Inspector General Says Financial Data on For-Profits Makes Oversight ‘Nearly Impossible’

For-profit colleges rely heavily on federal grants and loans for their revenues, but a new report by the U.S. Department of Education’s Office of Inspector General says the financial information those colleges give to the department is generally not useful enough for it to know how much of those billions of dollars are being spent on marketing, compared with instruction or other purposes.

That, the inspector general’s report says, makes it “nearly impossible”  for policy makers, the department, or other interested parties to  effectively compare spending information across colleges or to provide appropriate oversight.

The report, issued on Wednesday, also notes that while overall spending on federal student aid increased by 68 percent from 2008 to 2012, to $144 billion, the amount of such aid disbursed to students at for-profit colleges during the same four-year period grew by 79 percent, to $29.6-billion.

“Given the level of federal investment in these schools, the department needs financial information that is transparent and consistent across participating schools to adequately monitor their participation,” and to better ensure that the taxpayer funds used for students’ educational programs “are spent in a manner that helps achieve the program results that Congress intended.”

The report, which was released on the same day that a House of Representatives committee approved a bill aimed at curbing the department’s regulatory authority, recommends that the agency establish uniform criteria for financial reporting so it can improve its oversight.

In a response contained in the report, department officials said they lacked the authority to require such a change. And even if the departmental office overseeing student aid had the information, the response says, it “does not have the authority to use the data for oversight.”

That conclusion raised some incredulous reactions from consumer activists who circulated excerpts from the report within minutes of its release. It also drew a rebuke from the author of the inspector general’s report.

“Oversight includes not only determining compliance with existing requirements, but also using available information to target oversight efforts and monitor program effectiveness,” the report says. “For example, a school with low instructional expenses could be at higher risk of misrepresenting the nature of its programs or facilities. Similarly, a school with high marketing expenses could pose a higher risk of paying incentives to recruiters in violation of the ban on incentive compensation.”

Several members of the U.S. Senate have introduced a bill that would prohibit colleges from using federal student-aid funds for advertising, marketing, or recruiting.

A spokeswoman for the inspector general’s office said the agency, an independent arm of the department, had written the report to provide Congress and the department with an objective analysis of whether financial information reported by proprietary schools could be used to determine how federal student-aid funds were being spent and to make future policy decisions.

The report looked at audited 2010 financial statements from 521 colleges (294 owned by publicly traded corporations and 227 owned by privately held companies) and found that, for 78 percent of them, the financial statements did not provide information on amounts spent for instruction and marketing.

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