A Degree in Debt.
Attempted reforms haven’t changed all that much in Texas’ for-profit college industry.
AUGUST 13, 2014
By Steve Miller, Fort Worth Weekly
Five days a week, Robert Rowlett heads off to work at his $7.75-an-hour job with the City of Dallas’ sanitation division. From his roughly $310 a week in take-home pay, he sets aside whatever he can to pay down the $25,000 student loan he took out 10 years ago. He still owes several thousand dollars.
He got the federally backed loan to cover tuition for the auto mechanics program at ATI Enterprises, a string of 500 for-profit trade schools based in North Richland Hills. He was an ex-con looking for a break in 2003 when he saw the TV commercial for the school, promising a future he could not conceive of.
“I called them, and they took me around campus, and I talked to the instructors, and it was nice,” Rowlett, 54, says. “They greeted me, they treated me kindly. And I said ‘I’m going to give you a try.'”
At the end of two years, he had earned his auto mechanic’s certificate with a 3.25 grade point average, never missing a day of class, he says. But when it came time to graduate, “they told me I owed them more money and that I couldn’t get my diploma until I paid them more.”
Rowlett fought ATI over that and finally got the certification. Still, he never found the mechanic’s job he had hoped to get. He does work on cars, but only on weekends, out of his house, to make a little extra money.
Today Rowlett lives with his mom, helping her pay bills when he can on his meager salary. And if his studies at ATI didn’t get him a better job, they’ve had other lasting effects. Whatever refund he gets each year on his income taxes is taken by the government to help pay down his debt. And the loan, he said, has “got my credit all jacked up. I have to pay more for anything I try to buy on credit.”
Rowlett is among thousands of former students in Texas whose painful experiences with trade schools and for-profit colleges led to federal investigations, lawsuits, and in one case criminal charges against the schools’ operators over the last several years.
Investigators found that some schools were using fraud to recruit students and promising certification for programs that never happened. By inflating their records of success at placing graduates in better-paying jobs, the operators convinced students to take out federally backed tuition loans. The schools pocketed the proceeds, and students in many cases ended up with worthless degrees, no better job prospects than they had before — and debts like Rowlett’s, which they still were responsible for. In some cases counselors advised students to lie on their loan applications.
The results of those investigations were significant: Whole chains of schools were closed down, including almost all of ATI’s campuses. Federal prosecutors have extracted millions of dollars in settlement penalties from the schools. Last year, Lubbock-based American Commercial Colleges agreed to pay the federal government up to $2.5 million to settle a fraud case that originated with whistleblower revelations.
From another point of view, however, not all that much has changed, at least in Texas. State oversight of the schools has increased somewhat, due to legislation, but remains relatively lax.
The Texas Workforce Commission, which is charged with overseeing the for-profit schools in Texas, did little while the federal investigation was going on. At that time, the TWC had a place on its website for students and staff to file complaints, but it was a cloaked portal that was decidedly user-unfriendly. Students with grievances said they found it difficult, if not impossible, to get anyone at the state to pay attention.
Since then, TWC has levied fines against some schools, and there is now a more accessible complaint line. But the agency’s attitude toward finding and fixing problems still seems almost disinterested.
“I don’t have specifics on the complaint process,” said Lisa Givens, TWC spokeswoman. “If there is information we can provide to a student who calls, we will do that.”
Isn’t it part of TWC’s role to protect students and potential students in the career school marketplace?
“One of the roles we have is to provide information so that people can make an informed choice,” she said.
A new report by the National Consumer Law Center on state oversight of for-profit schools singles out Texas for its lax enforcement. The report notes that overseeing trade schools and for-profit colleges is just one of TWC’s roles among many others, like dealing with unemployment claims and employee beefs against companies.
“Given this long list of disparate responsibilities, it is not surprising that in 2011 the TWC was caught unprepared when a local news outlet revealed that schools owned by ATI Enterprises Inc. lied about job placement rates,” the report notes. “Only after receiving harsh public criticism did the TWC take action against ATI.”
In some cases, discredited companies continue to operate for-profit schools. Almost all officials of the schools targeted by federal complaints and judgments walked away personally unscathed to new positions, including some with other for-profit schools. One went back to his previous job as a regulator of for-profit schools for TWC.
Throughout the process, students have been left with debts that are not being erased. Such loans can be a burden even to graduates of top-flight universities who have excellent skills and job prospects. They are a much heavier millstone to those who find themselves only with the burden and no benefit.
The problem is so widespread that some observers believe it is affecting the whole picture of student loans.
“The for-profits are dragging down the student funding system,” said Natalia Abrams of StudentDebtCrisis.org, a nonprofit that works on education costs. She attributed half of today’s $1 trillion in student debt to for-profit colleges.
The problems that federal investigators found at Texas for-profit schools and colleges were so serious and so broad that they seemed sure to lead to reforms:
· In 2009, 15 students sued Argosy University in Dallas, alleging they had signed up for a clinical psychology program that the school vowed would be certified by the time they completed school. The parent company, Education Management Corp., assured investors in an annual corporate filing that the actions were solved via an “immaterial amount in settlement … .”
· Westwood College in 2012 closed its Fort Worth and Dallas campuses, citing economic conditions. Westwood was called out in a 2010 report by the federal General Accountability Office for advising an undercover investigator posing as a potential student not to report $250,000 in a saving account in order to qualify for federal student aid.
· Corinthian Colleges in June announced it would close campuses in 11 states, including four in the Fort Worth area that operate under the name Everest College. Federal authorities had halted Corinthian’s access to student loans amid an investigation into allegations that some of its schools used deception to recruit students.
· In the case of ATI, a federal civil complaint filed in 2012 alleged that the company took in $236 million in federal aid between 2007 and 2010, nearly a third of it solicited via fraudulent practices. ATI settled the case for $3.7 million and left students holding the bag on tens of thousands of dollars in loans.
Last year Lubbock-based American Commercial Colleges agreed to pay up to $2.5 million to settle a civil complaint filed against the college by federal prosecutors alleging that school officials had operated a complex and duplicitous scheme under the noses of state regulators for years.
The civil case, put together with evidence from whistleblowers, alleged that ACC, a 50-year-old enterprise with locations in six cities in Texas and Louisiana, “falsified documents to obtain loans and grants for a number of students, who turned the money over to the college for a promise of a portion of the proceeds.”
The complaint also claimed the college obtained private loans for students with the help of a local banker to satisfy federal requirements that a college receive no more than 90 percent of its overall tuition revenue from public funds.
Under the scheme, ACC arranged the personal loans for students so that its books would pass the annual audit of funding sources, then paid the money back to the bank afterward.
Students were told that, unless they signed the loan papers, “the school would fail and their money and time would be wasted,” according to the complaint.
Whistleblower Tony Delgado said TWC failed to take action until the federal investigation forced the state agency’s hand.
“TWC knew, because it was the first place I went when I wanted to tell someone what was going on,” said Delgado, who spent three years working as a director at ACC, watching and sometimes even participating in the fraud. He said students were trying to find a way to get the agency to listen as well, to no avail. Some were told to wait until the end of the term to file a complaint, he said.
Students were ushered through a mysterious loan process.
“They called a number of us into a meeting at the end of the semester in October 2010 and told us we had to continue to pay our tuition but that some students didn’t have the money,” said Francesca Gutierrez, who attended ACC from July 2010 to March 2011. “They asked us if it was OK to take out loans in our names, which would be paid back by them.”
She said she signed a paper requesting a loan of $500 and never heard about it again. She said at least eight other students in her classroom alone signed up for loans that day.
Gutierrez said she had no job when the loan was taken out in her name.
“It wasn’t until the U.S. Department of Education was involved that the state took it seriously,” Delgado said. The state closed the Abilene and Lubbock campuses of ACC in early 2012, two years after the federal inquiry began.
In May, Brent Sheets, president of ACC, pleaded guilty personally and on behalf of the college chain to theft of government funds and aiding and abetting such theft. ACC, with resources estimated at $10 million, faces a $500,000 fine and up to five years probation. And Sheets faces up to three years in prison.
ACC’s remaining Texas campuses, in Wichita Falls, Odessa, and San Angelo, were closed in June. Hundreds of students were left with student loans and no school to attend.
In a heavy-hitting series of reports that began in 2009, WFAA/Channel 8 in Dallas reported on the state’s trade school and for-profit college industry. When reporters submitted open-records requests, TWC refused to provide enrollment, program completion, or placement numbers for several career schools.
In early 2011, State Sen. Florence Shapiro introduced a bill to fix some of the problems that WFAA had reported on and to tighten the screws on the for-profit education industry in Texas.
The bill by the Plano Republican required that thorough consumer information on each school be provided on the websites of both the Texas Workforce Commission and the Texas Higher Education Coordinating Board.
“Currently, there is not an easily accessible way to make such complaints nor is there an easy way for the [attorney general’s office] to monitor potentially detrimental activities conducted by for-profit institutions,” a Senate researcher wrote at the time.
In an April 2011 hearing before the Senate Committee on Economic Development, Dallas lawyer Ty Gomez, representing several students who had filed grievances against ATI, stressed that if TWC posts placement information provided by the schools without checking it, the agency might be perpetuating new inaccuracies.
When the agency receives data from the schools, Gomez said, the TWC puts its seal of approval on it, allowing the information to be sent to prospective students.
“If the data is not valid, then you essentially have the TWC authorizing supporting information that may not in fact be correct,” he said.
The measure by Shapiro was folded into another legislator’s successful bill. Shapiro did not return a call requesting comment for this story.
Several other successful bills also instituted some reform measures. One bill clarified the refund policy for students. Another changed the regulatory process for out-of-state career schools that advertise online to Texans.
One bill that failed to pass would have removed TWC’s oversight of all postsecondary schools that offer associate degrees or higher and given that job to the Texas Higher Education Coordinating Board, an arm of the Texas Education Agency. The Coordinating Board had regulated those colleges until an earlier legislative change in 1995.
“I would have testified against moving that regulation from the Coordinating Board,” said Kenneth Ashworth, commissioner of that board from 1976 to 1997. “I think educational matters should be supervised by educators. Profit-makers cannot be entrusted to business people.”
The bills were all attempts to remedy years of what some perceived as lax regulation of the career-school industry in Texas.
For years, any attempt at reform ran into a formidable lobby that begins with the Career Colleges & Schools of Texas PAC, a group that has filtered tens of thousands of dollars into state campaign coffers.
The PAC’s lobbyist, Jerry Valdez, has donated more than $100,000 to various candidates since 2000. The PAC’s former legislative chairman: Brent Sheets, president of American Commercial Colleges, who pleaded guilty this year to federal charges of theft of government funds.
Valdez declined to be interviewed.
TWC licenses and regulates more than 500 career schools and colleges in Texas that provide vocational training to more than 170,000 students annually. TWC makes annual site visits to campuses and monitors the qualifications of faculty, quality of facilities, class size, student completion rates, student employment rates, and other criteria. TWC also investigates student complaints and reports of unlicensed schools — from the 2011 annual report of the Texas Workforce Commission
By early 2012, the state had implemented new standards and procedures for career schools, required by the 2011 legislation. Recruiters would be trained on ethics in soliciting students. Employment rates of graduates would be accurately reported. And tuition would be refunded if a school misrepresented itself.
“Since 2012 we have assessed more than $90,000 in penalties” to errant career schools, said Givens, the TWC spokeswoman, She said the agency now has an established procedure for inspecting and otherwise checking on how the for-profits operate.
Today, graduation rates and placement figures are available through a search portal at the TWC website. Before the 2011 reforms, several schools were accused of falsifying employment figures, even going so far as to create phony companies that they claimed graduates were working for.
The Texas Workforce Commission’s staff of auditors include contractor Frank Hammack, who helps police the state’s for-profit colleges. Hammack’s former employer is ATI, where he worked as director of compliance from 2008 to 2011. During two of those years, the school was alleged to have falsified its records.
Hammack also worked for the TWC division overseeing for-profit schools at least a year before moving to ATI.
TWC’s job “is to protect students and businesses in Texas,” former agency spokeswoman Ann Hatchitt said in an interview in 2010, when career colleges in Texas were being investigated by the federal government.
She said TWC is there to support employers, including the for-profit college industry.
In fact, Texas is one of the few states where federal prosecutors closed schools in the face of inaction or sluggish regulation by the state.
“The state gets involved after it becomes apparent the federal agency is going to get serious about enforcement or an action,” said a former employee of American Commercial Colleges. “Otherwise the state does nothing to regulate the schools.”
Although newspapers reported in 2012 that ATI would close all its Texas campuses, at least one Metroplex location with ties to ATI continues to enroll students and receive federal loan money.
“They make a big deal when they claim to close down these schools, but pretty soon they are up and operating again, sometimes with the same people, sometimes with different people,” said Harry Shulman of San Francisco, one of the few lawyers across the country who still handle cases of aggrieved students who feel fleeced by the for-profit education sector.
The state, meanwhile, doesn’t list ATI among the schools closed over the years by the TWC. The last school the state closed, according to its website, was Career Academy of Texas in Grapevine. Like most of the for-profit operations, the academy promised to help students obtain funding assistance from a number of sources, including the Texas Workforce Commission itself, the very agency charged with policing it.
Today, the Dallas Nursing Institute, owned by ATI Enterprises, is open for business, despite the 2012 vow by the TWC that all campuses would be closed.
Records show that last year, the institute’s registered nurse program enrolled 39 students who sought degrees at a cost of $44,260 each, for 69 hours of education. No one graduated in 2013, according to state records.
Property records list the owner of a suite in the building on Abrams Road in Dallas as ATI Enterprises Inc., doing business as the Dallas Nursing Institute.
Theresa McFee was a student at the nursing institute in 2010 when the heat was just starting to get turned up on ATI. She had been there for over a year when things started to get funny.
“They were doing things like changing up the tests at the last minute and changing the calendar to make it fit their criteria and probably benefit their funding,” McFee said. The entire class failed the final, she said, yet some students were picked out as passing anyway.
“So they told us we had to take it all again,” she said.
McFee called the Texas Department of Education, which correctly told her it had no jurisdiction. Same with the state nursing board.
Finally, while the state thumped its chest over the closing of some of the ATI campuses, McFee was among those who did escape with a passing grade and a nursing certificate, along with $30,000 in student loans to repay.
In fact, while students like McFee, who is unemployed, are still saddled with tens of thousands of dollars of debt, the players whose actions brought ATI down are prospering and in some cases doing business together again.
They are involved in endeavors that include solar power, nonprofit work, investment firms, and further adventures in the for-profit education field.
The head of ATI between 2005 and 2010 was Arthur Benjamin, a Florida resident and entrepreneur. He is part of an investment company that continues to list ATI on its website as one of its primary projects. It was under his leadership that ATI expanded from eight to 20 campuses.
“Everything that happened [at ATI] was after I left,” Benjamin said in a recent interview. “Compliance and management were subject to great scrutiny with almost no finding of trouble at all.”
Indeed, Benjamin, as CEO, might not have had much notice of trouble. But the federal complaint noted that he was part of ATI during the time the problems developed. And compliance officials from four states, including Texas, visited ATI campuses in 2010.
“Each visit resulted in a final report, and only a few had minor findings,” Benjamin said.
His successor, Carli Strength, resigned in late 2011. Strength, a successful businessman before his tenure at ATI, is founder and CEO of Alpha-Fitness Solutions, an exercise-equipment business in Colleyville. Property records show the Mid-Cities home that Strength bought in 2007 is valued at $1.3 million.
One of the sales account managers at Alpha-Fitness is Jeff Myers, ATI’s former regional director of placement. One whistleblower claimed Myers had instructed a placement clerk to count a business administration graduate working at Dollar General as having been “placed” in a job.
Paulette Gallerson, also accused of submitting false placement reports, left ATI and for several years served as executive director of Kaplan College Fort Worth.
Jane Lam, who was director of financial aid at the ATI Career Training Center and named in the federal complaint as having turned a blind eye to financial aid improprieties, is now director of student finance at The College of Health Care Professions in Mansfield.
Michael Zawisky, who served ATI in various executive roles between 2010 and 2013, including vice-president of accreditation, is now CEO at Hurst-based Ancora Education, another for-profit college. His group last year acquired several south Texas colleges in a property foreclosure by ATI creditors. That action was prompted by the state’s shuttering of several ATI campuses for recruiting violations.
Anthony DeVore, another former executive director at ATI, was accused by federal prosecutors of submitting false placement reports. He is the vice president of operations at DFW Solar Electric, a solar panel installation firm in Flower Mound.
According to the federal complaint against ATI, DeVore told admissions administrators to stop telling prospective students that their criminal backgrounds might cause them problems.
DeVore declined to comment. Gallerson could not be reached. Calls to the other former ATI executives were not returned.
Meanwhile, the federal loan debts keep their hold on former students.
An earlier drug conviction caused Jocelyn Boyd to lose her job at a medical billing operation in 2009, shortly after receiving her certification from ATI in medical assistance.
“I had told them I was a convicted felon when I applied for the school, and they said it was no problem,” said Boyd, 33. But when the temporary job she had at Presbyterian Hospital of Dallas was to become permanent, a background check revealed the felony, and the job was scotched.
“After that, all I got was nothing from ATI — no help, no response, nothing,” Boyd said. She’s since landed on her feet, joining her boyfriend on a bread delivery route in North Dallas and preparing to buy a home.
She still has $17,000 in student loans to repay, which means her income tax refund is withheld each year, her credit is poor, and she gets the occasional threatening phone call from a collection agency.
“I don’t understand how this is OK,” Boyd said. “They stole money from the government, and now the government is taking it from us. Why can’t they take it from the people who stole it in the first place?”
Some states have begun to battle the career schools, with attorneys general filing actions for infractions regarding recruitment practices, falsified placement statistics, graduate certification, and student lending activities.
AGs in several states have taken various forms of civil action against companies operating schools, mostly under state consumer-protection laws. Texas is not among them.
The feds have pushed for criminal sanctions, with limited success.
In very few cases has there been any relief for trade-school victims like Camerion Savage, who is sitting on $17,000 in student debt.
Savage, 28, graduated from Everest with a degree in business administration. These days, however, his job calls for a respirator much more often than it does a coat and tie. He works at Fritz Industries in Mesquite, where he is part of a team that manufactures chemicals for oilfield operations.
Everest, he said, delivered on its promise to find him work — technically.
“McDonald’s, Denny’s, Home Depot — those were some of the [employers] they tried to connect me with,” said Savage, who lives in Dallas. “They were helping people find jobs that you could get with a high school diploma.”
In Corinthian’s quarterly filings with the Securities and Exchange Commission, the company assures investors that the federal loans solicited by students “cannot become an obligation of ours … .”
Corinthian CEO Jack Massimino, in a quarterly investor call in November, told analysts, “We’re proud of the work we do.”
At the end of fiscal 2013, Massimino received a $1 million bonus while the company doled out another $1.4 million in awards to other executives.