Center for American Progress

RELEASE: Higher Education Oversight—Including of For-Profit Colleges—Needs Refocusing on Fraud, New CAP Report Concludes
Press Release

RELEASE: Higher Education Oversight—Including of For-Profit Colleges—Needs Refocusing on Fraud, New CAP Report Concludes

Washington, D.C. — A new investigation from the Center for American Progress finds that the first line of defense in monitoring colleges for fraud is in need of significant retooling. The report, “Looking in All the Wrong Places,” presents the first behind-the-scenes view of crucial oversight structures that are supposed to assist the U.S. Department of Education in identifying problems with institutions of higher education that receive federal financial aid. Used effectively, they provide the department with strong and flexible authority. In practice, however, the oversight system often focuses exclusively on one set of issues—proper accounting of federal dollars—at the expense of bigger-picture questions related to the behaviors and practices of colleges. The report highlights the fact that if these challenges are not addressed, they will hinder the department’s ability to get the information it needs for meaningful oversight work.

“Colleges must operate with integrity in their dealings with students. Thousands of students from Corinthian Colleges’ network of institutions have experienced—in devastating fashion—what occurs when that doesn’t happen,” said Elizabeth Baylor, Director of Postsecondary Education at CAP. “This investigation makes clear that the Department of Education’s oversight process must be overhauled so that it is better equipped to detect problems early and to eliminate the costly fraud associated with aggressive and misleading dealings by some institutions.”

“The current system is of little or no use in capturing evidence about the types of abuses by for-profit colleges, such as the honesty and fairness of their marketing or student loan practices,” said Bob Shireman, senior fellow at the Century Foundation. “Instead, the thousands of audits and inquiries conducted each year are almost completely focused on minor bookkeeping issues.”

The CAP report looks at two main types of oversight tools: audits and program reviews. Audits are documents that colleges are supposed to submit each year showing independent reviews of both their finances and compliance with federal aid rules. Program reviews, meanwhile, are conducted by Department of Education staff to identify problems with federal aid use. Both are jumping off points for more detailed oversight work.

The CAP report draws on more than 6,000 pages of previously unreleased audit documents obtained through a Freedom of Information Act request and dozens of program reviews that are available on the Department of Education’s Federal Student Aid, or FSA, website. The report provides a close look at how these processes operate, what they tend to find, and how they might be improved. Particularly in the wake of the collapse of Corinthian Colleges, the report looks at what audits and program reviews did or did not identify in relation to the important actions the department ultimately took to shut down the college.

CAP’s investigation revealed that existing audits and program reviews focus almost exclusively on bookkeeping questions, and as a result, this system is geared toward identifying a specific type of problem—following complex federal aid awarding rules incorrectly—and fails to also capture concerns about the honesty and fairness of a college’s marketing, enrollment, and institutional lending practices. Two examples capture this problem:

  • One audit showed that the Perkins loan default rate at the Art Institute in Phoenix, Arizona—owned by the Education Management Corporation—was 44 percent. The reason listed for the high default rate, according to the audit, was that the “default management plan has not resulted in a sufficient number of students repaying their loans to decrease the default rate.” However, a 2012 U.S. Senate Committee on Health, Education, Labor and Pensions investigation found that the EDMC’s default management plan was focused on moving students into forbearance and deferment, not repayment.
  • Similarly, a program review found that Everest College in Phoenix—owned by now-defunct Corinthian Colleges—overcharged students on tuition because it did not inform them of price increases. This problem showed up in 2 files out of 30 sampled. Corinthian’s response to the Department of Education was to say that their policy was to post a general message about tuition increases to an internal school message board; the company asserted that this satisfied the requirement to provide individual notification. Rather than see how many people were affected by this concerning practice, the Department of Education resolved the finding, focusing only on the students affected in the sample. It appears that no other action was taken.

The takeaway from this investigation is that the audits sent to the department and program reviews need to be restructured to provide the information needed for better oversight work and to protect taxpayers and students from the next Corinthian-style collapse. This is particularly important to assist the department’s recently established Student Aid Enforcement Unit, which is building capacity to quickly respond to instances of predatory institutional activity. For the department’s own program reviews, CAP recommends that the Department of Education:

    • Make program reviews about performance, not compliance
    • Consider where oversight fits relative to other FSA functions
    • Establish special teams that monitor advertising and recruiting
    • Reward staff for identifying misrepresentation and other non-dollar-based findings
    • Devote greater staff time and training to reviews
    • Align the scope of the reviews with the problems that trigger the reviews
    • Make information sharing between program reviewers and other investigative entities permanent
    • Restore the independence of the program review process

For non-federal audits, CAP recommends that the Department of Education:

    • Require auditors to certify that there are no problems with bigger-picture issues
    • Require backup documentation for key elements
    • Increase the capacity of the U.S. Office of the Inspector General to review audits
    • Require online publication of all audits
    • Update the non-federal audit guide

Click here to read “Looking in All the Wrong Places: How the Monitoring of Colleges Misses What Matters Most” by Robert Shireman, Elizabeth Baylor, and Ben Miller.

Click here for an interactive with downloadable copies of the audit documents and program reviews.