For-Profit Schools Made Enrollment Mistakes, Trade Group Says

The trade group representing career colleges is acknowledging that member schools have made mistakes as they sought to grow their student populations quickly and should increase transparency in the face of harsh government scrutiny and the threat of new regulations.

"My schools have stopped blaming other people for their troubles," Harris Miller, head of the Career College Association, said in an interview with Dow Jones Newswires. "This is a teachable moment."

Miller, speaking in advance of a day-long seminar on the regulatory environment and how institutions can garner more political support, said there has been a noticeable shift in the attitudes of member schools as they have been humbled by a barrage of bad news in the past few days.

Last week, the U.S. Government Accountability Office issued a report showing recruiters at all 30 institutions involved in an undercover investigation misled students or even encouraged fraudulent activity as they attempted to boost enrollment. The schools are also facing proposed new rules from the U.S. Department of Education that would penalize individual programs for graduating students with high debt loads, and 30 institutions received data requests last week from a Senate committee investigating their business practices as they capture a growing share of federal student aid dollars.

While a number of schools have issued statements saying they would step up recruiter training and they have zero tolerance policies for employees violating their codes of conduct, Miller acknowledged that isn't enough: "The skepticism about what we're doing to product consumers is extremely high."

Miller said his group, which represents more than 1,400 programs in subjects including beauty, business, health care and culinary arts for nearly two million students, is considering booting some members for bad behavior. The organization announced last week it would enhance its own code of conduct and launch a mystery shopper program. The group was creating a checklist of sorts for prospective students to look at with recruiters as a way of ensuring they have discussed the risks and responsibilities associated with enrolling in a school and taking out student loans, he said.

The association's makeup, which includes schools ranging from the French Culinary Institute to DeVry Inc.'s (DV) namesake DeVry University and Apollo Group Inc.'s (APOL) sprawling University of Phoenix, could change "quite a bit," he said.

Miller, who led a charge this spring and summer attacking short sellers for stirring up trouble in the interest of profiting from declining stock prices, said schools are beginning to take ownership of some of the problems they now face.

For example, Washington Post Co.'s (WPO) Kaplan Higher Education unit, which had two schools cited in the GAO report, suspended new enrollment at the campuses involved and launched an investigation into its other schools' recruiter practices. Miller said that was a good start and he would like to see more schools "crow about" instances when they dismiss employees for wrongdoing and share examples of "platinum" compliance programs.

Publicly traded school operators must also put aside fears of a short-term stock hit in order to institute programs that will improve graduation and loan repayment rates. Shares of Apollo and Lincoln Educational Services Corp. (LINC) both sank after the schools announced tighter admissions standards, but Miller said investors shouldn't be punishing them for acknowledging bigger issuers than just how many new students they can enroll each quarter.

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

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