously fought the charges from the start. Officials said the whistle-blowers were disgruntled former employees
trying to turn a routine regulatory matter into a federal case of fraud.
The school appeared headed for victory in 2004 when a federal judge in Sacramento dismissed the case, but the lawsuit was
reinstated two years later on appeal and has consumed both sides since.
There are more than 1 million documents on file, and the legal fees run into the multimillions. Apollo Group created an online
legal center, where it has posted updates on the case.
Two views
A review of documents shows the two sides' vastly different views of the University of Phoenix's recruiter pay practices and
perks and whether they violate the Higher Education Act and related Department of Education regulations on compensation for
schools receiving financial aid.
In the lawsuit, Julie Albertson and Mary Hendow describe a call-center culture with rich rewards for those who enroll the most
students.
The lawsuit says Albertson initially was worried about taking the job because she would make less than her previous job. She
said an enrollment manager told her she would get a big raise from her $32,000 starting salary if she enrolled 119 students in
the first eight months. She enrolled nearly 150 and saw her salary shoot to $88,000. By the end of her first year, she was up to
$90,640.
Hendow won "Sperling" trips, named after University of Phoenix founder John Sperling, to California resorts, a trip to Universal
Studios and a DVD player based on her high enrollments during specified contest periods.
One manager told enrollment counselors to "do whatever it takes to get the application," even if it meant disregarding potential
students' qualifications, the lawsuit says.
Hendow said three of four students she interviewed one day would not financially qualify, including a single mother on welfare.
Her supervisor's response, according to the lawsuit, "You're going to have to make a decision."
They said the school covered up its fraudulent practices in a number of ways, including code words for the number of
enrollments required to win a contest. Instead of saying 50 enrollments were needed, the lawsuit says a middle-aged manager
said, ''You know how old I am."
'There's clear evidence that they knew what they were doing was wrong and did it nonetheless, essentially trying to pull the wool
over the Department of Education and by extension you and me, the taxpayers who are footing the bill for a university that has
abysmally low completion rates," said San Francisco lawyer Robert Nelson, the lead attorney for the enrollment counselors. in
an interview before the settlement talks were announced.
Their attorney denied requests to interview Albertson and Hendow.
Old al legations
10
The University of Phoenix sees a case of deja vu.
Page 173 ol 212
The whistle-blowers' claims are similar to those in a 2004 report of the school's recruiting practices by the U.S. Department of
Education. It led to a $9.8 million fine, a record amount.
The University of Phoenix did not admit wrongdoing in the settlement and was critical of the harsh tone of the report. It has
alleged close ties between department investigators and those involved in
the whistle-blower case that preceded it.
In its legal filings, the company has argued that Hendow and Albertson have been gone from the University of Phoenix for more
than four years, that it has an almost entirely new management team and, significantly, that it changed its compensation plan for
enrollment counselors in mid-2004.
Under that plan, the number of enrollments accounts for 32.5 percent of a recruiter's overall performance. The balance is based
on other factors including teamwork, work habits and student retention, the school says.
The whistle-blowers say such percentages are window dressing for regulators because in practice, enrollment is the overriding
factor in a review.
A former director of enrollment who left the school less than two years ago said in a deposition that a supervisor told him the
review "is really just all about enrollment numbers and 'that was just the way it is.' "
An enrollment counselor from San Diego who was fired in 2007 says in a separate lawsuit against the University of Phoenix that
there was a lot of pressure to meet quotas. Documents in the case include a memo from his boss that says the team's budget
for the month was "48 lives."
"Some of you have reviews coming up and need January to be big. So let's do it and stop talking about it," she said in the
memo, asking them to schedule appointments with six potential new students every day.
Selling education
The University of Phoenix and other for-profit schools acknowledge that enrollment counselors' jobs are sales jobs.
In a deposition in another lawsuit, founder Sperling said he didn't have a problem with a manager's description that their main
goal is to get "butts in seats."
"They have other responsibilities as well, but their primary duty is to put butts in seats, and if they do not- if they do not reach a
particular minimum - that they are going to be discharged," he said.
University of Phoenix attorney Timothy Hatch, also interviewed before Wednesday's announcement of settlement talks, said
nothing in the law or Department of Education regulations prevents the school from adjusting salaries up or down based on
enrollments as long as they aren't based solely on the number of students enrolled.
"The University of Phoenix has never really come close to the line no matter how you define 'solely,'" he said.
Hatch said the whistle-blowers have no evidence to prove that the University of Phoenix bases recruiters' salary changes solely
on enrollment, and calls their evidence not representative of the experience of the school's several thousand enrollment
counselors.
Nelson said the only thing they have to prove is that the University of Phoenix pays recruiters "directly or indirectly" based on the
number of students they enroll .
The "solely" standard that the school says it meets by a wide margin applies only to schools that pay recruiters salaries, Nelson
said. The University of Phoenix calls enrollment counselors' pay a salary, he said, but in reality it's a commission system based
on the number of students they enroll.
'When you have compensation jumps of 100 percent, 200 percent, 300 percent over the course of a year or two, that's not a
salary adjustment," Nelson said. "They can call it whatever they want."
Reach the reporter at dawn. gilbertson@arizonarepublic .com or 602-444-8617.
11

OLE Object: Picture (Device Independent Bitmap)
ArizonaWatchDog45
Oct-04 @ 5:42 PM
Please let me introduce myself My name is Stephen G. I am currently a Doctoral of Organizational Management in Leadership
student with the University of Phoenix. I am also a 2008 University of Phoenix graduate with a Master of Business Admmistralion
and specialization in Public Administration and a former Online Academic Counselor located at the main campus in Phoenix, AZ.
BACKGROUND HISTORY
On April 10, 2009, I resigned from my position after three years with Apollo Group, Inc. In March Of 2009, I filed an age
discrimination charge with the EEOC and the Arizona Attorney General's Office. After filing the charge. my work
immediately turned hostile and efforts were being made to terminate my employment. Prior to going to the EEOC, I informed my
manager that I needed a day off. I informed him via email that I was going to go to the EEOC to file a charge. Within 2 days after
fil ing my charge with the EEOC. I was immediately put on a performance plan.
In essence, this was a form of retaliation for gomg to the EEOC and filing a charge. Once I was placed on the performance plan,
I immediately informed my attorney. During this time frame. my attorney was negotiating with the University of Phoenix legal
counsel. While my attorney was negotiating the terms for a transfer to a different division. I continued to work in a hostile
environment
I was continually harassed by my manager, James M. and senior manager. Jennifer B. The meetings were explained to me as a
requirement tor the performance plan; however, I know the meetings were held as a method to make my work environment as
uncomfortable as possible in an effort to force me to resign. When I was placed on the performance plan. I was leading my team
and 3rd in the division in regards to performance numbers. How does that justify a performance plan? I was also explicttly told
not to communicate with any of my colleagues at any time regarding my performance plan or the charges I submiited to the
EEOC.
Furthermore, I later found out after I left the company that some of my colleagues were specifically told by management not to
communicate with me during or after work. If the organization found out that they were corresponding with me, they were
informed that they would Jose their jobs. The reason for this was to prevent me from informing other colleagues of my situation
and charges to the EEOC in an attempt to beat down any support for my case. While I wen! to work and completed my duties. 1
was told on a daily basis that my request was being considered and that I would be transferred soon. After 1 week. I still did not
receive the transfer that was promised and negotiated by my attorney and the University of Phoenix attorney.
In hindsight. (we) my attorney and I realized the delay in transfer was a stall tactic to allow my manager and senior manager to
enforce the performance plan within a two week period of time. If I did not perform according to the performance plan within
those 2 weeks. I would be terminated. As a result. I knew that the performance plan was unattainable and subjective to the
requirements of my manager and senior manager. Therefore, on the day that I was to receive the results of my performance
plan I decided to submit my resignation and leave under my own terms.
While I was leaving the facility. I decided to stop by and speak with Vice-President Nikki M. She was unaware of my resignation;
however, she did inform me that she was aware to get me transferred. After our brief meeting, she said I could go home and that
I could use my vacation until the transfer was completed. When my vacation had expired, I finally heard back from the human
resources department in a conference call with the Vice-President and the HR representative. In less than 30 seconds, they
inf ormed me that the company was going to accept my resignation and the transfer was not going to be awarded.
12
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Since my resignation at the University of Phoenix, 1 have dec1ded to make it a life long crusade for me to inform the pubiic about
the practices of this deceptive organization. As of today. I have gone to numerous lengths in speaking out against the
organization. I have posted on similar sites such as Rip Off Report, Complaints Board, and Facebook. Shortly after creatmg the
Facebook account, I was informed by Facebook that my account wou:d be terminated for violating policy Ironically. I wro:e
Facebook for an explanation and they failed to respond.
As of today, I continue to get inquiries through different emails and webs1tes about my expenences as a student and employee
with the University of Phoenix I 1ntend to convince as many students and e'Tlployees not to attend and/or work for Apollo Group
Inc. and its institutions in an effort to compensate for the financial. educational and personal damage the institution has caused
me.
Today, I have changed the m1nds of over 100 students and 20 to 30 potential employees from attend1ng or working at the
organization. Based on those numbers alone, I would propose that I have eliminated about $3, 600. 000 from its revenue base.
A far cry from my humble $35, 000 a year academic counseling position. So maybe it wasn't in the best interest of Apollo Group,
Inc. to accept my resignation? Or at least, I'm going to think that way!
I'm not stopping at those numbers either. 1 have made this a life ambition and will continue to encourage individuals both
students and employees to become active in speaking out against the organization. My personal advice is that if you are an
employee ard feel as though you have an issue go to the EEOC make a charge, be strong, and stand firm. If you are a student
and feel the you have been wronged. write your Legislator's and the Department of Education If you are a potential student
gathering information, I would suggest that you attend elsewhere. GOOD LUCK.
The following is my account of the operations at Apollo Group, Inc:
HOW APOLLO GROUP, INC OPERATES FROM AN INTERNAL VIEW
My intent with this report 1s to offer current or prospective students some insight to the University of Phoenix and tts parent
group. Apollo Group, Inc. The bottom line with Apollo Group and its educational institutions (AXIA, University of Phoenix, and
Western International University) is the bottom line. The company's mission is to profit at the expense of those who cannot
attend elsewhere. Ask yourself, why is it so easy to get into the University of Phoenix Axia College, or Western International
University? The answer Apollo Group makes it easy for the student to start quickly by maintaining an open enrollment policy.
Once the student is enrolled, the company keeps the student in attendance by using sales strategies (promise of a better job),
scare tactics (collections), unearned grades (A's), and financial hooks or gimmicks (Title IV misappropriati ons). These practices
generate the billions of dollars in revenue tor the organization which more than 70% of that revenue comes from Title IV funding.
As a student. I was not aware of these strategies. I began my education w1th the University of Phoenix by entrusting those within
the organization and believed everything I was told. When I became an employee on January 29 2007, I was thrilled to be in a
position of helping fellow students. However, I quickly became disenchanted with the organization. Within the first 6 months of
my employment, I was w1tness to students receiving grades by faculty that were unearned. employees given preferential
treatment based on their religion, employees unjusily promoted to positions above colleagues with better qualifications. age
discrimination, and substandard business ethics.
I put together the follow1ng stat1stics for the audience to consider in forming their own opinion about the intentions of Apollo
Group. As an Online Academic Counselor. I was assigned a student load of approximately 400 students. Of which 300 to 350 of
those students would be active at any given t1me. During my tenure, I held a retent1on percentage between 60 to 65 % On
average, the cost of tuit1on is $2, 000 per class taking into consideration the cost of attendance for all the institutions under the
Apollo Group umbrella Us1ng my h1ghest retention percentage as a peak indicator, 65 % of 400 equals 260 active students. 260
active students paying roughly $2, 000 a class generates approximately $520, 000 in tuition for a 6 week block. The Universtty of
13
Page 176ol212
Phoenix refers to classes taken in blocks with blocks being 5. 6, or 9 weeks in duration depending upon the institution. For this
illustration. I use the 6 week block which coincides with the length of graduate courses.
Using the 6 week length of time for classes results in 8.66 blocks in one academic year. Using 8.66 times $520, 000 equals $4,
506, 666 annual dollars from 1 online academic counselor. In my division. the Online Southeast Division had 8 academic
counseling teams during the t ime of my employment Each of those teams had a minimum of 8 academic counselors resulting in
approximately 64 academic counselors: however. this number wil l vary from time to time due to turnover and growth factors.
Using these numbers an overall projection of annual retention revenue can be generated for the Online Southeast Division and
that figure is $288, 426, 666.
Staggering? These figures are for only 1 division. There are 8 divisions that comprise University of Phoenix Online (Southeast.
Northeast, Midwest, Mountain, Southwest. V\/est, Military, and International). Using the dollar figures as an average from the
Online Southeast Division, the total revenue generated for all divisions wi th the University of Phoenix complex would exceed $2,
307, 413, 333. YES! Over 2 billion dollars and this does not include ground campus revenue. These dollars are the ONLY
concern by Apollo Group Inc. and its management.
SALES. SALES, SALES
I think the following might be of interest to many of the readers, but about a month (March. 2009) prior to resigning I attended
our division awards ceremony. During the ceremony, the Vice-President, Nikki M., of the Onli ne Southeast Division, spoke on
the growth of student enroll ments for the division. This is a subtle way of referring to the monetary growth for the company
During the ceremony, the management team gave out awards and distributed them to enrollment. finance, and academic
counselors. [At the time of this origi nal report, Ms. M. was still employed witfl the University of Phoenix: however. I now
understand that she resigned shortly after I filed my EEOC charge. She is now employed by Grand Canyon University along with
a number of other former Apollo Group employees. I find this to be a little queer!]
Prior to the ceremonies, I had decided to take note of how the ceremony broke down in regard to the award distribution. After
the awards were distributed, I calculated that approximately 100 awards were distributed. The breakdown of the award
distribution was as fol lows: 70% Enrollment Counselors/Managers. 20% Academic Counselors/Managers and the remaining
10% to Finance Counselors/Managers. The results of this breakdown clearly suggest that the emphasis of the Apollo Group
institutions is primarily focused on enroll ment (or the proper term: sales) The reader may also find it interesting that the awards
were titled Platinum, Goid, Silver. and Bronze. As a former sales representative who attended sales conventions and award
ceremonies in the past, I felt as though I had gone back in time to a place I had been before.
THE DEPARTMENT OF EDUCATION AND THE POLITICS
Due to the enormous revenue generated by this organization, the company has become so powerful that it can manipulate
political entities. One such entity is the Department of Education. If the Department of Education decided to perform due
diligence and complete a rigorous audit of the companies accounting practices and uses of TITLE IV funding, the Department of
Education would have no other choice than to strip the organization of TITLE IV funding. In 2008. the Department of Education
could have used the organizations latest legal issue regarding religious discrimination (preference to Mormon's) as a basis to
eliminate TITLE IV funding: however, as usual this body of government choose to look the other way. Furthermore, the
organization continues to walk a thin line in complying with TITLE IV funding in addition to other compliance issues such as
FERPA {Federal Education Rights Privacy Act) and DNC (Do not call) violations. Due to these ongoing compliance issues. the
Department of Education should strip the university of its accreditation and Title IV funding; however, the Department of
Education much !ike many of its other political counterparts choose to ignore the problem through oversrght rather than
enforcement.
So why does the Department of Education stand idly by and let the organization do as it pleases? There are three reasons for
14
the Department of Education's a Hands Offa poltcy afffl?ENcl't
1
:ft6 Apollo Group. Inc and the Universtty of Phoentx. Those
reasons are as follows: 1} The power struggle between government entities and corporate America The financial weatth of the
organization has become so massive and powerful that it can and does influence the political institution that governs its
behavior. 2) The power of money extends to its lobbyists, shareholders, and the political influence of those shareholders. Those
political ly influential shareholders have a self-interest in the financial well-being of Apollo Group, Inc. The list of shareholders
includes politicians as well. Thus, those individuals will use that power to prevent any financial harm to the organization because
it will impact their financial stake in the organization as well. 3) Due to the company being the largest private educational
institution, the company has the largest number of students that could be negatively impacted. If the Department of Education
dectded to stop TITLE IV funding, chaos would ensue due to the mass exodus of students to other institutions In addition, how
does the Department of Education manage the funds previously and currently distributed to existing students? Again. in the final
conclusion the Department of Education prefers to monitor the situation rather than enforce.
THE QUESTION OF ACCREDITATION
Apollo Group, Inc. educational institutions are not accredited at the same levels of other prestigious institutions for certain
discipiines such as business degrees. The university misleads students into believing that its MBA degree and other bustness
degrees are on PAR with other institutions such as Harvard and other prestigious educational institutions. For this practice
alone, the University should be chastised by the Department of Education for using substandard business practices in the
recruitment of its business students. This does not only apply to business students. but students in other programs such as
Nursing, Counsel ing, and Education. Remember, INTEL dropped their affiliation with the university for some of t hese reasons
and more.
All I can say is BUYER BEWARE.
HOW TO GET OUT AFTER YOU GET IN!
# 1: Ignore your financiaL academic, and enrollment counselors. These individuals are trained and coached in sales strategies to
discourage students from dropping out or transferring. Also, do not fail for the Financial Aid/Student Loan/Return to Lender scare
tacttc. These are strategies used to put fear into students in order to keep them in class and not to leave the institution. {I was
forced to use this strategy with my students on a regular basis.] Another tactic is the two week break tactic. Counselor's are
trained and coached to keep students from not taking a break longer than two weeks. If a student takes a break longer than two
weeks. the student is considered a !-drop [UOPX terminology] student which affects the performance matrix of the counselors.
The performance matrix is a measure or device in which counselors are evaluated for raises. The matrix can be manipulated in
several ways and often times done so by management. The intent of the matrix is to force a sales-based, pay for performance
strategy at the university. The performance pay structure travels a thin line in being compliant with the Department of Education
requirements for paying counselors. Again, the Department of Education has turned its head away from discouraging this
practice and forci ng the university to use another pay structure.
#2: Make sure your account is paid in full at the time you take your fast class. DO NOT spend your financial aid money if you
know that you will be leaving the school. If you have funds on account or received an excess check. DO NOT spend these funds
either. THIS IS THE HOOK. If you do not have the ability to pay this back at the time that you quit, you will not be able to obtain
financial aid at another institution or have your transcripts sent to another institution for evaluation to be admitted. If you owe
money to any institution at Apollo Group, be prepared for a tumultuous journey of leaving the institution. You will continue to be
harassed by all your counselors and at some point the collections department.
#3: Demand an Official Withdrawal Form and make sure to get confirmation that it has been submitted to University Services by
any of your counselors. DO NOT violate any student code of conduct policy. Violating this code could prevent you from being
accepted as a potential transfer student at another institution.
15
#4: DO NOT let them intirn1date you.
Page 178 of 212
SOLUTIONS
DO NOT refer people to the mstitution. Preven: them from attending out of the1r best interest
Trust me when I say look for other instituiions. Today. many traditional scnools incudmg JUnior colleges offer online classes that
are convenient for all learners. In the past, Apollo Group, Inc. had a monopoly on the industry resulting in its rapid growth over
the last 20 years In addition, beware of other similar online institutions such as Grand Canyon University. Kaplan University,
The Art Institute, and South University with the later two belonging to EDMC. EDMC current president is Todd Nelson. Mr.
Nelson is the former president of Apollo Group, Inc. I recommend googling Todd Nelson, University of Phoenix, and learn the
history of his administration and the legal battles incurred under his administration prior to attending or working for any instituti on
under the EDMC umbrella. Also, I would recommend googling Brian Mueller. Univers1ty of Phoenix, and Grand Canyon
University too. Mr. Mueller replaced Mr. Nelson at Apollo Group, Inc and recently left Apollo Group, Inc. to become the
President of Grand Canyon University.
If you want a quality education from a respectable institution, search out those Institutions that were brick and mortar schools
that now have established online classes. A few examples of these types of schools to consider would be University of Texas.
University of Tennessee. and the University of Nebraska-Omaha. You may need to meet a more stringent entrance requirement
and be required to take a graduate entrance exam. but in the long-run you will defin1tel\' rece1ve a better ROI (return on
investment) on your education and institution.
16
Page 179of 212
Woodward, Jennifer
From: Finley, Steve
Sent:
To:
Tuesday, September 14, 2010 11 :44 AM
Woodward, Jennifer
Subject: RE: higher ed blog post on UOP study about for-profit institutions
Sent: Tuesday, September 14, 2010 11:41 AM
To: Finley, Steve
From: Finley, Steve
Nonr sponstv
To: Finley, Steve
Okay, I most certainly will. And if they just needed grunt work, why not send the interns or hire some students? It's
crazy, because I've got so many case and other deadlines-fortunately, I just finished reworking the IC regs and
comments/responses, so t hose are pretty much a done deal.
From: Finley, Steve
- - - - - - - - - - - - - - - - - ~ ---- - -------
I also wouldn't be surprised if we are asked to pitch in and help scan the comments we received on paper into the
electronic system --that is probably what you would be asked to do if you asked one of the OPE staff what you could
do.
I suggest, though, that you send an email to David Bergeron and John Kolotos ahead of time and ask what you can do to
help on Thursday. It is likely that the best use of your time will be to review the substantive GE comments and sort them
into categories for the issues they raise. I hope John and David will have more specific ideas than that.
Trace A Urdan
Managing Director
1
Mr. Urdan has covered the for-profit education

analyst for twelve years and has twice
been cited as an All-Star analyst by the Wall Street Journal. Mr. Urdan is well-known as the editor of a weekly
industry newsletter and is widely-cited as an expert on the topics of for-profit education and e-learning. He
recently testjfied before the Secretary of Education's Commission on the Future of Higher Education. Prior to
joining Signal Hill, Mr. Urdan headed education research for Robert W. Baird & Co. Before beginning his
career as an investment research analyst with DB Alex. Brown, Mr. Urdan held senior management positions
within Time Inc. and KPMG Peat Marwick.
Mr. Urdan earned his BA degree from Yale University and his MBA from Harvard Business School.
turdan@signalhil l.com
To: Finley, Steve
Subject: RE: higher ed blog post on UOP study about for-profit institUtions
From: Finley, Steve
Yep. Saw t hat when I sent the article earlier. You should just cut and paste the comment into the email when you want
to make it easy for other folks to see it.
N
1 don't have a source to cut and paste for you for that, or I would do so.
To: Finley, Steve; Siegel, Brian; Burton, Vanessa; Scaniffe, Dawn; Morelli, Denise; Mari nucci, Fred; Jenkins, Harold;
Wolff, Russell ; Sann, Ronald; Wanner, Sarah; Vamovitsky, Natasha
Cc: Yuan, Georgia
Cllck on the link and note the first comment at t he end of the piece. It is written by Trace Urdan, who has a financial
stake in Apollo.
From: Finley, Steve
Cc: Yuan, Georgia
Subject: higher ed blog post on UOP study about for-profit institutions
2
http://higheredwatch.newamerica.net/blogmain Page 181 ol 212
Guest Post: University of Phoenix Founder Forgets One Important
Stakeholder -- Students
September 14, 2010
By Craig Smith
Anyone working on Capitol Hill these days knows that the for-profit higher education industry is spending
millions of dollars on lobbying in an effort to defeat, delay or weaken the Department of Education's proposed
regulations on gainful employment. This should come as no surprise -- like bankers swarming House and
Senate offices in an effort to weaken proposed financial reforms in response to the sub-prime meltdown, for-
profit colleges are businesses lobbying to protect their main revenue stream. In this case that is federal tax
dollars in the form of federal student aid. Nor is it a surprise that the for-profit college sector is enlisting their
employees to write comments opposing the regulations or paying for high profile education summits in an effort
to change people' s minds about recent reports of fraud and abuse in their sector.
Recently, however, the University of Phoenix has ratcheted up the lobbying blitz with the help of a recent report
issued from the NEXUS Research and Policy Center. Now, as The Chronicle o(Higher Education and CNBC
have reported, this report entitled "For-Profit Colleges and Universities: America's Least Costly and Most
Efficient System of Higher Education," has raised some eyebrows. NEXUS is funded by in-kind support from
University of Phoenix's parent company the Apollo Group and grants from the John G. Sperling Foundation--
the foundation set up by the founder of the University of Phoenix and the head of the Apollo Group.
Furthermore, the report is authored by Jorge Klor de Alva, President of NEXUS and coincidentally a past-
executive of University of Phoenix and an Apollo board member.
In an effort to maintain a position of independence for the Center and avoid charges of astroturfing, Klor de
Alva tried to distance the Center and its report from current lobbying efforts around gainful employment.
According to Chronicle coverage:
Nexus sees its business as advocacy but "not lobbying," and Mr. Klor de Alva said he has no plans to
distribute the report to members of Congress, where lawmakers are continuing to hold hearings on the for-
profit sector. But that doesn't mean the report won't become another piece offodder in the debate. "1
suspect, "he said, "that it will get distributed over there. "
Well how prescient of him. Any takers on who would have sent this report to all Congressional officers? Why,
John Sperling, of course.
The report arrived in Congressional staffers' email boxes as a PowerPoint presentation along with a message
from Sperling and a sample letter members of Congress could send to Education Secretary Arne Duncan
opposing the gainful employment regulations. Says Sperling:
The attached power point has been prepared by NEXUS, a research and policy institute whose primary
focus is the for-profit sector of higher education. Given its commitment to fact based research, not special
pleading, the power point presents a rationale for the need to rethink the reforms proposed by the
Education Department and the HELP Committee using as an example the case of the University of
Phoenix, whose massive database on its operations and its academics has been made available to NEXUS
researchers.
3
It is unclear how a policy center whose only report fsllf ~ e
1
0 f blatant advocacy for the organization that funds
the center is collllDitted to "fact based research" and not "special pleading," but that is not the most outlandish
claim in the package. No, that comes in a broad finding of the report, which Sperling highlights in his letter:
Perhaps the most important finding of the case study is the fact that for-profit institutions operate at no cost
to taxpayers because the interest students pay on their federal loans plus the taxes paid by the institutions
is greater than the Pel/ Grants and all of the other state and federal subsidies received by the students and
the institutions. Further, the study shows that not only will the proposed reforms require a major increase
in Department of Education oversight staff, they will greatly lower the efficiency and raise the costs of the
institutions in the sector -- all at the expense of taxpayers.
Let's work through that. According to the Department of Education's proposed rule for Gainful Employment:
In 2009, the five largest for-profit institutions received 77 percent of their revenues from the Federal
student aid programs. This figure that does not include revenue received from certain Federal student
loans (not authorized by the Higher Education Act) that are exempted under the so-called 90/10 rule, or
other revenue derived from government sources including Federal Veterans' education benefits, Federal
job training programs, and State student financial aid programs. A recent study completed for the Florida
legislature concluded that for-profit institutions were more expensive for taxpayers on a per-student basis
due to their high prices and large subsidies.
Let' s be clear. For-profit colleges receive the vast majority of their revenue and their profit from taxpayer
money. They generate this flow by charging high tuition, which results in their students receiving a
disproportionate amount ofPell Grant money and borrowing more on average and therefore carrying higher
debt burdens. This leads to more significant interest on those loans and overall loan repayments. To argue that
this model is better because it is "revenue-neutral" for the federal government is to turn the equation on its head.
Yes, the for-profit sector pays corporate taxes which means they must budget for that expenditure. How do they
do that? By making sure they generate enough revenue and that means making sure tuitions are high enough
which means more federal student aid dollars flowing to the institution. In short, to make sure they have enough
money to pay the federal government, they have to get more money from the federal government on the front
end. I believe that is what we call a zero-sum game. But to even enter into that argument is to miss the real
point. Students.
To defend a business model of education in which it is okay for students to take on excessive loan debt (and, in
too many cases, default on those loans) while companies like Apollo make millions of dollars by arguing that it
doesn' t cost the federal government anything is ludicrous if not immoral.
The goal of our federal financial aid system is not for the federal government and business to make money with
the welfare of students-particularly low-income and minority students-as an afterthought. The fmancial aid
system envisioned in the Higher Ed Act is supposed to use the economies of scale at the federal government's
disposal to help all students get an affordable and equivalent education that will improve their economic and
social well-being. If the for-profit sector wants to convince Congress and the public that they are not the next
sub-prime mortgage crisis waiting to happen and that they are vital to the effort of strengthening our system of
higher education, perhaps they should remember that helping students succeed without unmanageable loan debt,
and not milking the federal student aid system to improve their bottom-line, is the key.
Craig Smith is the Deputy Director of Higher Education for the American Federation o[Teachers where his
primary responsibilities are field services and communications with an emphasis on political and legislative
action. Prior to joining the AFT's national staff, he was a full-time faculty member and local union president at
4
Salt Lake Community College. Craig blogs regular/'pPfJrrff?rs Faculty and College Excellence website. His
views are his own and not necessarily those of the New America Foundation.
5
Page 184 of 212
Woodward, Jennifer
From: Finley, Steve
Sent:
To:
Monday, September 13, 2010 2:13PM
Subject: RE: Nan Shepard has forwarded a page to you from NewAmerica.net
Nan didn't send it, but I read it last week. The Post is an Eight percent owner of Corninthian College. Too low to report
to FSA, but far from a small investment.
Sent: Monday, September 13, 2010 2:05PM
To: Wolff, Russell; Finley, Steve
Subject: FW: Nan Shepard has forwarded a page to you from NewAmerica.net
Did Nan send this to either of you?
l )
------------- --- - - - - - - - - - - - - - - - - ~ - -
From: webmaster@newamerica.net [mailto:webmaster@newamerica. net]
Sent: Friday, September 10, 2010 12:37 AM
Subject: Nan Shepard has forwarded a page to you from NewAmerica.net
Nan Shepard thought you would like to see this page from the
NewAmerica.net web site.
I assume you've seen this, but it so maddening I had to forward it to
someone ...
More importantly, how is Robbie? What's going on?
What the Washi ngton Post Has Not
Disclosed ...
In recent weeks, The Washington Post has come under much-
deserved criticism for using both its news and editorial pages to lobby
against regulations the Obama administration has proposed that would
strengthen the government's oversight over for-profit colleges.
In defending themselves, Post executives and editors say that the
newspaper has been fully upfront about its ties to Kaplan Inc., one of
the largest publicly-traded chains offor-profit colleges in the country.
Kaplan, in fact, accounts for about 60 percent of the newspaper
company's total revenue. As a result, any crackdown on the
proprietary school sector could be a significant blow to the newspaper's
bottom line (which would explain why Donald Graham, the Post's
chairman and CEO, has been making the rounds on Capitol Hill -- a
fact first reported by Inside Higher Ed.)
This line of defense recently received the backing from, of all people,
the newspaper's ethical cop- the ombudsman Andrew Alexander. In a
column last month entitled "From Kaplan to Buffet, Post gets it right on
transparency," Alexander defended the Post, saying that the
1
Page 185of212
newspaper "has consistently disclosed the Kaplan connection.
"I've often criticized The Post for insufficient transparency on everything
from news sources to refusing to share its ethics policies with readers,"
he wrote. "But on its commitment to disclose self-interest, praise is
deserved."
With all due respect, we at Higher Ed Watch have to disagree. The
Washington Post has not, in fact, been completely transparent about its
ties to the for-profit higher education industry. The newspaper has time
and again failed to disclose the substantial stake it has in Corinthian
Colleges, a giant for-profit higher education company that doesn't
exactly have a stellar reputation, even among those in the industry. By
all indications, Corinthian, which serves nearly 70,000 students at more
than 100 colleges in the United States and Canada, appears to be one
of the companies most in jeopardy if the administration moves forward
with its proposed "Gainful Employment" regulations because of the
substantial amount of debt its students take on.
According to data from Bloomberg, the Post owns approximately seven
million shares of Corinthian Colleges' stock, giving it about an eight
percent ownership stake in the company. The newspaper purchased
the stock in early 2008, saying that the for-profit college company
represented "an attractive business opportunity."
The Post's stock purchase came less than six months after the
California Attorney General reached a $6.5-mill ion settlement with
Corinthian over a lawsuit he had filed accusing the company of
engaging in false advertising and unlawful business practices. The
lawsuit charged Corinthian with misleading prospective students about
its schools' job placement rates and the starting salaries of their
graduates; running 11 sub-standard programs, and falsifying records
provided to the government. Corinthian did not admit to any
wrongdoing.
Since then, various media reports (including an article I wrote for the
Washington Monthly last year) have accused the company of
continuing to engage in misleading recruiting tactics. The Government
Accountability Office added fuel to the fire when it revealed last month
that it had conducted an undercover investigation in which it found
"fraudulent, deceptive, or otherwise questionable marketing practices"
at every one of the 15 for-profit schools it visited, including two of
Corinthian's Everest College campuses (in Arizona and Texas).
This is bad enough. But Corinthian has also been accused of putting
the low-income and working class students at its schools in harm's
way, by loading them up with federal and high-cost private student loan
debt that many of them are unlikely to ever be able to repay. The
following data appears to bear these concerns out:
Default Rates
Corinthian recently revealed to investors that it expects "a majority" of
its schools to have three-year default rates above 30 percent for
borrowers who went into repayment in fiscal year 2009. In other words,
the company projects that about a third of the schools' former student
who entered repayment on their federal student loans in the 2009 fiscal
year (beginning in Oct. 2008) will go into default within three years.
These high rates are all the more remarkable considering the
aggressive effort that Corinthian has been making to try to manage" its
2
Page 186 of 212
default rates. The company has been upfront about how it has been
tryi ng to push high-risk borrowers to get deferments or forbearances on
their loans, or to take advantage of the Income Based Repayment
program, so that they can't default during the three-year window when
defaults will be counted agai nst the schools by the Education
Department.
Repayment Rates
The Education Department released data this summer showing that
only 26 percent of students who left Corinthian schools in the last four
years had paid down any principal on their federal student loans as of
September 2009. In other words, about three quarters of students who
left these institutions during this period of time had not paid enough to
reduce their total loan debt by even a dollar. Under the administration's
"Gainful Employment" proposal, for-profit college programs with
repayment rates under 35 percent could be in serious danger of having
their eligibility for federal student aid revoked.
Of all of Corinthian's former students, those who attended the
company's Everest College campuses had the most trouble handling
their debt. According to the Department, 33 of the company's 86
Everest locations had repayment rates of less than 20 percent and five
had rates below 10 percent. The Everest Institute in Detroit, for
example, had a rate of just 7 percent.
Private Loan Default Rates
Corinthian Colleges has told investors that it expects nearly 60 percent
of the $150 million in sub-prime private loans it is making to students
this year will go into default. For the company, losses on these
"institutional loans are more than offset by the federal financial aid
dollars these students bring in. But for the students, defaulting on these
high-cost loans could lead to a spiral of debt that could literally ruin
their lives.
To be fair to the Washington Post, the editorial it ran last month
opposing the Obama administration's proposed Gainful Employment
rules noted that its parent company owned " Kapl an University and
other for-profit schools of higher education that, according to company
officials, could be harmed by the proposed regulations." [Emphasis
added]
But the editors didn't specifically mention Corinthian. Given the for-
profit higher education company's track record, can you blame them?
<!--break->
Click here to read more on our site
3
Page 187of212
Woodward, Jennifer
From: Finley, Steve
Sent:
To:
Tuesday, May 04,201011:59 AM
Woodward, Jennifer
Subject: RE: New Bloomberg article today: Obama Plans New Rules as For-Profit Colleges Mobilize
Apollo closed at $58.32, up 91 cents, or 1.6 percent, in New York Stock Exchange
composite trading yesterday. ITT closed at $194. 22, up $3.99, or 3.1 percent. Career
Education rose $97 cents or 3. 3 percent to $39.24.
-----Original Message-----
Sent: Tuesday, May 94, 2919 11:55 AM
To: Yuan, Georgia; Marinucci, Fred; Siegel, Brian; Wol ff, Russell; Finley, Steve; Sann,
Ronald; Wanner, Sarah
Subject: New Bloomberg article today: Obama Plans New Rules as For-Profit Colleges Mobilize
"(T]he new regulations would s hut 39e,eee students out of classes and eliminate 2,9ee
educational programs, according to a study commissioned by the Washington- based Career
College Association, which represents more t han 1,499 for-profit
colleges . The proposal would reduce opportunities for women and racial mi norities who want
to go to college, the group said.
*********************************************************************
Obama Plans New Rules as For-Profit Colleges Mobilize for Fight
291e-e5-e4 e4:e2:9e.e GMT
By John Hechinger, Daniel Golden and John Lauerman
May 4 (Bloomberg) -- The Obama Administration is gearing up
to produce tougher regulations that may reduce t he amount of
federal financial aid f lowing to for-profit colleges , cutting
the companies ' annual r evenue growth by as much as a t hird.
In response, the $29 billion industry and its supporters
including Republican Senators have enlisted top Washington
lobbyist s and are courting black and Hispanic legisl ator s to
fight t he proposed rules scheduled to be released as early as
this month. The companies draw students from low-income and
minority communities.
Feder al aid to for-profit colleges has become an issue as i t
has jumped to $26. 5 billion in 2ee9 from $4.6 billi on in 2ee9,
accordi ng to the Education Department, prompting concern that
these student s are taking on too much debt. Twelve higher -
education stocks fel l an average of 7.4 percent for t he week
1
ended April 3e, according to Bloomberg an April
28 speech by an Education Department official critical of for-
profit colleges. In the same period, the Standard & Poor's see
Index dropped 1.7 percent.
"There's an attempt to manage" for-profit colleges by the
Obama administration, Robert Wetenhall, an analyst with BMO
Capital Markets in New York, said in a telephone interview. The
education companies' influence in Washington has "radically
changed," f rom the years of the Bush administration, he said.
The tougher rules, which are expected to be released for
public comment in the next several weeks, would require ITT
Educational Services Inc . , Career Education Corp. and Apollo
Group Inc.'s University of Phoenix to show that their graduates
earn enough money to pay off their student loans. If for-profit
colleges can't meet the standard, they could lose federal
financial aid, which typically makes up three-quarters of their
revenue .
Tuition Increases
The proposed rules may disqualify for-profits from
receiving federal financial aid if their graduates must spend
more than 8 percent of their starting salaries on repaying
student loans . The regulations may slow or even halt tuition
increases at ITT, Education Management Corp., Lincoln
Educational Services, Universal Technical Institute, and Career
Education because many graduates take low-paying jobs in
criminal justice, cooking and medical office work, Trace Urdan,
an analyst at Signal Hill Capital Group in San Francisco, said
in an interview.
Education companies have increased revenue by as much as 15
percent and enrollment by 8 to 1e percent on an annual basis,
while raising tuition about 4 to 6 percent a year, Urdan said.
The new rules may slow their revenue growth by one third by
limiting their ability to raise tuition.
Pricing Power
"The days of 4 to 6 percent annual tuition price increases
are over," Urdan said. uThe new proposed rules will bring some
school's power to increase prices down to zero."
Apollo closed at $58.32, up 91 cents, or 1.6 percent, in
New York Stock Exchange composite trading yesterday. ITT closed
at $1e4.22, up $3 . e9, or 3.1 percent. Career Education rose $97
cents or 3.3 percent to $3e.24.
The Education Department plans to issue the regulations
without Congressional approval, unlike student-loan legislation
which passed in March .
"Congress has not held a single hearing on these new
enforcement mechanisms," Alexa Marrero, spokeswoman for John
Kline, the ranking Republican on the House education committee,
said in an e-mail. "No research has been offered by the
department to justify the controversial proposal."
u.s . Senator Lamar Alexander, who chairs the Senate
Republican Conference, is trying to persuade U.S. Education
Secretary Arne Duncan to reconsider the regulations, said a
Republican aide on the education committee. If that doesn't work,
Alexander, who is on the education and appropriation committees,
2
would try to kill the regulations by the
aide said.
Enrollment in for-profit colleges increased to 1.8 million
in 2ees from 673,eee in 2eee. Industry revenue will rise to
$29.2 billion this year from $9 billion in 2eee, said Jeffrey
Silber, an analyst for BMO Capital Markets in New York. The
industry has grown in part by marketing to low-income students,
including the homeless, who qualify for federal grants and loans.
Regulations' Impact
The new regulations would shut 3ee,eee students out of
classes and eliminate 2,eee educational programs, according to a
study commissioned by the Washington-based Career College
Association, which represents more than 1,4ee for-profit
colleges.
The proposal would reduce opportunities for women and
racial minorities who want to go to college, the group said.
For-profit colleges have proposed alternative regulations that
would require companies to disclose more information about
students' debt and job prospects.
The Career College Association has retained the Podesta
Group, a Washington lobbying firm headed by Anthony Podesta,
whose brother, John, was President Bill Clinton's chief of staff,
according to federal filings. Clinton will be a keynote speaker
at the association's annual meeting in June. Podesta's Paul
Brathwaite, former executive director of the Congressional Black
Caucus, is also lobbying on the association's behalf, records
show.
Phoenix Scholarships
The University of Phoenix, the largest for-profit college
in the U.S. by enrollment, awarded 25 full-tuition scholarships
worth $1.25 million in the fiscal year ended August 31 to the
Congressional Black Caucus Foundation, which selects the
recipients, Apollo spokeswoman Sara Jones said in an e-mail.
More minority students earn degrees from Phoenix than from any
other U.S. university, she said.
In March, several members of the Congressional Black Caucus
sent a letter to Duncan, saying the regulations would reduce
educational opportunity.
Regulators need more tools to oversee publicly-traded
education companies receiving increasing amounts of federal
money, Robert Shireman, deputy undersecretary of the education
department, said in a speech on April 28.
ur don't think we have the firepower that we need," he
said, according to a transcript of his remarks.
The speech was "highly negative" and was ((drawing
inappropriate and unwarranted parallels between developments in
higher education and the causes of the recent financial
crisis," Harris Miller, president of the Career College
Association wrote in an April 29 letter to Duncan.
For Related News and Information:
Stories about education: NI EDU <GO>
U.S. colleges and universities: USUV <GO>
3
Education organizations: EDOR <GO>
Stories about the Department of Education :
Page 190ol212
NI EON <GO>
--Editors: Robin D. SchatzJJonathan Kaufman
To contact the reporters on this story:
John Hechinger in Boston at +1-617-210-4614 or
jhechingen@bloomberg. net;
Daniel Golden in Boston at +1-617-210-4610 or
dlgolden@bloomberg.net ;
John Lauerman in Boston at +1-617-210-4630 or
jlauerman@bloomberg.net.
To contact the editor responsible for this story:
Jonathan Kaufman at +1-617-210-4638 or Jkaufman17@bloomberg.net .
4
Page 191 of212
Woodward, Jennifer
From: Finley, Steve
Sent:
To:
Monday, May 03, 2010 4:11 PM
Subject: RE: Did you see this WSJ article from today?
- -------- -------------- ---- -- . --
Sent: Monday, May 03, 2010 3:29 PM
To: Finley, Steve; Wolff, Russell
Subject: RE: Did you see this WSJ artide from today?
l }l }
Concerns over that proposal have upended the for-profit school industry over the past few months, with a trade
group estimating the government's early version would displace hundreds of thousands of students as their
programs lose access to federal funds.
--- -- --------- ------------------ ------ ------ --- -- ----
From: Shepard, Nan
Sent: Friday, April 30, 2010 4:17PM
Subject: Did you see this WSJ article from today?
Tenor Of For-Profit School Discussion Gets Toned Down
By Mel i ssa Korn
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--This week's sell-off in for-profit school stocks, prompted by a report of a U.S. Department of
Education official's speech, may have been overblown, some analysts say now that they have read a full transcript of the
comments.
The sector's shares fell sharply Thursday after trade Web site Inside Higher Ed reported that Robert Shireman, deputy
undersecretary for education, spoke harshly of market-funded colleges at a meeting of state school administrators and
accreditors Wednesday. The article, citing sources at the meeting, said Shireman compared the schools to Wall Street
firms whose actions helped cause the recent financial crisis. Inside Higher Ed, which didn't have a reporter at the meeting,
attempted to confirm the comments with Education Department officials, who declined comment for the article.
Shireman did make that comparison, according to a transcript of his speech, which analysts believe was relatively even-
handed and wide-ranging. He also said regulators could do a better job. Shireman devoted much of his speech, delivered
at the National Association of State Administrators and Supervisors of Private Schools meeting, to proposed changes in
rules governing all of higher education.
1
Page 192of212
The Inside Higher Ed article sparked a nearly universal sell-off in higher-education shares, but some recovered ground
Friday. Career Education Corp. (CECO), which fell more than 12% Thursday, was recently trading up 1.1% to $29.59. ITT
Educational Services Inc. (ESI), which lost 6.6% the previous day, was off a fraction in recent trading at $102.78. Apollo
Group Inc. (APOL). which fell6.1% Thursday, was up 0.4% at $57.98.
Analysts who have read both Inside Higher Ed's report and a transcript of Shireman's speech say the comments were
mostly in line with his earlier stance, which has generally accepted the role of for-profit schools in the Obama
administration's plan to increase access to higher education.
Doug Lederman, editor of Inside Higher Ed and author of the article, said the story "made pretty clear that it was based on
accounts from people in the room. There was no question that they interpreted his comments in a certain way.'' Lederman
has heard a recording of the full speech since publishing the article.
"Shireman was laying out a case for greater government regulation given increased investments in Pell Grants," Wed bush
Securities analyst Ariel Sokol said in an email message after reviewing the meeting transcript. "He seemed amenable to
forming bridges with the sector."
Shireman commended the schools for "making sure that there was capacity to be able to serve additional students" during
the recession, according to a transcript provided by Career Education Review. Shireman cited year-over-year percentage
increases in Pell grant funds for 11 publicly traded school companies, including Corinthian Colleges Inc. (COCO}, DeVry
Inc. (DV}, and American Public Education Inc. (APEI).
Most for-profit schools derive the majority of their revenue from federal student aid.
A Department of Education spokesman reiterated Shireman's comments, saying in an emailed statement: "For-profit
colleges play a critically important role in helping to ensure so many Americans have access to education and training that
can improve their job prospects and lives."
To be sure, Shireman did liken the relationship between schools and accrediting groups to that between banks and
ratings agencies, which have an "inherent conflict of interest," as the agencies are paid by the companies they are
supposed to regulate.
"Are there regulators in the room who feel like you do have the analytical firepower you need to assess what is going on
with the entities you regulate in higher education," Shireman asked. "I don't think we feel we have the firepower we need."
Lederman said the speech was "a much stronger indictment of the system of higher education accreditation than of the
sector."
Trace Urdan of Signal Hill Capital Group wrote in a note to clients, regarding the full transcript, that Shireman's "tone in
general is much less severe" toward schools specifically. "He presents as a reasonable person struggling with
accountability gaps that he perceives exist in the system."
2
Pa ge 193 ol 21 2
According to the transcript, Shireman devoted a portion of his speech to detailing the process by which the Department of
Education formulates new rules governing higher education, known as negotiated rulemaking. He stressed that there
were productive discussions on many fronts, though he said college representatives weren't particularly constructive when
it came to a measure to quantify how well the schools prepare students for "gainful employment" in a recognized
occupation.
Concerns over that proposal have upended the for-profrt school industry over the past few months, with a trade group
estimating the government's early version would displace hundreds of thousands of students as their programs lose
access to federal funds. During a question-and-answer session, Shireman said there is no fi nal proposal yet, and he is
open to suggestions to ensure the rule is fair.
-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com
3
Woodward, Jennifer
From:
Sent:
To:
Page 194 of 212
Finley, Steve
Tuesday, December 08, 2009 1:11 PM
Wolff, Russell; Woodward, Jennifer
Subject: RE: article on the proposed elimination of the incentive comp safe harbors
We will call you. Jennifer -- what number is best to reach you then?
------------ ----- ------ ---- -------
Sent: Tuesday, December 08, 2009 1:09 PM
To: Finley, Steve; Woodward, Jennifer
OK, that should work for me. I am scheduled to have a lunch break from 12:00-1:00. Should I call Carney at a particular
number? I will have my cell phone, so in the alternative, someone can call me at 703-587-7241.
From: Finley, Steve
To: Woodward, Jennifer; Wolff, Russell
SUbject: RE: article on the proposed elimination of the incentive comp safe harbors
Carney would like to have a telephone conference call with you two tomorrow during lunch if our t ime works out. We
are usually on break between 12:30 and 1:00
Sent: Tuesday, December 08, 2009 11:23 AM
Subject: RE: article on the proposed elimination of t he incentive comp safe harbors
Right. Wednesday or tomorrow or whatever it's called at lunch would be nicer than Thursday morning.
--------- . -------------- - -
To: Woodward, Jennifer; Finley, Steve
Subject: RE: article on t he proposed elimination of the incentive comp safe harbors
Urn, tomorrow would happen t o be Wednesday ...
That might work for me. I have an all-day meeting with the OIG/ FSA on parameters for OIG/ FSA activities, but if our
lunch times happen to coordinate, I' m happy to try and talk then.
- ---- - --- ----
To: Fi nley, Steve; Wolff, Russell
Sorry- I didn't mean to say I can't be there ... but at lunch t ime tomorrow would be nicer !
------ -- -----
From: Finley, Steve
1
Page 195 or 212
I will discuss this with Carney -- what about a conference call with Carney and all of us on Wednesday during lunch?
Yikes. BEFORE 9AM?
------- . - -------------
Thanks, Steve. The schedule is perfect as far as I'm concerned so hopefully it won't change. 5
- - - - - - - - ~ - - -
From: Finley, Steve
Sent: Friday, December 04, 2009 12:33 PM
Cc: Wolff, Russell
Oops. Sorry.
- -------- '"-------- --------
To: Finley, Steve
Cc: Wolff, Russell
From: Finley, Steve
Sent: Friday, December 04, 2009 11:43 AM
Cc: Sann, Ronald
FYI --here is the tentative agenda that OPE will ask the non-federal negotiators to agree to using- Note that incentive
camp would begin on Thursday morning. If this proposed agenda gets altered, Ron and I will keep you informed.
5
Monday afternoon, after the State nomination process: Issues #1, HS Diploma and #3
Misrepresentation
Tuesday: Issues #9 Verification, #5 State Authorization, #11 Retaking Coursework, and
#8 Agreements with !HE's
Wednesday: Issues #6 Gainful Employment (with George Stamas from BLS presenting), #2
ATB, and #7 Credit Hour
Thursday: 12 R2T4 Term-based Module Programs, #13 R2T4
Taking Attendance, and #14 Timeliness/Method of Disbursement
Friday morning: Issue #10 Satisfactory Progress
From: Finley, Steve
Sent: Friday, December 04, 2009 8:14AM
Subject: article on the proposed elimination of the incentive comp safe harbors
http://higheredwatch.newamerica.net/blogmain
First
By
Stephen Burd
December 3, 2009
At Higher Ed Watch, we have repeatedly called on federal policymakers to strengthen regulations that aim to
prevent unscrupulous for-profit colleges and trade schools from taking advantage of fmancially needy students.
Our calls, however, have gone largely unheeded as Congress, under both Republican and Democratic
leadership, has continued to weaken these rules. At the same time, the Department of Education has long
3
coddled the for-profit higher education sector by a blind eye to widespread allegations of
fraud and abuse at some of the nation's largest chains of proprietary schools.
But this week, the Obama administration let the sector know, in no uncertain terms, that those days are over.
On Monday, the Department of Education released preliminary regulatory proposals that aim to strengthen the
integrity of the federal student aid programs and prevent unscrupulous for-profit colleges and trade schools
from taking advantage of the low-income and working-class students they tend to enroll. A top goal for the
Obama administration is to stop these institutions from deliberately recruiting and admitting unqualified
students, who end up taking on huge amounts of debt for training from which they are unlikely to benefit.
The most significant of these preliminary proposals is one that Higher Ed Watch has long called for-- reversing
changes that the Bush administration made to the Department ofEducation's regulations enforcing a federal law
barring colleges from compensating recruiters based on their success in enrolling students.
As we have previously reported, Congress in 1992 added a provision to the Higher Education Act prohibiting
colleges from giving "any commission, bonus, or other incentive payment based directly or indirectly on
success in securing enrollments" to admissions officers. The ban on incentive compensation for college
recruiters was included as part of a broader effort by lawmakers to crack down on fly-by-night trade schools
that had been set up to reap profits from the Title IV federal student aid programs. With reports rampant that
trade schools were enrolling unqualified low-income individuals simply to get access to Title IV funds,
policymakers believed it was important to bar postsecondary-education institutions from paying recruiters on
the basis of how many students they enrolled.
A decade later, top Education Department officials with ties to the for-profit sector set out to weaken this
prohibition. In November 2002, the Department issued new regulations that created 12 "safe harbors" for
colleges that wished to provide incentive payments to their admissions employees. The agency took this action
over the objections of a negotiated rulemaking panel made up of college officials, advocates for students, and
consumer groups that had been assembled to consider the rule changes and of the two main national
organizations representing college admissions officers (see here and here).
Among other things, the revised rules allowed colleges to adjust the annual or hourly wages of recruiters up to
twice a year, as long as the adjustment was "not based solely on the number of students recruited, admitted
enrolled, or awarded financial aid" [emphasis added]; and to provide commission-based recruiting for non-Title
IV programs at institutions participating in the federal student aid programs. These exemptions clearly violate
both the spirit and the letter of the law barring commission-based compensation. The net effect of adding these
safe harbors was to allow colleges, particularly for-profit ones, to continue to engage in the type of predatory
recruiting practices that the law expressly prohibits.
In fact, in the years since the "safe harbors" were added, some of the largest publicly traded for-J;)rofit higher
education companies have been charged with engaging in misleading recruiting and admission tactics to inflate
their enrollment numbers. In 2004, for example, the Department reached a $9.8 million settlement agreement
with the University of Phoenix after the agency concluded that the largest chain of proprietary schools had
knowingly violated the incentive compensation ban. The university is now in negotiations to settle a False
Claims lawsuit over allegations by former recruiters who say they were compensated solely on their success in
enrolling students.
Under the Department of Education's new preliminary regulatory proposals, all 12 safe harbors would be
eliminated. In offering this recommendation, the Education Department clearly acknowledges that the
regulatory changes that the agency's former leaders made to the incentive compensation ban run counter to the
underlying law they are meant to enforce. "The Department believes that the specific language of the statute is
clear, and that the elimination of all of the regulatory 'safe harbors' would best serve to effectuate
Congressional intent," agency officials wrote in a preamble to the preliminary draft proposals.
The Department's leaders also recognize that the rule changes-- particularly the one allowing schools to
provide incentive compensation to recruiters as long as the payments are not based solely on their success in
enrolling students-- have opened the door to fraud and abuse. "This 'safe harbor' has led to allegations in which
an institution concedes that its compensation structure includes consideration of the number of enrolled
students, but avers that it is not solely based upon such numbers," Department officials wrote. "In some of these
instances, the substantial weight of the evidence has suggested that the other factors purportedly analyzed are
4
not truly considered, and that, in reality, the exclusively upon the number of students
enrolled.,
The preliminary draft proposals now go to a negotiated rule-making panel that the Department has convened to
help revise the regulations. The panel, which is made up of non-profit and for-profit college leaders, student
advocacy groups, and consumer watchdog groups, will debate the agency's recornrnendations and suggest
alternatives. If the group does not reach consensus on the proposals -- which seems likely in this case -- the
Department will be free to propose whatever it wishes.
Inevitably, some members of the negotiating panel will try to chip away at these proposals. We would hope, and
fully expect, the Obarna administration to stand tough --because the Department's new leaders recognize that
their job is to safeguard students from unscrupulous schools and protect the integrity of the student aid
programs, rather than continuing to coddle the for-profit higher education industry.
5
Woodward, Jennifer
From:
Sent:
To:
Page 199of212
Finley, Steve
Tuesday, December 08, 2009 1:11 PM
Wolff, Russell; Woodward, Jennifer
We will call you. Jennifer -- what number is best to reach you then?
------------ ----- ------ ---- -------
OK, that should work for me. I am scheduled to have a lunch break from 12:00-1:00. Should I call Carney at a particular
number? I will have my cell phone, so in the alternative, someone can call me at 703-587-7241.
From: Finley, Steve
SUbject: RE: article on the proposed elimination of the incentive comp safe harbors
Carney would like to have a telephone conference call with you two tomorrow during lunch if our t ime works out. We
are usually on break between 12:30 and 1:00
Subject: RE: article on the proposed elimination of t he incentive comp safe harbors
Right. Wednesday or tomorrow or whatever it's called at lunch would be nicer than Thursday morning.
--------- . -------------- - -
To: Woodward, Jennifer; Finley, Steve
Um, tomorrow would happen t o be Wednesday ...
That might work for me. I have an all-day meeting with the OIG/ FSA on parameters for OIG/ FSA activities, but if our
lunch times happen to coordinate, I' m happy to try and talk then.
- ---- - --- ----
To: Fi nley, Steve; Wolff, Russell
Sorry- I didn't mean to say I can't be there ... but at lunch t ime tomorrow would be nicer !
------ -- -----
From: Finley, Steve
1
Page 200 or 212
I will discuss this with Carney -- what about a conference call with Carney and all of us on Wednesday during lunch?
Yikes. BEFORE 9AM?
------- . - -------------
Thanks, Steve. The schedule is perfect as far as I'm concerned so hopefully it won't change.
---- - - - - ~ - - -
From: Finley, Steve
Cc: Wolff, Russell
Oops. Sorry.
- -------- '"-------- --------
To: Finley, Steve
Cc: Wolff, Russell
From: Finley, Steve
Cc: Sann, Ronald
FYI --here is the tentative agenda that OPE will ask the non-federal negotiators to agree to using- Note that incentive
camp would begin on Thursday morning. If this proposed agenda gets altered, Ron and I will keep you informed.
b 5
Monday afternoon, after the State nomination process: Issues #1, HS Diploma and #3
Misrepresentation
Tuesday: Issues #9 Verification, #5 State Authorization, #11 Retaking Coursework, and
#8 Agreements with !HE's
Wednesday: Issues #6 Gainful Employment (with George Stamas from BLS presenting), #2
ATB, and #7 Credit Hour
Thursday: 12 R2T4 Term-based Module Programs, #13 R2T4
Taking Attendance, and #14 Timeliness/Method of Disbursement
Friday morning: Issue #10 Satisfactory Progress
From: Finley, Steve
Sent: Friday, December 04, 2009 8:14AM
Subject: article on the proposed elimination of the incentive comp safe harbors
First
By
Stephen Burd
December 3, 2009
At Higher Ed Watch, we have repeatedly called on federal policymakers to strengthen regulations that aim to
prevent unscrupulous for-profit colleges and trade schools from taking advantage of fmancially needy students.
Our calls, however, have gone largely unheeded as Congress, under both Republican and Democratic
leadership, has continued to weaken these rules. At the same time, the Department of Education has long
3
coddled the for-profit higher education sector by a blind eye to widespread allegations of
fraud and abuse at some of the nation's largest chains of proprietary schools.
But this week, the Obama administration let the sector know, in no uncertain terms, that those days are over.
On Monday, the Department of Education released preliminary regulatory proposals that aim to strengthen the
integrity of the federal student aid programs and prevent unscrupulous for-profit colleges and trade schools
from taking advantage of the low-income and working-class students they tend to enroll. A top goal for the
Obama administration is to stop these institutions from deliberately recruiting and admitting unqualified
students, who end up taking on huge amounts of debt for training from which they are unlikely to benefit.
The most significant of these preliminary proposals is one that Higher Ed Watch has long called for -- reversing
changes that the Bush administration made to the Department ofEducation's regulations enforcing a federal law
barring colleges from compensating recruiters based on their success in enrolling students.
As we have previously reported, Congress in 1992 added a provision to the Higher Education Act prohibiting
colleges from giving "any commission, bonus, or other incentive payment based directly or indirectly on
success in securing enrollments" to admissions officers. The ban on incentive compensation for college
recruiters was included as part of a broader effort by lawmakers to crack down on fly-by-night trade schools
that had been set up to reap profits from the Title IV federal student aid programs. With reports rampant that
trade schools were enrolling unqualified low-income individuals simply to get access to Title IV funds,
policymakers believed it was important to bar postsecondary-education institutions from paying recruiters on
the basis of how many students they enrolled.
A decade later, top Education Department officials with ties to the for-profit sector set out to weaken this
prohibition. In November 2002, the Department issued new regulations that created 12 "safe harbors" for
colleges that wished to provide incentive payments to their admissions employees. The agency took this action
over the obj ections of a negotiated rulemaking panel made up of college officials, advocates for students, and
consumer groups that had been assembled to consider the rule changes and of the two main national
organizations representing college admissions officers (see here and here).
Among other things, the revised rules allowed colleges to adjust the annual or hourly wages of recruiters up to
twice a year, as long as the adjustment was "not based solely on the number of students recruited, admitted
enrolled, or awarded fi nancial aid" [emphasis added]; and to provide commission-based recruiting for non-Title
IV programs at institutions participating in the federal student aid programs. These exemptions clearly violate
both the spirit and the letter of the law barring commission-based compensation. The net effect of adding these
safe harbors was to allow colleges, particularly for-profit ones, to continue to engage in the type of predatory
recruiting practices that the law expressly prohibits.
In fact, in the years since the "safe harbors" were added, some of the largest publicly traded for-J;)rofit higher
education companies have been charged with engaging in misleading recruiting and admission tactics to inflate
their enrollment numbers. In 2004, for example, the Department reached a $9.8 million settlement agreement
with the University of Phoenix after the agency concluded that the largest chain of proprietary schools had
knowingly violated the incentive compensation ban. The university is now in negotiations to settle a False
Claims lawsuit over allegations by former recruiters who say they were compensated solely on their success in
enrolling students.
Under the Department of Education's new preliminary regulatory proposals, all 12 safe harbors would be
eliminated. In offering this recommendation, the Education Department clearly acknowledges that the
regulatory changes that the agency's former leaders made to the incentive compensation ban run counter to the
underlying law they are meant to enforce. "The Department believes that the specific language of the statute is
clear, and that the elimination of all of the regulatory 'safe harbors' would best serve to effectuate
Congressional intent," agency officials wrote in a preamble to the preliminary draft proposals.
The Department's leaders also recognize that the rule changes-- particularly the one allowing schools to
provide incentive compensation to recruiters as long as the payments are not based solely on their success in
enrolling students-- have opened the door to fraud and abuse. "This 'safe harbor' has led to allegations in which
an institution concedes that its compensation structure includes consideration of the number of enrolled
students, but avers that it is not solely based upon such numbers," Department officials wrote. "In some of these
instances, the substantial weight of the evidence has suggested that the other factors purportedly analyzed are
4
not truly considered, and that, in reality, the exclusively upon the number of students
enrolled.,
The preliminary draft proposals now go to a negotiated rule-making panel that the Department has convened to
help revise the regulations. The panel, which is made up of non-profit and for-profit college leaders, student
advocacy groups, and consumer watchdog groups, will debate the agency's recornrnendations and suggest
alternatives. If the group does not reach consensus on the proposals -- which seems likely in this case -- the
Department will be free to propose whatever it wishes.
Inevitably, some members of the negotiating panel will try to chip away at these proposals. We would hope, and
fully expect, the Obarna administration to stand tough --because the Department's new leaders recognize that
their job is to safeguard students from unscrupulous schools and protect the integrity of the student aid
programs, rather than continuing to coddle the for-profit higher education industry.
5
Page 204 of 212
Woodward, Jennifer
From:
Sent:
To:
Woodward, Jennifer
Thursday, October 28, 2010 2:01 PM
Dunne, Shane
Subject: RE: Department publishes final agency regulations today
- -------
Sent: Thursday, October 28, 2010 9:38 AM
To: OGC USER
Subject: Department publishes final agency regulations today
See article about our higher education program integrity regulations.
- - --------------
From: The Chronicle [mailto:daily-htrnl@chronicle.com]
Sent: Thursday, October 28, 2010 5:00AM
To: The Chronicle
- ------- ---- . - ---- ---
Subject: Academe Today: Explore Tuition Data at 3,500 Colleges With an Interactive Tool
THE CHRONI CLE OF HIGHER EDUCATION
cademe Today
Thursday October 28, 2010 Subscri be to the Chronicle!
Subscribe to this newsletter 1 Stop receiving this newsletter
Top Stories
1
Page 205 of 212
Federal Grant Aid Jumps as College Prices Go Up Again
Big gains in government grants limit the effect of rising tuition rates for some students. And whi le
sticker prices are up, average net prices are down.
Explore Tuition Data at More Than 3,500 Colleges Using Our Interactive Tool
See Additional Data and Tables on Tuition in a Chronicle Database
End of the Textbook as We Know It

- Here's the new plan: Colleges require students to pay a course-materials fee, which would be
-, .used to buy e-books for all of them.
In Final Rules, Education Dept. Makes Several Concessions to Colleges
The agency made scores of changes, including one especially welcomed by for-profits, but a final
version of the key gainful-employment rule is still pending.
Say Something: A Student Builds His Own Aluminum Guitars
Shawn Hagen, who designed the instruments at South Central College, describes how they tie in with
hi s management major.
More News
Labor Board Gives NYU Graduate Students Another Shot at Union Vote
Graduation Rates for Scholarship Athletes Hold Steady at 79%, NCAA Says
National Archives Should Improve Security and Oversight, 2 Reports Say
Experts Suggest Ways to Create a 'Transfer-Receptive Culture'
Regional Accreditors Play a Strong Role in the Push for Learning Assessments
The Ticker: News From Around the Web
College Dean in Delaware Sends List of Failing Students to All Students
California Higher-Education System Needs Drastic Reforms, Report Says
In the Mail at BYU's History Department: 2 Human Skulls
From the New Global Edition
Report Ranks Nations on Accessibility and Affordability of Higher Education
By A isha Labi
How countries fare in terms of their rankings on the two measures can vary considerably.
Tables: Comparisons Among Countries
Should Encourage Universities to Specialize, Panel Says
By Jennifer Lewington
The leader of the Higher Education Quality Council of Ontario speaks to The Chronicle
about his group's new report.
Commentary
The Dirty Business of the Undercover President
By Thomas R. Rochon
Weeding a flower bed and cleaning a shower stall aren't in the job description of a campus
chief executive, but maybe they should be.
The Chronicle Review
illiam Blake's America, 2010

Mark Edmundson
Want to read a disturbingly vivid psychological portrait of the United States today? Then
nnk to P.n11lish nrem ?.00 ve;u-. llP"n.
2
Page 206 of 212
My Arab Problem
y Moustafa Bayoumi
Muslim professor's book was chosen for a common reading list at Brooklyn College.
hat's alI the blogosphere needed to hear.
Brainstorm: The Tragic Irony of Rand Paul
Laurie Essig on American politics as the Tower of Babel.
Advice
. Chasing the Blue Fairy
'_u ' ;' By Rob Faunce
.,. It's easy to be utterly perplexed about tenure when confronted with a morass of jumbled
academic priorities and bleak occupational outlooks.
ProfHacker: On Overvaluing Office Supplies
Considering how cheap office supplies are, it' s impressive how much mental energy we devote to them.
What office-supply item do you prefer beyond all others?
From The Chronicle's Slogs
Wired Campus
What Facebook Tells Researchers About Friendship and Race
Information gathered from the Facebook profiles of college students is making sociologists reassess
how important similar racial backgrounds are in fotming friendships.
Head Count
It's Great t o Be a 'Best Buy,' Right?
Not always. And especially not if you hope to
increase tuition drastically.
Tweed
When Attending College Is a Money-
Making Proposition
A student graduates from the University of
Alabama at Tuscaloosa with $20,000 of surplus
scholarship money in his bank account. ln
lean economic times, does this happen at your
institution?
From Arts & Letters Daily
Fifty years ago a favorite language dispute
showed up in print. A reader asked Ann Landers
if it was "I couldn' t care tess," or" I could care
Jess." More
Announcements
Read a Transcript of a Live Chat on Innovations in Internationalization
Cheryl Matherly, of the University ofTulsa, and Martin Tillman, a higher-education consultant, offered
advice on how to help students explain their international experiences in ways that resonate with
employers.
Postcards: A 'Chronicle' Road Trip
Is your town a great college town? So great that The Chronicle should come check it out? A Chronicle
reporter, Lawrence Biemiller, wi ll be zigzagging across the country in November, visiting college
towns and writing a new blog called Postcards. If you have suggestions about where to visit, whom to
l()(llc un. wh:tf fn o;P.e:. nr even whP.rP. tn e:tt. nle::t se: t he:m tn nno;tr.;mis(rikhrn nide:.r.nm
3
Page 207 of 212
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4
Woodward, Jennifer
From:
Sent:
To:
Subject:
F
Page 208 of 212
McDade, John
Tuesday, September 14, 2010 3:30PM
Woodward, Jennifer
Response
Comments (displaying 10 of 10 ): http://ricochet.com/conversations/Ross-Douthat-Calls-for-a-Conservative-
Ciass-War
TraceUrdan
I would absolutely favor clearing out all the subsidies but feel obliged to resist the populist rhetoric. Let's
eliminate subsidies because the government is bad at directing economic activity and that way we can reduce the
burden on all taxpayers regardless of their socio"\economic class. And while we're at it, why not advocate for
simplifying the tax code altogether? But let's not turn it into a debate about which party is better equipped to
redistribute wealth.
TraceUrdan
tabula r asa: I worked for 25 years for a large corporation. Corporations, with some exceptions, are primarily
interested in next quarter's earning report and not in the long-term health of the markets in which they operate.
When subsidies are available, they take them because it's in the short-term benefit to do so. Jul12 at 12:o1pm
Be careful with those rocks. More than likely at least one side of your house is made of glass.
Yes corporations "work the system" but that is their responsibility to shareholders -- not to make political
statements. I wonder tabula if you eschew tax deductions with which you disagree.
As for the quarterly earnings rag -- corporations respond to the interests of shareholders who respond to the
interests of their investors. When you choose a mutual fund based on its two-year or five-year record rather t han its
to-year or 20-year record, you too are complicit in the evil "short-tennism" of corporate America.
1
l trust you did read today's Inside Higher Ed article about the for-profit schools:
http://www.insidehighered.com/news/201 0/09/13/comments.
Talk later,
YF w
------------- --------
To: Finley, Steve; Siegel, Brian; Burton, Vanessa; Scaniffe, Dawn; Morelli, Denise; Marinucci, Fred; Jenkins, Harold;
Wolff, Russell; Sann, Ronald; Wanner, Sarah; Varnovitsky, Natasha
Cc: Yuan, Georgia
Click on the link and note the first comment at the end of the piece.
-------- ---------------
From: Finley, Steve
Cc: Yuan, Georgia
Subject: higher ed blog post on UOP study about for-profit institutions
Guest Post: University of Phoenix Founder Forgets One Important
Stakeholder -- Students
September 14, 2010
By Craig Smith
Anyone working on Capitol Hill these days knows that the for-profit higher education industry is spending
millions of doUars on lobbying in an effort to defeat, delay or weaken the Department of Education's proposed
regulations on gainful employment. This should come as no surprise -- like bankers swarming House and
Senate offices in an effort to weaken proposed financial reforms in response to the sub-prime meltdown, for-
profit colleges are businesses lobbying to protect their main revenue stream. In this case that is federal tax
dollars in the form of federal student aid. Nor is it a surprise that the for-profit college sector is enlisting their
employees to write comments opposing the regulations or gaying for high profile education summits in an effort
to change people's minds about recent reports of fraud and abuse in their sector.
2
Recently, however, the University of Phoenix has the lobbying blitz with the help of a recent report
issued from the NEXUS Research and Policy Center. Now, as The Chronicle o[Higher Education and CNBC
have reported, this report entitled "For-Profit Colleges and Universities: America
1
S Least Costly and Most
Efficient System of Higher Education," has raised some eyebrows. NEXUS is funded by in-kind support from
University of Phoenix's parent company the Apollo Group and grants from the John G. Sperling Foundation--
the foundation set up by the founder of the University of Phoenix and the head of the Apollo Group.
Furthennore, the report is authored by Jorge Klor de Alva, President of NEXUS and coincidentally a past-
executive of University of Phoenix and an Apollo board member.
In an effort to maintain a position of independence for the Center and avoid charges of astroturfmg, Klor de
Alva tried to distance the Center and its report from current lobbying efforts around gainful employment.
According to Chronicle coverage:
Nexus sees its business as advocacy but "not lobbying," and Mr. Klor de Alva said he has no plans to
distribute the report to members ofCongress, where lawmakers are continuing to hold hearings on the for-
profit sector. But that doesn't mean the report won't become another piece of fodder in the debate. "!
suspect," he said, "that it will get distributed over there. "
Well how prescient of him. Any takers on who would have sent this report to all Congressional officers? Why,
John Sperling, of course.
The report arrived in Congressional staffers' email boxes as a PowerPoint presentation along with a message
from Sperling and a sample letter members of Congress could send to Education Secretary Arne Duncan
opposing the gainful employment regulations. Says Sperling:
The attached power point has been prepared by NEXUS, a research and policy institute whose primary
focus is the for-profit sector of higher education. Given its commitment to fact based research, not special
pleading, the power point presents a rationale for the need to rethink the reforms proposed by the
Education Department and the HELP Committee using as an example the case of the University of
Phoenix, whose massive database on its operations and its academics has been made available to NEXUS
researchers.
It is unclear how a policy center whose only report is a piece of blatant advocacy for the organization that funds
the center is committed to "fact based research" and not "special pleading," but that is not the most outlandish
claim in the package. No, that comes in a broad fmding of the report, which Sperling highlights in his letter:
Perhaps the most important finding of the case study is the fact that for-profit institutions operate at no cost
to taxpayers because the interest students pay on their federal loans plus the taxes paid by the institutions
is greater than the Pel! Grants and all of the other state and federal subsidies received by the students and
the institutions. Further, the study shows that not only will the proposed reforms require a major increase
in Department of Education oversight staff, they will greatly lower the efficiency and raise the costs of the
institutions in the sector-- all at the expense of taxpayers.
Let' s work through that. According to the Department of Education's proposed rule for Gainful Employment:
In 2009. the five largest/or-profit institutions received 77 percent of their revenues from the Federal
student aid programs. This figure that does not include revenue received from certain Federal student
loans (not authorized by the Higher Education Act) that are exempted under the so-called 90/10 rule, or
other revenue derived from government sources including Federal Veterans' education benefits, Federal
job training programs, and State student financial aid programs. A recent study completed for the Florida
3
I
. I t [ d d h fi ,r, . . . Page 21 1 of 212 fi d b .
egzs a ure cone u e t at or-pro
1
llznstztutzons were more expenstve or taxpayers on a per-stu ent aszs
due to their high prices and large subsidies.
Let's be clear. For-profit colleges receive the vast majority of their revenue and their profit from taxpayer
money. They generate this flow by charging high tuition, which results in their students receiving a
disproportionate amount of Pell Grant money and borrowing more on average and therefore carrying higher
debt burdens. This leads to more significant interest on those loans and overall loan repayments. To argue that
this model is better because it is "revenue-neutral" for the federal government is to turn the equation on its head.
Yes, the for-profit sector pays corporate taxes which means they must budget for that expenditure. How do they
do that? By making sure they generate enough revenue and that means making sure tuitions are high enough
which means more federal student aid dollars flowing to the institution. In short, to make sure they have enough
money to pay the federal govenunent, they have to get more money from the federal government on the front
end. I believe that is what we call a zero-sum game. But to even enter into that argument is to miss the real
point. Students.
To defend a business model of edll;cation in which it is okay for students to take on excessive loan debt (and, in
too many cases, default on those loans) while companies like Apollo make millions of dollars by arguing that it
doesn't cost the federal government anything is ludicrous if not immoral.
The goal of our federal financial aid system is not for the federal government and business to make money with
the welfare of students-particularly low-income and minority students-as an afterthought. The financial aid
system envisioned in the Higher Ed Act is supposed to use the economies of scale at the federal government's
disposal to help all students get an affordable and equivalent education that will improve their economic and
social well-being. [fthe for-profit sector wants to convince Congress and the public that they are not the next
sub-prime mortgage crisis waiting to happen and that they are vital to the effort of strengthening our system of
higher education, perhaps they should remember that helping students succeed without unmanageable loan debt,
and not milking the federal student aid system to improve their bottom-line, is the key.
Craig Smith is the Deputy Director of Higher Education for the American Federation of Teachers where his
primary responsibilities are field services and communications with an emphasis on political and legislative
action. Prior to joining the AFT's national staff, he was a full-time faculty member and local union president at
Salt Lake Community College. Craig blogs regularly on AFT's Faculty and College Excellence website. His
views are his own and not necessarily those of the New America Foundation.
4
Page 212 of 212
Woodward, Jennifer
From:
Sent:
FemandezRosario, Martina
Thursday, October 14, 2010 11 :18 AM
To: Green, Marla; Toney, Dyon; Hillard, Dale; Clark, Marcia
Cc:
Subject:
Gamer, Sharon; Palumbo, Gayle; Taylor, Nancy; Wittman, Donna; Woodward, Jennifer
RE: Apollo stocks decline
- ----Original Message-----
From: Green, Marla
Sent: Thursday, October 14, 2010 7:55AM
To: Green, Marla; Toney, Dyon; Fernandez-Rosario, Martina; Hillard, Dale; Garner, Sharon;
Palumbo, Gayle; Taylor, Nancy; Wittman, Donna
Subject: RE: Apollo stocks decline
The article also disclosed that the stocks decline for Corinthian Colleges (COCO_,which
operates Everest colleges, lost 15.8%. Kaplan's parent Washington Post (WPO_) fel l 6.4% and
Career Education(CECO_) fell 17.7%.
-----original Message----
From: Green, Marla
Sent: Thursday, October 14, 2010 10:44 AM
To: Toney, Dyon; Fernandez-Rosario, Martina; Hillard, Dale; Garner, Sharon; Palumbo, Gayle;
Taylor, Nancy; Wittman, Donna
Subject: RE: Apollo stocks decline
Interesting article on the decline of Apollo Stock and the note about 90/10 failure by 2012.
http://www.thestreet.com/story/10888850/1/apollooutlook-weighs-on-school-
stocks.html?cm ven=GOOGLEN
1

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and become a certified teacher in New

bore far less

. Tips for Graduate Students

the court's final decision. ln fact, the final

of the post-secondary educational institutions near

make it favorable to faculty," Patton said. "I

about it. Whether that involves a public

ownership, the acquisitions, in reality, create

most public and private universities.

to have aggressively recruited unqualified

institutions know what merit-based

regulation, Lauren Asher, president of the Institute for

End of the Textbook as We Know It

illiam Blake's America, 2010

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