3rd UPDATE: US Names Apollo, Corinthian, Kaplan In For-Profit Colleges Probe

Senators slammed for-profit colleges Wednesday for taking advantage of underprivileged students, saying the schools must be reined in as they capture a larger share of taxpayer-funded financial aid dollars, and recommended the government continue to investigate shoddy quality control at the schools.

The criticism, unleashed Wednesday at a Senate Health, Education, Labor and Pensions Committee hearing, came in response to a U.S. Government Accountability Office report that found recruiters from all 15 schools involved in an undercover investigation provided misleading information to agents posing as prospective students. Four schools engaged in fraudulent behavior, according to the report.

The report is just the latest hit for the industry. The U.S. Department of Education earlier this summer proposed new regulations tightening recruiter payment regulations and last week recommended schools be penalized for graduating students with heavy debt loads, among other rules to ensure students are benefiting at the institutions. A major accrediting body is being questioned for giving clearance to a for-profit school despite admitting reservations over its credit hour structure. And both houses of Congress have held hearings related to the sector in recent months.

Sen. Tom Harkin (D., Iowa) said Wednesday he will request data from a number of for-profit schools and said additional hearings will likely continue throughout the fall.

Gregory Kutz, managing director of forensic audits and special investigations at the GAO, produced details of the report at a hearing of the Senate HELP Committee Wednesday. 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 GAO said provided "deceptive and otherwise questionable information" to undercover staffers. According to the report, the publicly traded schools misrepresented graduates' potential income and job placement rates and provided misleading information on tuition and fees, the report said.

A Kaplan spokesman said in an emailed statement the company had initiated investigations at the two schools named by the GAO 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.

Representatives from Apollo and Corinthian said those companies also are conducting internal investigations and would take any disciplinary action they deemed necessary. Corinthian said it conducts "mystery shopping" programs to ensure compliance with its code of conduct. The Career College Association, a trade group, said it plans to institute a similar program.

Recruiters from four non-publicly traded schools, meanwhile, 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.

"It certainly appeared a little like the wild, wild west out there," Kutz said, adding that the high-pressure recruiting practices likely will continue unless enforcement action is taken. Kutz said the GAO met with the U.S. Department of Education's Office of Inspector General Tuesday to discuss the findings.

"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."

The 15 schools investigated were chosen in part because they receive at least 89% of their revenue from federal aid. Though they enroll less than 10% of the nation's college population, for-profit schools book nearly a quarter of its federal aid dollars.

Shares of Corinthian Colleges were recently trading down 3.2% to $8.46 after falling to a 52-week low of $8.26. Apollo shares were off 1.3% to $44.24, while Washington Post was off 2.6% to $417.23.

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

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