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United States Senate HEALTH, EDUCATION, LABOR AND PENSIONS COMMITTEE Tom Harkin, Chairman Benefitting Whom? For-Profit Education Companies and the Growth of Military Educational Benefits December 8, 2010 Contents Executive Summary......................................................................................................................Page 1 Introduction...................................................................................................................................Page 3 Available Benefits..........................................................................................................................Page 4 Why are Military Families and Veteran’s Important to For-Profit Companies.....................Page 7 Marketing and Recruiting............................................................................................................Page 8 Rapidly Increasing Benefits.........................................................................................................Page 9 For-Profit Schools are Higher Cost...........................................................................................Page 11 A Close-Up Look at Increasing Military Funds at Three For-Profit Education Companies..... Page 13 Conclusion...................................................................................................................................Page 16 Appendix I: Methodology..........................................................................................................Page 18 Appendix II: Post-9/11 GI Bill First Year Funds Received by 30 For-Profit Schools (August 2009-July 2010).............................................................................................................Page 19 Appendix III: Military Educational Benefits Received by 30 For-Profit Education Companies (2006-2010)...................................................................................................................................Page 21 Executive Summary: • Educational benefits provided to service members and veterans increase the readiness and efficiency of our armed forces, aid veterans in adjusting to civilian life, and increase their opportunity to obtain well-paid and rewarding employment. With passage of the Post-9/11 GI Bill on June 30, 2008, and expansion of existing education programs through the Department of Defense, Congress and the country committed to provide this generation of Iraq and Afghanistan veterans the same opportunity to access or advance through the middle class as previous generations receiving GI bill benefits. • Serious questions have emerged about the share of the military educational benefit pool going to forprofit schools with questionable outcomes. Congress may have unintentionally subjected this new generation of veterans to the worst excesses of the for-profit industry: manipulative and misleading marketing campaigns, educational programs far more expensive than comparable public or nonprofit programs, and a lack of needed services. • Information provided to the HELP Committee by the Department of Veterans Affairs and by thirty for-profit education companies responding to HELP Committee document requests, reveals enormous growth in the sums of money flowing from both the Department of Defense (DoD) and Department of Veterans Affairs (VA) educational benefit programs to for-profit schools. • Between 2006 and 2010, combined VA and DoD education benefits received by 20 for-profit education companies increased from $66.6 million in 2006 to a projected $521.2 million in 2010, an increase of 683 percent: • o Between 2009 and 2010 alone, revenue from military educational benefits at 20 for-profit education companies increased 211 percent. o In the first year of Post-9/11 GI Bill implementation, the VA spent comparable amounts ($697 million and $640 million respectively) on tuition for students attending public schools and students attending for-profit schools, but the VA funded 203,790 students at public schools compared to 76,746 at for-profits. o Revenue from DoD educational programs at 18 for-profit education companies increased from $40 million in 2006 to an expected $175.1 million in 2010, a 337 percent increase. o Revenue from VA educational programs for the same 18 for-profit education companies increased from $26.3 million in 2006 to an expected $285.8 million for 2010, including a fivefold increase between 2009 and 2010. o Revenues from military education benefits at 20 for-profit education companies increased more rapidly than overall revenues for every year between 2006 and 2010. The expansion of military benefits have made service members, veterans, spouses and family members highly attractive prospects to for-profit schools seeking to rapidly increase enrollments to satisfy the demands of investors. -1- • Because neither DoD nor VA benefits originate through Title IV of the Higher Education Act, money received through these programs is not counted as federal financial aid, and is not subject to the key regulatory requirement governing for-profit schools that no more than 90 percent of revenues come from federal financial aid. The Department of Education’s 90/10 rule effectively considers DoD and Veterans funds as non-federal aid by allowing these funds to be counted in the 10 percent of the calculation, despite the fact that the money comes from federal taxpayers. • Outcomes at the for-profit schools receiving the most military educational benefit revenue are questionable. • o Four of the five for-profit schools receiving the most Post-9/11 GI Bill funding in the first year have loan repayment rates of only 31 to 37 percent. o The same four of five schools receiving the most Post-9/11 GI funding have at least one campus with a student default rate above 24 percent over three years. o Three for-profit education companies analyzed that received significant shares of military educational benefits have both high student withdrawal rates and low student loan repayment rates. Given the troubling outcomes documented at many for-profit schools, the problematic recruiting practices, the high cost of for-profit programs, and the disparate share of federal military educational dollars flowing to for-profit schools, Congress, together with the Department of Veterans Affairs and the Department of Defense, needs to act now to ensure that service members and veterans see the educational results that Congress envisioned. -2- Introduction As a result of the wars in Afghanistan and Iraq, combined with the growing economic need for postsecondary education, over the past few years Congress has fundamentally re-examined its commitment to providing educational benefits to a new generation of veterans. With the passage of the Post-9/11 Veterans Educational Assistance Act of 2008 (Post-9/11 GI Bill) on June 30, 2008, almost all servicemembers, including reserve troops who serve a minimum of 90 days active duty after September 10, 2001, became eligible for educational benefits up to 36 months at an average of $458 per credit hour. Additionally, the bill created a uniform method to pass on or share the educational benefit with spouses and children, recognizing that the demands of military life and active duty enrollment have repercussions on the ability of family members to obtain higher education. The bill is a major step forward in meeting our obligation to those who serve our country by ensuring that they have access to higher education, and is an improvement on the main benefit package available prior to 2009, the 1985 Montgomery GI Bill, which generally provided benefits only to those who served at least three years active duty and contributed $1,200 of their own money during the first two years of service. In 2008, Congress also expanded the existing aid available to active duty servicemembers through the Department of Defense (DoD) Tuition Assistance program by creating the Military Spouse Career Advancement Accounts (MyCAA) program for military spouses. The Post-9/11 GI Bill also allowed active duty servicemembers to combine the newly available benefits with the DoD Tuition Assistance benefits through the existing “Top-Up” Program. By providing increased financial support and raising public awareness, the Post-9/11 GI Bill has lowered financial barriers for veterans seeking higher education and has encouraged higher education institutions to better focus on the needs of returning veterans. Colleges across the country have responded by increasing their outreach and support services for current and former servicemembers and their spouses. One year into the program, however, serious questions Congress may have have emerged about the share of the benefit pool going to unintentionally subjected this for-profit schools with questionable outcomes. By helping new generation of veterans to the to make college more affordable for servicemembers, veterans, and their spouses, these legislative changes create worst excesses of the for-profit a large new pool of potential students that are critical industry: manipulative and for the type of growth required by investors in for-profit misleading marketing campaigns, colleges. Additionally, because the new GI bill benefits educational programs far more are not counted toward the maximum 90 percent federal expensive than comparable public revenues for-profit schools are permitted, the benefits or non-profit programs, and a provide a new tool to help for-profit schools manage this increasingly challenging regulatory requirement. As a lack of needed services. result, servicemembers, veterans, spouses, and family members are highly attractive prospects to for-profit schools, and many schools appear to have made significant resource investments to recruit and enroll students eligible for these benefits. -3- As a part of the HELP Committee’s ongoing inquiry into the for-profit education sector, 30 for-profit education companies were asked to provide information on the amount of funding that they receive from the Department of Defense and the Department of Veterans Affairs (VA). The information provided reveals enormous growth in the amounts of money flowing from both the DoD and VA educational benefits programs to for-profit schools in a manner that does not seem to have been fully anticipated or contemplated by Congress in passing the educational benefit package for this generation. In fact, during just the first year of availability of Post-9/11 GI Bill benefits, of the $1.75 billion in total benefits paid out, $640 million, or 36.5 percent, was paid to for-profit schools despite the fact that these schools enroll only 23.3 percent of military beneficiaries.1 Five hundred million in VA benefits was paid just to the 30 schools that have received document requests from the HELP Committee. Congress may have unintentionally subjected this new generation of veterans to the worst excesses of the for-profit industry: manipulative and misleading marketing campaigns, educational programs far more expensive than comparable public or non-profit programs, and a lack of needed services. As documented in the previous HELP Committee reports and hearings, for-profit colleges offer many flexible education and training programs, but they also are expensive to attend, plagued by manipulative and deceptive recruiting practices, have exceptionally high numbers of students who withdraw, and graduate many students who cannot pay back their federal student loans. Available Benefits Educational benefits are available both to active duty personnel and veterans through two key programs: the Tuition Assistance program administered and run by the Department of Defense, and the Post-9/11 Veterans Educational Assistance Act administered by the Department of Veterans Affairs. While other benefit packages are also available to some servicemembers, and to surviving spouses and dependents of those killed or permanently disabled,2 a review of the documents provided to the HELP Committee reveals that these two programs are the primary source of the very rapid increases in the sums of money flowing directly to for-profit schools from DOD and VA over the past two years. In determining which schools are approved to provide educational benefits, both the Department of Defense and the Department of Veterans Affairs primarily rely on the Department of Education and accreditation agencies to approve eligible educational programs for servicemembers and veterans. However, DoD additionally maintains a list of approved schools, the Servicemembers Opportunity Colleges, which agree to accept transfer credit.3 Additionally, the Military Installation Voluntary Education Review (MIVER) process is used by DoD to evaluate educational programs offered on military bases. However, although 70 percent of all Tuition Assistance dollars go towards distance education, with 40 percent going to for-profit institutions, online programs are not currently covered by the MIVER review process. However, in August of this year, DoD proposed new regulations that would extend the MIVER process to all distance education programs, thus improving its ability to assess these programs. The VA paid out an additional $56 million in benefits under the Post-9/11 GI Bill that was distributed in the early weeks of the program, and has not been tracked by sector. These funds are not included in the $1.75 billion. 2 The VA provides educational benefits to certain disabled veterans through the Vocational Rehabilitation and Employment (VR&E) Program. For more information on VR&E, see CRS Report RL34627, Veterans’ Benefits: The Vocational Rehabilitation and Employment Program, by Christine Scott and Carol D. Davis. 3 See http://www.soc.aascu.org/pubfiles/socmisc/SOCConsort_Schools.pdf for the Servicemembers Opportunity Colleges, November, 2010. See also 10 U.S.C. § 2005. 1 -4- Post-9/11 Veterans Educational Assistance Act The Post-9/11 GI Bill provides one of the most comprehensive educational benefit packages ever provided to servicemembers, veterans, and family members. Under this program, veterans, including National Guard and Reserve troops, who serve a minimum of 90 days active duty after September 10, 2001, are eligible for 36 months of educational benefits.4 Benefits are provided on a credit hour basis, averaging $458 per credit hour in the 2010-11 academic year, which varies based on the price of in-state undergraduate tuition at public universities in the state of residence.5 Thus, a veteran taking 12 units at a for-profit school with 10-week terms and a credit hour cost of $365 could receive tuition of $4,380 for each 10-week term. Other benefits are available through the Post-9/11 GI Bill including assistance with fees, a housing allowance for students taking classes on campus, books, tutorial assistance, and licensing exam costs.6 Unlike previous GI bills, under the Post-9/11 GI Bill, educational benefits may also be transferred to a spouse or a family member. However, only eligible servicemembers who serve 10 years on active duty, including National Guard and Reserve troops, may transfer the educational benefits.7 Some servicemembers, including some whose service preceded September 11, 2001 and are not eligible for the Post-9/11 benefits, additionally qualify for educational benefits under the preexisting 1985 Montgomery GI Bill Active Duty and Select Reserve programs. This program is limited to individuals with at least three continuous years of service (six years of service for reservists), and generally requires that the servicemember has paid $1,200 into the program during the first two years of service. Reservists receive significantly lower benefits under this program compared to the Post-9/11 GI Bill. Additionally, in 2005 a more generous benefit package was enacted for reservists that required less service time in recognition of the extensive role reserve troops were playing in Iraq and Afghanistan. However, all servicemembers must make a choice to either receive benefits under the Post-9/11 GI Bill or another program. Enacted in June 2008, and implemented in August 2009, the Post-9/11 GI Bill has been in effect for only one year. However, even a look at this brief window illustrates that students eligible for these benefits are being aggressively pursued by for-profit schools. The 30 for-profit schools that received document requests from the HELP Committee in August 2010 reported 23,766 students receiving military benefits of any type in 2006, but 109,167 students receiving benefits in 2009, and 100,702 students through approximately the first half of 2010.8 The Post 9/11 GI Bill provides benefits on a sliding scale to veterans who serve less than 36 months on active duty but provides full benefits to anyone with a service-connected disability and at least 30 days of service. 5 Department of Veteran Affairs, 2010-2011 Maximum In-State Tuition & Fees, http://www.gibill.va.gov/gi_bill_info/CH33/Tuition_and_fees.htm 6 Post-9/11 GI Bill, 38 U.S.C. § 3301 et seq. 7 If a servicemember is eligible to transfer benefits he or she must make the decision to transfer benefits prior to separation from the military, although the dependent has up to 15 years to use the transferred benefit. The ability to transfer Post-9/11 GI Bill benefits to dependents was primarily conceived of and advocated as a method to promote retention in the armed services. The Department of Defense was particularly concerned that servicemember would leave the military to take advantage of the Post9/11 GI Bill. See CRS Report R40723, Educational Assistance Programs Administered by the U.S. Department of Veterans Affairs, by Cassandria Dortch. 8 Several companies did not track students receiving benefits prior to implementation of the Post-9/11 GI Bill, and thus the 2006 numbers may underestimate the number of servicemember attending the schools with service related benefits. For 2010, eight companies provided full year data, 13 companies provided partial year data and nine companies did not provide any data for 2010. Thus 2010 student beneficiary numbers are likely to be much higher than 100,702. 4 -5- Department of Defense’s Tuition Assistance Program Number  of  Students   Total  Number  of  Students  Receiving  Military  EducaDonal  Benefits   In addition to the educational as  Reported  by  30  For-­‐Profit  Schools   benefits available through the 120,000   109,167   Post-9/11 GI Bill, active duty 100,702   100,000   servicemembers, reservists called to active duty, and, in some cases, 80,000   75,726   their spouses, can also receive robust educational benefits through 60,000   the Department of Defense Tuition Assistance Program. The long40,000   34,108   standing program currently provides 23,766   20,000   up to $250 per credit hour (to a maximum of $4,500 a year) for 0   active duty servicemembers to 2006   2007   2008   2009   2010*   *2010  figure  is  par7al  year  data   enroll in education programs that are accredited by a regional or national organization recognized by the Department of Education, including many for-profit schools. In 2001, the Tuition Assistance “Top-Up” program was created to allow active duty servicemembers to use GI bill benefits, now including Post-9/11 GI Bill benefits, to supplement costs not covered by the Tuition Assistance program. Active duty servicemembers attending for-profit schools that exceed $250 per credit hour can, and do, use both benefit pools to cover costs. The 2009 Defense Authorization Bill also authorized tuition assistance to be extended to eligible spouses in order to “expand the spouse’s employment and portable career opportunities.” This program, the Military Spouse Career Advancement Accounts (MyCAA), provided up to $6,000 a year and was initially available to all military spouses. In less than a year the program had enrolled 136,000 spouses at an estimated cost of $250 million and was deemed unaffordable by DoD. Of 136,000 spouses enrolled in MyCAA in the first year, approximately 91,000 were in degree-seeking programs, while an additional 45,000 spouses enrolled in certificate or other short-term programs. Of those enrolled in degree programs, to date, about 90 percent or approximately 82,000 have been tracked by sector. Forty-six percent are attending for-profit schools.9 MyCAA was recently redesigned with a cap of $2,000 per year and a maximum benefit of $4,000 over three years. It is now available only to spouses of lower-ranking servicemembers, and no longer covers bachelors or graduate degree courses. While this program has been redesigned with a much less generous benefit package, for-profit schools will likely continue to receive a large share of the funding available through this program. 9 Data provided to the Congressional Research Service by the Department of Defense, November 24, 2010. -6- Why are Military Families and Veterans Important to For-Profit Schools? For-profit schools pride themselves on offering access to higher education to traditionally underserved groups including members of the armed services and veterans. They point to the enrollment of Iraq and Afghanistan veterans and families as evidence of this commitment. Some institutions undoubtedly provide a quality education that meets the needs of servicemembers, veterans and their families. However, for some schools the expansion of the DoD Tuition Assistance program to spouses, and the passage of the Post-9/11 GI Bill with new benefits for veterans and their families, may have made enrolling active duty servicemembers, reservists, veterans, dependents and spouses appealing for purely financial reasons. First, the expansion of these benefits to a broader group of eligible servicemembers and spouses has created a new pool of prospective students that is enticing to for-profit schools eager to satisfy investor expectations of enrollment growth. At nearly all for-profit institutions, students overwhelmingly pay for their education using federal government benefits including Pell Grants, student loans, DoD Tuition Assistance or Veterans Benefits. In other words, at these schools almost all revenue is derived from federal aid programs. By expanding the pool of potential beneficiaries, and by expanding the benefits received by servicemembers, spouses and veterans, the government is expanding the revenue potential for for-profit education companies. Second, because the benefits, like Pell Grants, do not require repayment, these students are attractive to schools increasingly concerned about the loan repayment rates and loan default rates of their students. Current law prohibits schools from receiving federal financial aid if more than 30 percent of students default on their loans within the first three years of graduation. DoD and VA benefits do not have any similar strings attached. Not only does the failure to count military educational benefits as federal financial aid subvert the intent of a regulation focused on limiting forprofit companies from being entirely dependent on federal dollars, it actually incentivizes these companies to aggressively recruit and market to veterans and servicemembers. Third, the dollars collected from military educational benefits allow for-profits to evade a key regulatory requirement that these schools must meet under current law, that no more than 90 percent of revenues come from federal financial aid dollars authorized under Title IV of the Higher Education Act.10 The current “90/10 rule” was enacted in 1992 as a prohibition on for-profit schools relying solely on federal student aid dollars. A September HELP Committee report analyzed the financial statements of 14 forprofit colleges and found that they received an average of 87.4 percent of their revenue from federal taxpayer dollars. The 90/10 rule was modeled after a safeguard put into place by Congress during the Korean War, designed to protect veterans from being ripped off by poor quality institutions. Schools that enrolled students using GI bill benefits were prohibited from enrolling more than 85 percent veterans in their At the time of enactment in 1992, for-profit schools were prohibited from receiving more than 85 percent of their revenue from federal student aid funds but this requirement was modified to 90 percent in 1998. 10 -7- educational programs. This was designed to ensure that schools were of sufficient quality to attract some students who would pay tuition. The House Veterans Affairs Committee at the time described the 85/15 rule as, “a real safeguard to assure sound training for the veteran, at reasonable cost, by seasoned institutions” and observed that had the rule been in effect during the administration of the World War II GI Bill “considerable savings would have resulted and . . . much better training would have been realized in many areas.”11 Because neither Department of Defense nor Veterans Affairs benefits originate through Title IV of the Higher Education Act, money received through these programs is not counted as federal financial aid, and, in fact, can be counted towards the other side of the equation. The Department of Education’s 90/10 rule effectively considers DoD and Veterans funds as non-federal aid by allowing these funds to be counted in the 10 percent of the calculation, despite the fact that the money comes from federal taxpayers.12 Enrolling veterans and servicemembers allows for-profit schools to expand the number of non-military students that they enroll. If a company can generate $10 million in revenue from VA and DoD benefits, they can take in another $90 million in student loan and Pell Grant funds without violating the 90/10 rule. Not only does the failure to count military educational benefits as federal financial aid subvert the intent of a regulation focused on limiting for-profit schools from being entirely dependent on federal dollars, it actually incentivizes these companies to aggressively recruit and market to veterans and servicemembers. Given the alarming recruitment practices documented by the Government Accountability Office in its August 4, 2010 report on for-profit recruiting, this loophole means that military personnel are sought-after targets for recruitment. Marketing and Recruiting by For-Profit Companies Enrollment and financial statistics from the past few years show a tremendous growth of military educational benefits flowing to for-profit schools. This growth is the result of a new focus on militaryfocused recruiting and the development of large recruiting staffs by for-profit schools designed to bring in veterans, servicemembers and their spouses. A recent article published in Business Week documented that the Washington Post Company’s Kaplan University has a military recruiting team comprised of 300 admissions advisers, financial aid counselors and academic advisers.13 According to a former Kaplan recruiter quoted in the article, “Under Kaplan’s compensation system for admissions advisers, veterans were more valuable than active duty servicemembers,” and “[a] veteran counted for seven points, and a servicemember for five points. A servicemember’s spouse counted the most, 10 points.”14 The Iowa offices of Bridgepoint Education, parent company of Ashford University, employs hundreds of recruiters devoted to recruiting military personnel.15 See H. R. Rep. No. 1943, 82d Cong., 2d Sess., 30 (1952). On November 5, 2010, in a letter to House Armed Service Chairman Ike Skelton, Representatives Vic Snyder and Rob Wittman, the Chair and Ranking Member of the House Armed Services Committee’s Oversight and Investigations Subcommittee raised concerns that treating VA and DoD funds differently than federal student aid undermined the intent of the 90/10 rule. 13 Bloomberg Businessweek, Kaplan Quest for Profits at Taxpayer Expense Ensnares Veteran, by Daniel Golden, November 1, 2010. 14 Id. 15 Staff visit, Clinton, Iowa, October 14, 2010. 11 12 -8-