Home > 2011 > Students > Congressional Democrat Probes For-Profit Colleges

Congressional Democrat Probes For-Profit Colleges

Advertiser Disclosure Comments 0 Comments

A leading Democrat in Congress opened an investigation this week into executive pay at for-profit colleges and universities, hoping to raise the question of whether high salaries for leaders of some of the nation’s largest for-profit schools are linked to students’ academic success.

The other question: Whether American taxpayers are paying too much for lackluster performance. Elijah Cummings (D – MD), the ranking Democrat on the House Oversight Committee, sent letters to 13 private higher education companies. At each institution, the majority of the schools’ revenues come from the federal government, either in the form of grants or loans.

[Read more stories on student loans]

The investigation is “an effort to determine whether your salary, bonuses, and other compensation are appropriately tied to the performance of the students you educate, the vast majority of which pay for their education with federal tax dollars,” according to a letter Cummings sent to John G. Sperling, founder and chairman of Apollo Group, Inc., which operates the University of Phoenix.

The university operates dozens of campuses around the country, and offers classes to more students online. Most of its revenue—88 percent—comes from federal funds, including Title IV grants and loans, Title X tuition assistance, and money from the Veterans Administration, according to Cummings’ letter.

Of that money, Sperling personally took in $6.5 million in compensation last year between salary, stock options and bonuses. Meanwhile, over 20 percent of the company’s students default on their loans, according to Cummings’ office.

“Congress has a responsibility to ensure that taxpayer funds are being used first and foremost for the benefit of students, not to line the pockets of corporate executives,” Cummings said in a prepared statement.

[Resource: Get your free Credit Report Card]

The other for-profit universities questioned by Cummings have similar rates of executive compensation and student failure. The CEO of ITT Education Services made $6.7 million in 2010 while over a quarter of its students defaulted on their loans. Over 36 percent of students at Corinthian Colleges defaulted, even as Jack D. Massimino, the company’s chairman, earned $3 million.

Cummings’ investigation follows up on a study published last August by the Government Accountability Office, which found that recruiters at 15 large for-profit universities made deceptive statements to undercover investigators to try to encourage prospective students to enroll, and to help new students qualify for federal aid. Four of the companies engaged in fraud, the report found.

Some for-profit colleges were so hungry for new students that they bombarded the undercover agents with phone calls until 11 p.m. After expressing interest in attending a private university, one agent received over 180 recruiting calls in a month.

“Admissions staff used other deceptive practices, such as pressuring applicants to sign a contract for enrollment before allowing them to speak to a financial advisor about program cost and financing options,” according to the GAO report.

In addition to Apollo Group, Inc., ITT and Corinthian, Cummings also sent letters to: Education Management Corp., Bridgepoint Education Inc., Capella Education Co., Universal Technical Institute Inc., Grand Canyon Education Inc., Career Education Corp., Kaplan Inc., Lincoln Educational Services Corp. and Strayer Education Inc. He requested responses by Dec. 23.

[Featured Product: Monitor your Credit Reports and Scores]

Image: Will Pate, via Flickr.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.