2nd UPDATE: US Names Apollo, Corinthian, Kaplan In For-Profit Probe

Colleges operated by Apollo Group Inc. (APOL), Corinthian Colleges Inc. (COCO) and Washington Post Co.'s (WPO) Kaplan Higher Education unit were among the schools the U.S. Government Accountability Office found provided "deceptive and otherwise questionable information" to agents who posed as prospective students in an undercover investigation of for-profit student recruitment tactics.

Gregory Kutz, managing director of forensic audits and special investigations at the GAO, produced details of the report at a hearing of the Senate Health, Education, Labor and Pensions Committee on Wednesday. A version of the report, excluding school names, was released Tuesday, though analysts had speculated Apollo, Corinthian and Kaplan may be implicated.

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.

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.

A representative from Corinthian weren't immediately available for comment.

According to the report, recruiters from four non-publicly traded schools were encouraged applicants to falsify information on federal financial aid application forms, recommending they commit fraud so the students, and ultimately the schools, could receive more federal aid dollars. Kutz said the GAO met with the U.S. Department of Education's Office of Inspector General on Tuesday to discuss the findings.

The publicly traded schools, meanwhile, misrepresented graduates' potential income and job placement rates and provided misleading information on tuition and fees, the report said.

The 15 schools investigated were chosen in part because they receive at least 89% of their revenue from federal aid.

Kutz was testifying at the second in a series of hearings on for-profit education, which Sen. Tom Harkin (D., Iowa), has framed in the context of providing transparency on where taxpayer dollars are going. For-profit schools enroll less than 10% of college students but capture nearly a quarter of federal financial aid dollars. The Education Department earlier this summer proposed new regulations on how recruiters are paid, among other rules to ensure students are benefiting at the for-profit institutions.

"The GAO's findings ... make it disturbingly clear that abuses in for-profit recruiting are not limited to a few rogue recruiters or even a few schools with lax oversight," said Harkin, chairman of the committee. "To the contrary, the evidence points to a problem that is systemic to the for-profit industry."

Kutz likened the recruiters to automobile salespeople and said their high-pressure, deceptive practices will continue unless enforcement action is taken. "It certainly appeared a little like the wild, wild west out there," he said.

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."

Shares of Corinthian Colleges were recently trading up 0.1% to $8.74 after falling to a 52-week low of $8.26 when the GAO first fingered the company. Apollo shares were up 1% to $45.25, while Washington Post was off 1% to $424.00.

-By Melissa Korn, Dow Jones Newswires; 212-416-2271; melissa.korn@dowjones.com

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