GI Bill Funds Flow to For-Profit Colleges That Fail State Aid Standards

By Aaron Glantz
|  Monday, Jun 30, 2014  |  Updated 2:56 PM PDT
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GI Bill Funds Flow to For-Profit Colleges

Adithya Sambamurthy/CIR

Nationally, the University of Phoenix received nearly $1 billion from the new GI Bill over the last five years.

By Aaron Glantz

Over the last five years, more than $600 million in college assistance for Iraq and Afghanistan veterans has been spent on California schools so substandard that they have failed to qualify for state financial aid.

As a result, the GI Bill – designed to help veterans live the American dream – is supporting for-profit companies that spend lavishly on marketing but can leave veterans with worthless degrees and few job prospects, The Center for Investigative Reporting found.

“It’s not education; I think it’s just greed,” said David Pace, a 20-year Navy veteran who used the GI Bill to obtain a business degree from the University of Phoenix’s San Diego campus.

Although taxpayers spent an estimated $50,000 on Pace’s education, he has the same blue-collar job he landed right after he left the service: running electrical cable for a defense contractor.

Financial records analyzed by CIR show that California is the national epicenter of this problem, with nearly 2 out of every 3 GI Bill dollars going to for-profit colleges.

The University of Phoenix in San Diego outdistances its peers. Since 2009, the campus has received $95 million in GI Bill funds. That’s more than any brick-and-mortar campus in America, more than the entire 10-campus University of California system and all UC extension programs combined.

For the University of Phoenix, this is a sign of success.

“The programs we offer are the ones that (veterans) desire,” says Garland Williams, the University of Phoenix’s vice president for military affairs. CREDIT: Carlos A. Moreno for CIR

“Veterans choose the University of Phoenix,” said Garland Williams, its vice president for military affairs. “The programs we offer are the ones that they desire and lead to careers that they want to aspire to.”

The school’s large share of GI Bill funding reflects more than just the number of veterans enrolling. The programs are expensive. An associate degree costs $395 a credit, for instance – nearly 10 times the cost at a public community college.

The University of Phoenix won’t say how many of its veterans graduate or find jobs, but the overall graduation rate at its San Diego campus is less than 15 percent, according to the U.S. Department of Education, and more than a quarter of students default on their loans within three years of leaving school.

Those figures fall short of the minimum standards set by the California Student Aid Commission, which dispenses state financial aid. The commission considers either a graduation rate lower than 30 percent or a loan default rate of more than 15.5 percent clear indicators of a substandard education.

No such restrictions govern GI Bill funds. And nearly 300 California schools that received GI Bill money either were barred from receiving state financial aid at least once in the past four years or operated without accreditation, CIR has found.

Of the $1.5 billion in GI Bill funds spent on tuition and fees in California since 2009, CIR found that more than 40 percent – $638 million – went to schools that have failed the state financial aid standard at least once in the past four years.

Four of those schools were University of Phoenix campuses, which together took in $225 million.Click to see the graphic

Among the others are massage schools, paralegal programs and auto repair academies. More than a third – 121 schools – have no academic accreditation, like the Institute for Advanced Study of Human Sexuality in San Francisco and the Pacific Coast Horseshoeing School in Amador County.

This is not what advocates hoped for when they pushed a new GI Bill through Congress in 2008. With its approval, the government for the first time since World War II committed to funding the full cost of a college education for veterans – pegged to the price tag for in-state tuition at the most costly public universities, up to $19,000 a year.

The advocacy group Iraq and Afghanistan Veterans of America pushed hard for the bill’s passage. The results have been disappointing, said Political Director Kate O’Gorman.

“Enormous amounts of GI Bill dollars” are going to schools that don’t see veterans as the future of the country, she said. Instead, companies are “seeing the benefit dollars they can line their pockets with.”

Nationally, the University of Phoenix received nearly $1 billion from the new GI Bill over the last five years. In all, 80,000 veterans of America’s recent wars spent their GI Bill money at 89 of its campuses and its online college, Department of Veterans Affairs data shows.

But it’s impossible to tell whether those veterans are receiving a quality education. In fact, no one from any state or federal government knows whether veterans who go to school on the GI Bill graduate or find jobs.

The University of Phoenix’s San Diego campus doesn’t look like a college. It’s a few mid-rise office buildings in a suburban office park, indistinguishable from the life insurance company that occupies the glass-and-steel structure across the street.

On a Friday morning in early May, a team of inspectors from the California VA pulled into the parking lot and headed to a conference room, where the college’s staff had laid out piles of student veterans’ transcripts and financial records.

The audit’s purpose is to ensure that GI Bill money is properly spent, but auditors don’t sit in on classes or review the qualifications of instructors. “That’s not a part of the visit at all,” said Latanaya Johnson, one of the agency’s senior inspectors.

Auditors look exclusively at paperwork, she said, to make sure schools aren’t billing the government for students who don’t exist.

The University of Phoenix is under fire from its accrediting agency. In a public disclosure in October, the Higher Learning Commission said the school failed to show that its “learning resources support student learning and effective teaching.”

Williams, the University of Phoenix vice president, downplayed the severity of the sanction, noting that the school was given a year to present a correction plan. But he wouldn’t detail specific failures that led to the sanction, and, as a private company, the University of Phoenix is exempt from public records laws.

Lawmakers in Washington are well aware that GI Bill money is being wasted. In 2012, Iowa Sen. Tom Harkin, a Democrat and chairman of the Senate Committee on Health, Education, Labor and Pensions, issued a scathing 5,000-page report detailing the practices of 30 large for-profit education firms.

But when Harkin and his colleagues try to solve the problem, they run into a wall of opposition from the for-profit industry.

Among the failed legislation: a bill that would have blocked schools with no academic accreditation from receiving GI Bill money. Another bill, which would have barred for-profit schools from spending GI Bill funds on advertising, marketing or recruiting, never got out of committee.

Since the new GI Bill became law, the University of Phoenix’s corporate parent has spent $4.8 million on lobbying Congress, the White House and the federal VA, according to official lobbying records.

Now, the legislative fight is moving to the state level, where the for-profit education industry also wields considerable clout.

In California, legislation to prevent schools with low graduation rates and high student loan default rates from receiving GI Bill money was gutted of those measures before its first legislative hearing earlier this year.

For-profit colleges continued to oppose the bill, however, because it would have forced schools to tell regulators how many veterans graduate and how many find jobs.

In April, the University of Phoenix’s lobbyist, Scott Govenar, sent a letter to Mike Gatto, D-Burbank, chairman of the Assembly Appropriations Committee. It argued that telling state regulators how many veterans graduate and find jobs would be cumbersome and “of little practical value.”

The bill passed the Assembly at the end of May on a 62-4 vote and headed to the state Senate. But by then, the reporting requirement also had been removed, though unaccredited schools would become ineligible for GI Bill funds in 2017.

The bill’s author, Democrat Jim Frazier of Fairfield, characterized the weakened bill as a first step in a yearslong battle.

“If you try to take too big a bite of the apple in some instances, it’s counterproductive because they fail,” he said. “So you try to go in increments.

This story was edited by Amy Pyle and copy edited by Nikki Frick and Christine Lee.

This story was produced by The Center for Investigative Reporting, an independent, nonprofit newsroom based in the San Francisco Bay Area. For more, visit cironline.org. Glantz can be reached at aglantz@cironline.org. Follow him on Twitter: @Aaron_Glantz.

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