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WASHINGTON - Three for-profit colleges based in Minnesota took in tens of millions of taxpayer dollars to boost their marketing and profits while many of their students dropped out in large numbers, often burdened with enormous debt, according to a two-year investigation led by Sen. Tom Harkin, D-Iowa.
The 1,100-page report was critical of almost every aspect of the for-profit college industry, whose schools educate nearly 2 million students nationwide, including tens of thousands in Minnesota.
"In this report, you will find overwhelming documentation of exorbitant tuition, aggressive recruiting practices, abysmal student outcomes, taxpayer dollars spent on marketing and pocketed as profit, and regulatory evasion and manipulation," Harkin said. "These practices are not the exception -- they are the norm."
The Harkin probe examined 30 for-profit colleges across the country, including Minnetonka-based Rasmussen College, Capella Education of Minneapolis and Walden LLC, an online school based in Minneapolis. The three Minnesota colleges defended their work and their safeguards to assist students.
The report is especially critical of Rasmussen for high dropout rates, high costs and high default rates on student loans in several academic programs. Capella drew criticism for high dropout rates. Both Capella and Walden were cited for spending nearly $100 million on marketing.
Rasmussen chairman Michael Locke said the investigation "reflects the belief that private capital in education is wrong, which I disagree with."
The colleges reviewed in the report received roughly 80 percent of their revenue from federal sources. What the nation and students get for such public support has been the subject of intense lobbying and debate on Capitol Hill for the past three years.
The report accuses the schools of spending public money "intended to support student educational opportunities" on marketing and to buttress profits. Meanwhile, the report says student dropout rates and loan default rates run many times higher than at public or nonprofit schools.
Rasmussen's posted a dropout rate of 63 percent in its associate degree programs, the government said, and its bachelor's degree programs had a dropout rate of 64.2 percent. "Both rank amongst the 10 worst in the sector," the report stated.
The programs cost several times what similar degrees cost at public colleges, the report said. Beyond its generous marketing and recruiting budget, the report accused Rasmussen of giving credit for clearly plagiarized assignments to undercover investigators who enrolled in the college.
In 2008, Rasmussen's student loan default rate fell below the national average for colleges of all kinds for the first time in seven years. But it still ran above 20 percent in four programs, including a 45 percent default rate in a program that teaches computer network support, the government said. Meanwhile, its profits grew from $4 million in 2006 to $38 million in 2009.
The Harkin report was produced by the Senate education committee's Democratic staff. Republicans on the Senate Health, Education, Labor and Pensions Committee, which is controlled by Democrats, criticized the report for using biased information and failing to include Republican input, raising "substantial doubt about the accuracy of the information."
Rasmussen making changes
Rasmussen, which has 17,000 students, has instituted a "qualified enrollment" program to reduce dropouts. "Before, we admitted anyone who had a high school diploma or a GED," Locke said. Now, prospective students take a weeklong screening course. Those who can't complete the course are not admitted.
"We made those changes not because anyone told us to, but because they were the right thing to do," Locke said. The charge of accepting plagiarized work stemmed from an instructor trying to teach students how to "properly attribute research," he said.
Capella and Walden fared better in the report. Both schools reported loan default rates that were well below the 22 percent average for for-profits and the 12.3 percent average for schools of all types.
With a default rate of 2.5 percent, "Walden safeguards federal funds better than most institutions in all of higher education," the school said in a statement.
Capella, with a 6.5 percent default rate, issued a statement that said: "We are pleased Senator Harkin recognized the value of a Capella degree, our low cohort default rate and the investments we've made in student support."
'A wake-up call for action'
But Pauline Abernathy, vice president of the California-based Institute for College Access and Success, a nonprofit that runs the Project on Student Debt, called the report "a real wake-up call for action to stop the flow of taxpayer dollars to schools that are in some cases doing harm to students."
"Even Capella and Walden, which have lower default rates, are spending more on marketing and recruiting and profit than they are on instruction," Abernathy said.
Capella, which has more than 38,000 students enrolled in online courses, spent nearly $100 million on marketing in 2009, the report said. Its profits rose by $31 million between 2009 and 2010. However, in 2010, the bachelor's degree program dropout rate was still more than 60 percent, the sixth worst among the 30 schools studied.
Walden, Minnesota's largest for-profit college with more than 47,000 students, spent $101 million in marketing and recruiting and produced $101 million in profits in 2009, the government said. That represented more than half of the school's total revenue. The Walden bachelor's program had a below-average dropout rate of 51.4 percent.
With pressure mounting for accountability from for-profit schools, the U.S. Education Department now requires schools to document whether students can find jobs that allow them to repay federally guaranteed student loans, a concept called gainful employment. The for-profit sector spent millions of dollars lobbying against the rule and contributed to Congressional candidates who shared their view that the rule should not be implemented, or should be applied to all higher education.
Abernathy's organization has proposed and supported a number of different reforms. One that would keep schools from using federal funds for advertising and recruiting, ought to apply to public and private schools alike, she said. But Abernathy does believe that some regulations should be tailored to for-profit schools, recognizing the "incredible pressure that publicly traded and investor-owned companies have to maximize shareholder returns."
"We need to design our policies with that pressure in mind," she said. "Otherwise we'll see the kinds of problems we're seeing today."
Staff writer Jenna Ross and the Washington Post contributed to this report. Jim Spencer • 202-383-6123