GAO Investigation Exposes Systemic For-Profit College Fraud - Industry Takes 25% of Federal Aid

A Government Accountability Office investigation released on August 4, 2010, exposed systemic fraud and deceptive practices across the for-profit college industry, revealing that while these institutions enrolled only 10-12% of all higher education students, they received 25% of all federal financial aid—approximately $32 billion annually in taxpayer funds. The GAO’s undercover testing of 15 for-profit colleges found that all 15 engaged in deceptive practices and four engaged in outright fraud.

The investigation documented recruiters making false promises about unrealistically high salaries for graduates, encouraging prospective students to falsify financial aid applications, and providing misleading information about program costs and accreditation. GAO investigators posed as prospective students and recorded recruiters encouraging them to lie about income to qualify for more aid, promising job placement rates the schools could not substantiate, and pressuring applicants to sign enrollment agreements immediately without reviewing them.

The scale of the scam was staggering: between 1990 and 2010, enrollment at for-profit colleges increased 600%, growing from 365,000 students to nearly 2 million. All 15 colleges sampled received more than 89% of their revenue from federal student aid, meaning taxpayers funded the entire predatory business model. Students were left with massive debt—often $50,000 to $100,000 for associate degrees or certificates—for degrees that proved nearly worthless in the job market.

The GAO testimony before Senator Tom Harkin’s Health, Education, Labor and Pensions Committee showed that for-profit colleges had default rates twice as high as public institutions, with students disproportionately low-income and minority borrowers targeted by aggressive recruiters. The industry spent millions lobbying Congress to prevent regulation while executives at companies like Corinthian Colleges, ITT Tech, and University of Phoenix extracted enormous profits from taxpayer-funded student debt.

The investigation exposed the core business model: maximize federal aid extraction, minimize educational quality, trap students in non-dischargeable debt (thanks to the 2005 Bankruptcy Act), and shield executives and investors from consequences when institutions inevitably collapsed. This hearing marked the beginning of regulatory efforts that the for-profit industry would spend the next decade fighting through lobbying, campaign contributions, and eventually the installation of for-profit ally Betsy DeVos as Education Secretary in 2017.