A powerful U.S. senator is taking aim at for-profit colleges, saying much of the sector has "atrocious" graduation rates even as it rakes in large amounts of military education funds.

"It really is alarming, the huge growth in the amount of military money, both [U.S. Department of Defense] and [U.S. Department of Veterans' Affairs], and the schools really have terrible dropout rates," Sen. Tom Harkin (D., Iowa) said on a conference call with media after releasing a report that cited the rapid rise of the schools' receipt of funding from the two departments.

According to the Health, Education, Labor and Pensions Committee, which Sen. Harkin heads, 20 for-profit colleges received $521.2 million in education funds from those two departments in 2010, compared with $66.6 million in 2006. For-profit schools in 2009 enrolled just under one-quarter of all beneficiaries of the Post-9/11 Veterans Educational Assistance Act of 2008, but received more than one-third of the benefit payments.

Nearly two-thirds of students seeking bachelor's degrees at private nonprofit schools finish within six years, according to federal data measuring completion rates of first-time, full-time students, while just 25% at for-profit schools do. A number of for-profit schools say such figures aren't representative because many of their students attend on a part-time basis or are returning to school.

Apollo Group Inc. (APOL), the nation's largest for-profit school with more than 470,000 students and among the largest recipients of G.I. Bill benefits, got $76.9 million between August 2009 and July 2010, according to Harkin's data. A report issued last month by the nonprofit Education Trust said its University of Phoenix has a six-year graduation rate of 9%.

"There's something here that cries out for remedial action, and we intend to do so early next year," Harkin said.

Harkin said in the report that the schools may be taking advantage of veterans, using the military money to skirt a cap on certain other federal funds on which the schools heavily rely. The schools can't derive more than 90% of their revenue from Title IV federal student loans--a ceiling against which many are bumping--but military benefits don't count toward that limit.

Harkin created the report using data he requested from 30 for-profit schools, as well as information provided by the Department of Veterans Affairs. While he didn't specifically name colleges, the report includes a list of 30 for-profit schools and the amount of G.I. Bill funding each has received between August 2009 and July 2010.

While the report didn't include any major revelations, UBS analyst Ariel Sokol said in a client note, it is "an attempt to gain momentum on legislation to include military" in the 90% limit.

"The rapid growth of servicemembers, veterans and their families in higher education is a very positive development that should be celebrated, not denigrated," said Harris Miller, president of the Association of Public Sector Colleges and Universities, and industry group. "Attending private-sector colleges and universities provides these students with the flexible, concentrated and immersive education that prepares them to be competitive in the workplace."

Harkin's report and promise of continued investigations comes as the schools face a series of harsh regulations from the U.S. Department of Education. Still, industry watchers say the tone in Washington will likely soften once Republicans take control of the House.

Meanwhile, Harkin said a revised version of a harsh report by the U.S. Government Accountability Office "didn't change the conclusions one bit." The initial report, released in August and a partial catalyst for Harkin's data request, showed that recruiters at a number of schools provided misleading or even fraudulent information to agents posing as prospective students. The newer report, issued on the GAO's website Nov. 30 and first reported late Tuesday by The Washington Post, includes information showing the schools also provided some helpful information to the undercover staffers.

The GAO has said the overall message of the report remains the same.

HELP Committee ranking member Sen. Michael Enzi (R., Wy.) sent a letter asking the GAO to withdraw the report, saying the revisions "raise a number of troubling questions" about testimony the agency provided to the Senate.

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