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Eight for-profit colleges, led by Apollo Group Inc. (APOL)’s University of Phoenix, collected about $1 billion in education benefits for U.S. veterans in the most recent academic year, according to a Senate report.

Those colleges got about a quarter of the Post-9/11 GI Bill education funds in the 2010-2011 year, Democratic Senator Tom Harkin of Iowa, chairman of the Senate education committee, said today at a news conference in Washington. The University of Phoenix alone received $210 million, almost three times as much as a year earlier, he said.

The so-called “90/10 rule” limits for-profit colleges to getting no more than 90 percent of their revenue from the government. Veterans’ and military tuition programs are excluded from the cap, and the colleges have aggressively recruited beneficiaries, Harkin said. Democratic Senator Thomas Carper of Delaware, who has suggested the cap might be expanded to include those programs, led a hearing on the rule today.

“We have to try to see what we can do to get better information to GI’s so they have a better information base,” Harkin said. “They need to know what’s out there, instead of just being sucked in by aggressive recruiting.”

Limiting veterans tuition funds that can go to for-profit colleges would hurt students, Brian Moran, interim president of the Association of Private Sector Colleges and Universities, a Washington-based industry group, said in an e-mailed statement.

‘Unwarranted Barrier’

“The 90/10 restriction does nothing to measure quality outcomes and, by including military benefits in the 90 percent, places an unwarranted barrier in the way of students seeking a career-focused education,” Moran said.

Jon Elliot, a former U.S. Army staff sergeant who received the Bronze Star for service in Iraq, said he signed up for auto mechanics classes at ATI Career Training Center, based in North Richland Hills, Texas, after a recruiter told him Post-9/11 GI Bill benefits would cover the costs. Months later, Elliot discovered the program in Garland, Texas, wasn’t approved for the benefits, and the school sent him a bill for $9,600, he said at the news conference.

“These stories are coming in all the time,” Harkin said. “The recruiting is just phenomenal and they’re doing it so they can get by the 90/10 rule.”

Elliot said he got a telephone call yesterday from the school, saying his tuition bill had been forgiven. “Maybe it’s just coincidence,” he said. “I don’t want to speculate.”

ATI apologized for Elliot’s experience in a written statement today, saying the situation should have been resolved in a more timely manner.

Predators’ ‘Goldmine’

The veterans education program has been “a goldmine to predatory for-profit institutions that have taken advantage of the law,” said John Rowan, president of the Vietnam Veterans of America, in an e-mailed statement today. There may be some justification for including the education benefits under the 90/10 cap, Curtis Coy, Veterans Affairs deputy undersecretary for economic opportunity, said in testimony prepared for the hearing.

“Some institutions may be targeting veterans because the federal education benefits they receive are treated the same way as private funds in the 90/10 calculation,” Coy said. “VA believes veterans should not be aggressively recruited by institutions principally because of financial motives.”

Misinformed Vets

Veterans and their families are targets of “predatory” for- profit colleges that use deceptive marketing practices to coax students to enroll, said Ted Daywalt, chief executive officer of VetJobs, an employment clearinghouse sponsored by the U.S. Veterans of Foreign Wars. He said VetJobs has seen many who were misinformed about for-profit colleges’ accreditation status, the transferability of credits, and the quality of programs.

“Not all for-profit schools are bad,” Daywalt said in testimony prepared for the hearing. “But those that are bad are very bad.”

Rather than expanding the 90/10 rule, Congress should do away with it, Russell Kitchner, vice president for regulatory and government relations at American Public Education Inc. (APEI), said at the hearing. The Charles Town, West Virginia-based company got 61 percent of its revenue from U.S. military and veterans programs in the year ended September 2010, according to Jarrel Price, an analyst at Height Analytics in Washington.

In order to comply with the 90/10 rule, for-profit colleges frequently raise tuition above the level that students can get from capped government sources, Kitchner said.

‘Perverse Effect’

The rule “has the perverse effect of driving tuition up, rather than focusing on making education more affordable for students and reducing the burden on the American taxpayer,” Kitchner said in written testimony.

The Education Department issued regulations this year called “gainful employment” that would cut off federal student aid to for-profit colleges whose students struggle the most to repay government loans. Education companies also oppose those rules and the association has filed a lawsuit against them.

Harkin and Carper said the regulations will protect students and should be allowed to stand. Virginia Democratic Senator Jim Webb, a Vietnam War veteran who introduced the Post 9/11-GI Bill, said at the hearing that he’ll be watching to make sure there is adequate monitoring of the program’s benefits.

The Defense Department increased oversight of online courses this year after Harkin and Carper investigated program quality and aggressive recruitment practices of active-duty military members and veterans at for-profit colleges, which frequently offer Web-based classes. About 22 percent of Apollo Group’s 2010 spending was on marketing, Harkin said today.

Twice the Cost

The Post-9/11 GI Bill sent $4.4 billion to almost 6,000 institutions educating veterans who served since the Sept. 11, 2001 attacks in New York and Washington, Harkin said in a statement. Veterans taking courses from for-profit colleges cost taxpayers $10,900 a year, about twice as much as those in public universities, where costs average about $4,900, according to the statement.

ITT Educational Services Inc. (ESI), second to Apollo in receiving veterans’ education benefits, got $178 million in the 2010-2011 year, more than twice the $79 million of a year earlier, the Senate report said. Education Management Corp. (EDMC), the subject of a U.S. investigation of recruitment practices, was third with $173 million in program funds last year.

Apollo Group, based in Phoenix, fell $3.04, or 7 percent, to $40.42 at 4 p.m. New York time in Nasdaq Stock Market trading. Education Management, based in Pittsburgh, lost 1 cent to $16. ITT Educational, based in Carmel, Indiana, dropped $1.93, or 3.2 percent, to $59.37.

The highest-ranking public college in program funds was the University of Maryland, with $51 million for the year. Its University of Maryland University College provides classes on military bases. Both public and for-profit colleges need to improve their services for veterans, Carper said.

“We must focus on how we can fix problems within the higher-education system by better incentivizing all schools to deliver a higher quality education to our military and veteran populations,” Carper said in an e-mailed statement.

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