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tained in the Higher Education Amendments of 1972, and procedures are presently being drafted under this authority.

I might say, Mr. Chairman, that in testimony before the House Special Subcommittee on Education, we had a target date of November 1 to have these regulations out.

These regulations will be out within the next 30 days and they will be sent up to your committee for review.

Utilizing the concept of educational consumer protection, the Office of Education has been moving strongly on this front during the past 2 years.

Specifically, the Office of Education has supported, participated in, or accomplished the following general remedies for unethical school practices in postsecondary education.

Here are some examples:

1. Information exchange with States, the Federal Trade Commission, and other Federal agencies concerning consumer complaints against educational institutions falling within the purview of these agencies;

2. Support and consultation regarding FTC's development of consumer educational materials and guides for private vocational and home study schools;

3. Support and consultation with various States on special programs and improvement of legislation in the educational realm;

4. Provision of contract funds, in conjunction with the Department of Defense and the Veterans Administration, for the development of a model State law governing the approval of private postsecondary schools by the Education Commission of the States;

5. Funding by the Office of Education for a study of the interface between private accreditation and eligibility for participation in Federal educational programs-in the final stages of completion by the Brookings Institution;

6. Creation and operation of the Federal Interagency Committee on Education's Subcommittee on Educational Consumer Protection. This subcommittee, in which OE serves as the lead agency, presently is preparing a report outlining a proposed Federal strategy for dealing with the overall educational consumer protection problem. This report will be presented to the Interagency Committee at its September meeting.

Permit me now to elaborate briefly on two items in the realm of educational consumer protection.

First, while considerable publicity has been given to the unethical practices of certain proprietary schools, there is growing evidence that similar problems exist at nonprofit vocational and collegiate institutions.

As the competition for students becomes more acute, it is possible that many of these institutions are adopting practices previously ascribed only to the proprietary school industry.

Second, increased reliance on State agencies to provide added consumer protection in postsecondary education is a matter which deserves thorough exploration at this time.

One salient advantage in using State agencies, when they are efficient and effective, is that they generally can provide closer sur

veillance and oversight, and can react more quickly, than can a regional or national organization or agency.

In summary, I have tried to above sketch out for you our view of the real world of accreditation and institutional eligibility as we see it today from our particular vantage point. It is not an altogether gloomy picture.

A true statistical perspective tells us that Federal aid to postsecondary education has been a phenomenal success; billions of dollars have flowed, millions of students have benefited, and thousands of institutions have been strengthened for service to the Nation. There is a great deal to be proud of.

It is becoming increasingly evident, however, that the national concern for extending postsecondary education opportunities to all who desire and can benefit from them will require more diversification and flexibility in obtaining these opportunities than is now the case.

This, of course, means that accreditation and eligibility procedures must be adapted to these changing conditions while, at the same time, preserving institutional autonomy and protecting the educational consumer interest.

With your continued good help, we shall try to hammer out eligibility standards that will facilitate needed changes and innovations in postsecondary education-standards that will be strict enough to protect the public interest but flexible enough to encourage rather than inhibit needed changes and innovations in postsecondary education.

We will be happy to answer any questions, Mr. Chairman.
Senator PELL. Thank you very much indeed, Mr. Herrell.

Just for the information of the subcommittee and for background purposes, what is your own status? You have been in HEW how long? Are you a career civil servant, a political appointee, what is your background?

Mr. HERRELL. These two gentlemen [indicating] and I are career Civil Service.

Mr. PELL. How long have you been in HEW?

Mr. HERRELL. I have been in HEW about 21 years.

Senator PELL. You are basically a career Government employee? Mr. HERRELL. Yes.

Senator PELL. Your two colleagues, are they career Government officials, with more than 10 or 20 years?

Mr. PROFFITT. Six years.

Mr. MOORE. Fourteen years.

Senator PELL. I have several questions.

As you know, this is a very, very complicated subject indeed, and we are trying to get to the bottom of instances of abuse that have occurred, both with regard to the defaults in the loans to students, and also the question of the fly-by-night schools, usually proprietary schools, that have hurt the operation of the whole postsecondary financial aid program.

There has been an excellent series of articles on these subjects that appeared in the Washington Post by Mr. Eric Wentworth; I would ask that they be inserted in the record at this point.

[The articles referred to follow:]

[From the Washington Post, June 23, 1974]

Profit-Making Schools

Deception and Exploitation Charged

First of series

By Eric Wentworth Washington Post Staff Writer Businessmen who run schools to make money have, in many cases, been exploiting federal student aid programs at the expense of the young Americans those programs are supposed to benefit.

Salesmen motivated-like the schools' owners-more by earnings


than educational ideals have gone hunting for customers in the ghetto of Atlanta, Boston and Los Angeles, in Greenville, S.C., and Shreveport, La., in the public housing of Ardmore, Okla., in the food stamp lines of San Antonio, Tex., in the barracks of Army bases in West Germany and even in a halfway house for mental patients in the Pacific Northwest.

Dangling dreams of quick training for well-paid jobs as computer programmers, color-television technicians, executive secretaries, motel managers or airline hostesses, they have lured young consumers into contracts that often lead to debts and disillusionment.

One victim, an Atlanta welfare mother, complained a finance company was dunning her to repay nearly $500 on a federally insured student loan for three weeks she spent at a local business college. She dropped out because conditions were poor and the school wanted more money.

Another, a veteran in Duluth, Minn., wrote his congressman in desperation because a Chicago bank was demanding a $405 repayment on his student loan which he didn't think he owed. He had been lured into a correspondence course in color-television technology,

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have often failed to spell out the financial fine print when they sign up unsophisticated customers to enrollment contracts and loan applications. They have sometimes misled them to think, for example, that they will only have to repay their loans after landing that job for which they'll be trained.

Many young customers come from low-income families, hold unrewarding jobs if they're employed at all and have missed out on less costly educational opportunities such as public community colleges.

Protection Lacking

Yet the government, while offering subsidies for their schooling - subsiIdies which salesmen use as bait - has failed time and again to protect these young Americans from fraud and needless financial losses.

At the same time, the government has failed to protect the taxpayer. It has doled out tens of millions of dollars on insurance claims for defaulted student loans and tens of millions more on GI Bill benefits for wasteful correspondence courses.

These conclusions result from months of reporting by The Washington Post on education's profit-seeking sector and the public and private agencies which are supposed to keep it honest.

The multibillion-dollar industry has thousands of members, from mom-andpop secretarial schools in small Southern towns to nationwide chains and correspondence course factories owned by International Telephone and Telegraph, Control Data, Bell & Howell, Montgomery Ward and other large corporations.

While enrollment figures vary widely, the Federal Trade Commission has estimated that industrywide total at more than 3 million students

which would be at least one-third of the total for all public and private nonprofit colleges and universities. Bell & Howell alone recently reported 150,000 students in its correspondence courses and another 10,000 in classrooms, which would make it as large as the entire University of California system.

What sets the industry's members apart from UCLA, Yale or your local community college is that they're all commercial ventures, selling education for profit.

A number of businessmen-educators undoubtedly run respectable operations. Advance Schools of Chicago, one of the big correspondence schools relying heavily on federally insured loans and the GI Bill, is eyed askance by some who find its reputation somehow too good to be true. But Sherman T. Christensen, founder and now chairman of Advance Schools, makes a strong case that its recruiting is scru pulous, its business practices ethical and fair, its courses properly educa tional and its 72,000 students relatively satisfied.

On the other hand, scores of inter views with a variety of sources and scrutiny of numerous public and confi dential files have turned up many examples involving other schools of de ceptive advertising, predatory recruiting, wrongful withholding of refunds and other unscrupulous or irresponsi ble practices.

Industry spokesmen, sensitive to occasional exposes, contend profit-seeking schools shouldn't be singled out for criticism. After all, they argue. nonprofit colleges, hard-pressed to fill classrooms and balance budgets these days, have begun resorting to commercial recruiting tactics, too.

But the fact remains, based on available evidence, that it is in the profitseeking sector where abuses have been more frequent and extreme, and where the human as well as the public costs have so far been the greatest.

Dropout rates have exceeded 50 per cent in some profit-seeking classroom schools and run 75 per cent or more in many correspondence schools. True, rates are also high among nonprofit private and public colleges-where one 1971 study showed fewer than half the freshman would finish two-year programs and only one-third would finish four years. But the profit-seekers. sellin shorter courses aimed at specific ca reers, could be expected to have lower rates than most. Their dropouts, w in most cases have signed contract t take and pay for an entire course. o ten quit at an early stage. Students at

nonprofit colleges usually pay by the semester, and dropouts tend to leave at semester's end.

Neither profit-seeking nor nonprofit schools boast perfect scores in graduate job piacements-witness recent reports of Ivy League graduates driving taxicabs. But for the profit-seekers, training for jobs-stripped of broader educational objectives-is the name of the game.

Certainly profit-seeking schools have been setting the pace when it comes to marketing. They advertise widely in all sorts of magazines-from Penthouse to Popular Mechanics-as well as newspapers and the Yellow Pages. They promote their services on matchbook covers and postcards, as well as television. Some use mass mailings. Others canvass by telephone. And those that find salesmen productive

According to a detailed 1970 report on the industry by Edubusiness, Inc., of New York City, profit-seeking schools generally spent only about 20 per cent of their budgets on instruction but up to 60 per cent on marketing.

Good sales representatives," Edubusiness reported, "command annual salaries considerably higher than those according the teaching staff."

One recent example was the magazine ad to recruit salesmen run last fall by Atlantic Schools, a subsidiary of National Systems, Inc., selling courses in the airline-travel field. "Generous commissions!" the ad promised. "Just five sales per month can earn you over $10,000 annually. Many of our salesmen earn more than $20,000 per year-and up to $60,000."

Weaver Airline Personnel School, advertising for salesmen in The Washington Post help-wanted columns last Nov. 18, offered salesmen "high commissions plus monthly annual bonuses and our TOP reps have won extra bonuses. from a car to a European vacation."

While some profit-seeking schools for one reason or another have shunned heavy involvement in federal programs, others have increasingly used them to fullest advantage to enroll large majorities of their students.

In the federally insured student loan program, for example, profit-seeking schools generally have been accounting for about one-third of the total multibillion-dollar volume. But in the 1973 fiscal year, according to government figures, three school owners alone-Advance Schools, Bell & Howell and Montgomery Ward-enrolled more than 200,000 insured-loan borrowers. In the January-March, 1973, quarter, those same three accounted for more than $45 million in new-loan volume, or nearly 20 per cent of the total for all institutions in the program.

And according to Veterans Adminis tration data published last fall, a dozen profit-seeking schools each enrolled more students under the GI Bill during 1972 than even the largest state university campuses.

Profit-seeking schools gained access to the federal student subsidies in the mid-1960s. Congress followed the precedent of prior veteran-aid programs in including them wher it revived the GI Bill in 1966. The lawmakers made them eligible for the insured-loan program, and since then for other Office of Education student aid, on grounds that vocational education under all legitimate auspices merited more recognition and support.

Eligibility for these programs greatly broadened the potential student market for profit-seeking schools by giving millions of young people the financial means to enroll. It was doubtless a factor, in the late 1960s, in attracting Bell & Howell, McGraw-Hill, Montgomery Ward, Control Data, ITT, Lear Siegler, LTV and other corpora

tins into what seemed a lucrative new field. Their involvement, through acquisitions and new ventures, brought fresh resources and apparent respectibability to an industry still domi nated numerically by far smaller enterprises.

Education profits have in fact proved elusive for many companies, large and small. A variety of management problems, the rising rivalry of low-tuition public community colleges, and a roller-coaster national economy have spelled slim earnings for quite a number and heavy losses for some. LTV and Lear Siegler have cashed in their chips.

Most companies, however, are staying in the game. And the industry as a whole has clearly emerged from the educational backwaters it inhabited for decades into the mainstream Looking ahead, school owners can expect a new boon for recruiting if the government's recent "basic opportunity grants" for low-income students are funded at more than $1 billion as the Nixon administration has proposed.

Developing Shift

Moreover, they stand to gain at least in the short run from the developing shift in student goals away from tradi tional liberal arts degrees and into programs geared toward work-world careers. Meat-and-potatoes career training, after all, is the industry's longclaimed specialty.

North American Acceptance, in turn, was acquired and owned until recently by Omega Alpha Corp., the conglomer ate that financier Jim Ling put together after his ouster from control of LTV.

Under new ownership. Blayton built enrollment by aggressive recruiting By one account, a team of salesmen would telephone local high school graduates. The salesmen would offer them a ride to the school in a company-owned station wagon to inspect


its facilities including the plushly furnished president's office and recep. tion rooms and to view a recruiting film.

Those persuaded to enroll would be signed up, in practically every case, to a federally isured loan from North American Acceptane. All told, according to Office of Education estimates, the finance company's insured-loan volume soared by last summer to $1.3 million.

By last August, however, the federal agency's Atlanta office became concerned by Blyton's high dropout rate and a growing number of loan defaults and complaints from onetime students.

One handwritten complaint came from Linda Sloan, an Atlanta welfare mother. "I have received a number of letters and telephone calls from North American Acceptance," she wrote. "They are asking for money that I do not think they deserve. They are telling me that I borrowed almost $500 from them. I have never been there before in my life. This money is for a couple of weeks that I went to Blayton Bus. College.

"I signed a contract but was not permitted to read it because they said that it changed so often that 'by the time you start classes it will be different.' I was also told that during the first week of school, I woud be offered job. (None of this was true.)

"I went for about three weeks," she continued, "and after I found out that I was expected to pay over $1,000 I went to the office and told them I had quit. All they said was o.k. They didn't even make a note of it.

"I have been telling these people that I do not have a job, but they keep making all kinds of threats. They say I went to school for 35 days. I did not. I didn't even have a perfect attendance record the short time I was enrolled. The conditions there were poor, and I think it is unfair for them to force

me to pay this much money for nothing..."

Student Walkout

Last Aug. 20, an estimated 150 students-three-fourths of Blayton's largely black total enrollment at the time-staged a walkout to dramatize their compalints about the school. Their long list of grievances included a misleading catalogue (in which white employees of North American acceptance allegedly posed in photographs as students so it appeared the school was integrated), low admissions standards, unqualified teachers, insufficient equipment, unavailable courses, deceptive sales pitches and exorbitant tui: tion.

The students were also upset by the resignation of Mrs. Terry Davis, the school's black placement director.

Mrs. Davis said she had become disenchanted herself by the school's inferior quality, which made it hard for her to find jobs for its graduates, and was frustrated by undue restrictions on her work. The last straw came, she said, when the school's administrators --who claimed later that she had been unproductive sought to hire a second placement director without telling her.

The Blayton students who walked out evidently hoped their demonstration would force the school to make some improvements. Student protests had been common enough on college campuses. Occasionally they had led to violence-far more often, to reforms.

The last thing the Blayton protesters expected was that the school's administrators would summarily expel them. But that, in fact, was what happened.

And with publicity about the protest causing enrollment cancellations among fresh recruits scheduled to start classes in October, Blayton officials decided they would simply close down the school when the summer term ended.

While the expelled students reportedly had partial refunds credited to

their North American Acceptance loan accounts, depending on how long they had been enrolled, they were still faced with repaying the rest of their loans for an unrewarding, unfinished, dead-end education.

Edward L. Baety, a lawyer retained by Mrs. Davis to represent her and the students, decided to file suit against North American Acceptance to free the students if possible from their repayment obligations.

He was "on the way to the courthouse," Baety said, when he picked up a newspaper, read that North American was filing for bankruptcy, and gave up his mission.

Huge Legal Tangle

Baety said recently he saw little hope for the students in adding another, relatively minor lawsuit to what has become a monstrous legal tangle. The collapse of North American Acceptance (sold by Omega-Alpha last August to GCI International, Inc., a California holding company) has touched off a flurry of investigations plus class-action suits on behalf of some 12,000 Georgia investors who were left holding an estimated $40 million in short-term North American Acceptance notes.

And the Blayton students weren't out of the woods. Robert E. Hicks, North American's court-appointed trustee, said he was legally obligated to "maximize" the finance company's assets in the interests of its creditors. That meant, he added, that an "effort will be made"-however unpopular-to collect from the student borrowers.

Should the students refuse to repay their loans, North American Acceptance through its trustee would presumably file claims for federal insurance on the defaults. And if the government paid those claims, it would then set about collecting from the students itself.

As things stand, the insured loan program allows forgiveness of debts only for death, disability or personal bankruptcy.

Time and again, where a profit-seeking school misled or short-changes its students, overlooked Office of Education collection officials have been later assigned to extract money from the victims.

Said one official, "I can't find it in my own conscience to go out and collect from these people."

NEXT: The Victims

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