Corporate, Cost of Education, Domestic, Ethics, For-Profit, Investors, Regulatory, Required, University & College - Written by on Tuesday, December 13, 2011 16:29 - 0 Comments

Congress Launches Investigation into ‘Lavish’ For-Profit Executive Compensation

by Beverly & Park via Flickr under CreativeCommons

Just when For-Profit universities thought Washington couldn’t become more hostile, Rep. Elijah Cummings, D-Maryland, is turning up the heat on executive compensation. Cummings, the ranking Democrat on the House Oversight and Government Reform Committee, sent letters to a host of publicly-traded companies/schools, including Apollo-owned University of Phoenix, Bridgepoint Education Inc., Capella Education Co., Career Education Corp., Corinthian Colleges Inc., DeVry Inc., Education Management Corp., Grand Canyon Education Inc., ITT Educational Services Inc. Lincoln Educational Services Corp. and Universal Technical Institute Inc.

“The American taxpayers fund these schools through billions of dollars in tuition assistance, but there is little evidence that lavish executive pay is linked to the well-being of the students they are supposed to educate,” Rep. Cummings said in a statement. He said he wanted to determine whether executive compensation was “appropriately tied to the performance of students they educate.”

In the past, Bloomberg News and others have reported on the high compensation at these schools. Strayer CEO Robert Silberman, for example, received a $41.9 million compensation package in 2009. Bridgepoint president and CEO Andrew Clark hauled in $20.5 million, much of it related to the firm’s 2009 initial public offering.

Rep. Cummings says that studies show chiefs of for-profit colleges, ”consistently make much more than their counterparts at public and nonprofit schools.” He said that for-profit companies, compared to public and nonprofit schools, ”for-profit companies spend a smaller percentage of their funds on student education, reserving more for marketing, advertising, recruitment and other non-education expenses.”

Cummings is known as a hawk on bloated corporate compensation. In the past, he has investigated bonuses for AIG executives, Fannie Mae and Freddie Mac. He focuses on the widening gap between the ultra-rich and middle-class workers in America, which has been given new life with the Occupy Wall Street movement in recent months.

Here is a chart, accompanying the investigation announcement on Monday:

Institution Revenues from U.S. Taxpayers
(e.g. Title IV loans & grants)
Executive Pay(Top 5)
Student Default Rate
Apollo Group, Inc. (AZ) 88% $27.9 million $6.5 million 20.9%
Bridgepoint Education, Inc.
85% $5.8 million $2.2 million 19.8%
Capella Education Co. (MN)
78% $8 million $3.8 million 6.5%
Career Education Corp. (IL)
82% $11.5 million $4.6 million 21.6%
Corinthian Colleges, Inc. (CA) 82% $12.6 million $3.03 million 36.1%
Devry, Inc. (IL) 77% $10.9 million $6.1 million 17.8%
Education Mgmt Corp. (PA) 77% $12.3 million $3.8 million 16%
Grand Canyon Education, Inc. (AZ) 85% $6.3 million $2.2 million 7.4%
ITT Education Services (NY) 59% $12.2 million $6.7 million 26.3%
Kaplan Education Inc. (NY) 89% ** ** 30%
Lincoln Educational Services (NJ) Between 62 & 96.9% $3.6 million $1.01 million 27.7%
Strayer Education, Inc. (VA) * 78% $6 million $1.5 million 12.8%
Universal Technical Institute (AZ) 73% $6.1 million $2.2 million 12.2%

– Statistics from chart are from 2010 unless otherwise noted –

*Data for 2010 not available, reflects statistics from 2009

**Kaplan Higher Education is a wholly owned subsidiary of the Washington Post Company that is not required to disclose this information to the SEC
Here is the video of Rep. Cummings rationale for launching the investigation:


Here is the link to the investigation announcement

And a link to more details of the investigation 


Here’s a wrap-up of how various media reported the news from Monday:

Bloomberg News‘ story by John Hechinger highlighted the committee tackling ‘lavish’ compensation at the schools that “bears little relationship to academic well-being.”

Representative Elijah Cummings, the top Democrat on the House Oversight and Government Reform Committee, sent letters asking to see pay agreements from 13 companies, including Apollo Group Inc., Strayer Education Inc. and Washington Post Co.’s Kaplan unit. Cummings cited a 2010 Bloomberg article that showed executives at the 15 U.S. publicly traded colleges received compensation that exceeded traditional colleges and collected $2 billion from selling stock over the previous seven years.

Congress and the U.S. Education Department are scrutinizing for-profit colleges, which received almost $32 billion in federal grants and loans in the 2009-2010 school year. Students at those schools are defaulting on government loans at higher rates than those who attend nonprofit and public institutions.

Via Bloomberg: ‘Lavish’ CEO Pay at For-Profit Colleges Targeted by Lawmaker

Vicki Needham at The Hill in Washington started with the For-Profit leaders’ response to the investigation: 

Brian Moran, interim chief executive officer and president of the Association of Private Sector Colleges and Universities (APSCU), called the investigation by Rep. Elijah Cummings (D-Md.), ranking member of the House Committee on Oversight and Government Reform, “just more politics” that doesn’t acknowledge the role of the private sector schools. “This appears to be just more politics and unfortunately fails to acknowledge the important role private sector colleges and universities have in educating non-traditional students to compete for jobs in a very difficult economic environment,” Moran said in a statement sent to The Hill. 

Moran argued that private sector schools charge less tuition and have fewer fee increases while showing similar results of other higher education institutions. ”The truth is career-oriented institutions are an integral part of the solution with more than 3 million students representing about 12 percent of all of higher education,” he said. “Rather than singling out one sector, we hope that Rep. Cummings evaluates all areas of higher education so that the true beneficiary is the student.”

… A spokesman for the University of Phoenix, part of the Apollo Group, which received one of the letters, said compensation is based on student satisfaction. “University of Phoenix welcomes transparency and accountability across all of higher education,” said Rick Castellano, director of Public Relations, in an email to The Hill on Monday. ”We appropriately base compensation on student satisfaction and educational outcomes and have lead the way in providing vast student resources —including graduation teams, our student preparation center and no-cost orientation program for all new students,” he said. “We seek to ensure our students are prepared for the workforce and hope all schools will do the same.”

Via The Hill: For-Profit school leaders criticize Cummings investigation

Eric Lichtblau of The New York Times reports: 

Data indicated that the chief executives at three of the schools on Mr. Cummings’s list – the University of Phoenix, DeVry University and I.T.T. Educational Services – made more than $6 million last year, including salary, stock options and bonuses, the congressman said in soliciting the information.

The executive compensation for the schools appears markedly higher than at public and nonprofit schools, past studies have suggested. At the same time, many for-profit or “career” colleges have reported higher default rates on student loans and a lower proportion of money spent on student education.

… In June, the Obama administration finalized new regulations for the nation’s for-profit colleges to encourage greater transparency in their marketing operations and to link federal aid for the first time to their records regarding their students’ loans and post-graduate income. Programs that cannot show their students are earning enough to pay back their loans risk losing federal aid.

An initial proposal by the administration last year would have gone significantly further to rein in for-profit schools, affecting perhaps three times as many programs and taking effect in one year instead of three. But those harsher restrictions were scaled back after an intense lobbying push by the for-profit industry, which argued that good programs would be harmed. Nonetheless, some colleges are suing to block the final regulations.

Via The New York Times: Pay Data Sought for For-Profit Colleges

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