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Hearing of House Committee on Education and the Workforce:Enforcement of Federal Anti-Fraud Laws in for-Profit Education

Location: Washington, DC


March 1, 2005


Mr. Andrews. Thank you, Mr. Chairman. I thank the witnesses for their testimony. It is especially good to see my colleague Ms. Waters, who I came here with in 1990.

We have a very serious responsibility that whenever there is fraud committed against a student, against taxpayers, to root it out and stop it; and I think everyone up here takes that responsibility very seriously.

I agree with Mr. Miller's comment, that in my eyes it is not a matter of for-profit versus nonprofit, it is a matter of legitimate versus illegitimate, and I think we have a very important responsibility to focus on evidence of illegitimacy.

We also have a responsibility not to legislate based on anecdote, but based on record. In instances of specific grievances, there are institutions and agencies set up to hear those grievances and reach a conclusion. It is our job to look at the systemic record; and with that in mind, I wanted to ask Mr. Carter a couple of questions based upon the work that his office has done.

Did I read your testimony correctly that in the last 6 fiscal years there were 44 audit reports in the proprietary sector and 32 in the nonprofit or public sector?

Mr. Carter. That is correct.

Mr. Andrews. And am I to understand that investigations are a larger universe than audit reports; in other words, you conduct some investigations where there is not an audit report issued?

Mr. Carter. That is correct.

Mr. Andrews. So there were 76 audit reports in the last fiscal years. How many investigations were there from which those 76 audit reports were generated?

Mr. Carter. We don't have a way to determine that, sir. If we are doing a compliance audit and we find fraud, then we open an investigation, but we don't capture that piece of data, how many audits become an investigation. But I----

Mr. Andrews. You don't know it, or you don't have it?

Mr. Carter. I don't have it, and our data base doesn't capture that.

Mr. Andrews. Wow. I mean, one thing I would suggest is that we find a way to make your data base capture that so we can get a bigger picture of what the complete picture looks like.

Of the 44 audit reports that were issued on proprietaries, how many of those resulted in criminal prosecutions?

Mr. Carter. An audit report would never result in a criminal prosecution; it might end up being an investigation which, of course, would be a criminal prosecution. But again, I don't have a count of how many audits might have led to an investigation.

Mr. Andrews. Is there a way to know that number or not?

Mr. Carter. I can give----

Mr. Andrews. I know the Department doesn't do a criminal investigation; presumably the Justice Department might pick up the evidence and lead to that. Is there a way of knowing how many criminal investigations and prosecutions there were?

Mr. Carter. I think what we would have to do is to go back through the investigations of that time period and look to exactly what the source of that investigation was.

Mr. Andrews. I would ask for the record for the Committee if you could do that, and also tell us how many of the audit reports, both for the for-profit and nonprofit, resulted in a civil action being filed by the Department or any other party--Justice Department, I assume, would be a part of it as well.

Mr. Carter. We would be glad to do that for you.

Mr. Andrews. I would appreciate that very much.

[The information referred to has been retained in the Committee's official files.]

Mr. Andrews. I understand that the office made several legislative recommendations that you want us to consider that flow off the work you have done in the last 6 years; is that correct?

Mr. Carter. Correct.

Mr. Andrews. And if I read them correctly, they deal with the following areas: One is to come up with a better measure of cohort default rates. If I read your testimony correctly, it is relatively easy to hide people that may have defaulted on their loans through deferments and other practices, and you would like to see us sharpenup that definition; is that right?

Mr. Carter. Well, we do have some concerns about the way the current calculation treats forbearances and deferments.

Mr. Andrews. Have you made specific recommendations as to how you would like the calculation modified?

Mr. Carter. Yes, we have.

Mr. Andrews. I would like to see those as well.

Second is you recommend changing--creating a statutory definition of a credit hour. Now, what is the rationale for that change; why do you want us to do that?

Mr. Carter. Well, basically the accrediting agencies are--well, let me go back a step. The credit hour is the way of measuring the quantity of education that we are getting, and right now we don't have a good definition of the quantity.

Mr. Andrews. I would very much appreciate further extrapolation on the other legislative proposals. I think it is very important that we distinguish between anecdote and systemic problems, and I think you would be very helpful to us in doing that. I appreciate the specific recommendation, since I would note very often go to the way we write the rules, not the way the providers of education are treating those rules. I think some of the weaknesses you have identified emanate with us, and what we ought to do is take a very hard look at correcting those definitions.

Thank you, Mr. Chairman.


Mr. Andrews. Mr. Chairman, I would just ask the Chairman's permission to just ask one more thing from the IG witness, that he might provide us with some data. Would that be OK, Mr. Chairman?

Chairman Boehner. That would be fine.

Mr. Andrews. With respect to the impact of the 90/10 rule, I think--I am hearing a consensus today that we want the most effective anti-fraud measures available. What we do need to do--I also heard you, Mr. Carter, talk about being careful to understand the impact of rules, and I would ask you to provide us with data on two questions about the 90/10 rule.

The first is that the department has compiled data about loan defaults, the aggregate number, the types of schools the students went to and so forth. I would be interested as to whether there is any correlation between high loan defaults and schools that are close to the 90/10 border. In other words, if a school is deriving, you know, 12 percent of its revenue other than from Federal financial aid, are the students from that school more or less likely to have loan defaults? What do the data show?

And then, second, if you could, I would like to know any data on the types, the profiles of students, the demographic profiles of students who are turned away, not accepted, not enrolled in schools as a result of the 90/10 rule, any information we could have about what that subset of student applicants looks like.

Mr. Chairman, I appreciate that very much.


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