FRANKFORT — Kentucky has paid $97 million since 1999 through its state scholarships to privately owned, for-profit colleges, including several under investigation for alleged consumer fraud or other possible wrongdoing, according to a Lexington Herald-Leader review of public records.
Some states, such as Ohio, have moved to reduce for-profit colleges' access to state educational aid, citing a need to put students at state colleges first in a time of repeated budget cuts.
Kentucky has not. The state gives nearly 8 percent of need-based student aid to for-profit colleges, which is twice the national average, according to a survey by the National Association of State Student Grant and Aid Programs. Only four states give a bigger portion of need-based aid to the industry, the association found.
Among Kentucky's for-profit schools to collect state aid was Decker College in Louisville, which went bankrupt in 2005 amid allegations of fraud and inadequate accreditation, leaving hundreds of students with loan debt and no chance to obtain degrees. Another, the Sullivan University System, saw a nearly 1,000 percent increase in its assets from 1998 to 2009, accumulating $76 million, according to court records.
Key lawmakers say Kentucky should discuss during the 2012 General Assembly, which starts in January, who gets state aid.
"Some of these for-profit schools are very profitable and make millions of dollars every year, much of it from public money. But we have no idea where that money goes or how it's used, whether it's for the classroom or the bank account of the owners. There's no transparency," said Democratic state Rep. Reginald Meeks of Louisville, an administrator at the University of Louisville and vice chairman of the House budget panel that funds higher education.
The federal government and the states, including Kentucky Attorney General Jack Conway, are scrutinizing for-profit colleges' advertising, student loan defaults and the quality of their teaching. Last week, congressional investigators reported a new round of problems with cheating and dishonest grading and financial aid counseling at seven for-profit colleges. This followed on past congressional criticism of the industry, enforcement action by the U.S. Departments of Justice and Education and private lawsuits by students who say they received little of value for their money.
Some for-profit colleges in Kentucky charge $30,000 a year or more for two-year vocational degrees related to clerical jobs in offices or cooking in restaurants. Data suggest that many of the students struggle later. Nationally, students at for-profit schools represent 26 percent of federal student loan borrowers and 43 percent of subsequent loan defaults, according to federal data.
There's not enough Kentucky scholarship money for everyone, said state House Education chairman Carl Rollins, D-Midway.
For-profit colleges get much of their state aid from the need-based College Access Program, or CAP. For the 2010-11 academic year, 37,836 students won $59 million in CAP scholarships. But an additional 76,025 students seeking $119 million were turned away.
"The thing with CAP is, it's a first-come, first-served program," Rollins said. "The for-profit schools are so well organized about getting their students to apply early and reapply every year. That's a real problem for our public community colleges. A lot of their prospective students decide to attend at the last minute for whatever reason, and by the time they do, all of the money is gone."
For-profit colleges say they should remain eligible for state aid. The industry is emerging in Frankfort as a potent lobbying force. It has spent more than $228,000 on political donations since 2002, mostly in the past few years, and it reported spending $36,000 to lobby the 2011 General Assembly. Much of the lobbying went to defeat a bill by Meeks that would have ended industry control of the State Board of Proprietary Education, which regulates for-profit colleges.
Students decide where scholarships go based on where they choose to enroll, said Candace Bensel, executive director of the Kentucky Association of Career Colleges and Schools. Many students prefer the hands-on vocational training offered at "career colleges," so their aid packages follow them, Bensel said.
"The career college sector is focused on providing the training and education necessary to individuals who fill many of the vacant jobs that businesses and manufacturers across the commonwealth need to fill," Bensel said. "For career colleges and our students, it's all about the job."
Since 1999, Kentucky has spent $1.7 billion from the Kentucky Lottery and the state's General Fund on three scholarships: the merit-based Kentucky Educational Excellence Scholarship, or KEES; the need-based CAP; and the Kentucky Tuition Grant, or KTG.
For-profit colleges usually are considered eligible for state aid once they are approved by the U.S. Department of Education for federal financial aid, which dwarfs state aid. By law, for-profit colleges may use federal aid — government-backed loans and Pell Grants — for 90 percent of their revenue.
Several for-profit colleges getting state aid in Kentucky are under investigation by Conway for possible violations of the state Consumer Protection Act. These include:
■ National College, which Conway in a lawsuit says misrepresented the employment success of its graduates. National College has denied Conway's claim; in an advertising campaign critical of Conway and disputing some of his data, it says its graduates do well. School spokesman Roger Dalton, vice president of government affairs, declined to comment for this story.
In 2002, after a review by the Kentucky Higher Education Assistance Authority, National College agreed to repay $127,000 in state aid that it had failed to disburse to its students, said Diana Barber, the assistance authority's general counsel. The agency, which is responsible for administering the state aid, considered the matter closed and did not strip National College of its aid eligibility, Barber said.
■ Daymar College, which Conway in a lawsuit says used deceptive recruiting tactics and cheated students on textbook sales, financial aid and the quality of teaching. Daymar College has denied Conway's claim. The school's president, Mark Gabis, did not return calls seeking comment for this story.
■ Education Management Corp., owner of Brown Mackie College, which Conway in court filings said defrauded government aid programs by illegally paying recruiters based on the number of students they enrolled.
Education Management has denied the recruiting claim. Conway's attempt to join a federal whistle-blower lawsuit against the company in Pennsylvania was denied by a judge in October on technical grounds. J. Stephen Dobbins, senior director of communications at Brown Mackie, declined to comment for this story.
In a recent interview, Conway said he understood the value of for-profit colleges that offer legitimate vocational programs — like culinary training — not available elsewhere in a community.
But others hook students with advertising and simply charge more for the same degrees available at public community colleges, he said.
"These are businesses," Conway said. "The fact of the matter is, they're businesses ... many of them owned by hedge funds or traded publicly. They put the interests of their shareholders sometimes in front of the interests of their students."
Conway has tangled with the largest for-profit recipient of state aid: Sullivan University System, a statewide chain based in Louisville that has collected $62 million in state scholarships since 1999. The chain has a campus in Lexington on Harrodsburg Road and also owns Spencerian College, which has a Lexington location in a Winchester Road shopping center.
Sullivan University has gotten as much state scholarship aid as publicly run Murray State University and more than any of the state's community colleges, according to the Kentucky Higher Education Assistance Authority. It also gets federal financial aid: $57 million in the 2009-10 academic year alone, according to the U.S. Department of Education.
Conway has not sued Sullivan University as part of his ongoing investigation, but he has subpoenaed records from subsidiary Spencerian College. Also, a special prosecutor is looking into whether Sullivan University executives who are unhappy about Conway's investigation broke state law by telling their employees to vote for and donate money to Conway's opponent in this month's election.
Sullivan University has enjoyed record-high years for enrollment and income, according to Jefferson Circuit Court records filed in a fight between its two owners, chief executive Alva Sullivan and his ex-wife, Patricia Schrenk.
In a 2009 letter, Sullivan told his ex-wife that the college held $20 million in cash reserves and during the past 10 years had distributed $77 million to the two of them and to pay related corporate and personal taxes. This sum did not include their salaries, bonuses and other benefits. In her own filing, Schrenk said college funds went to settle potential sexual harassment lawsuits and pay for personal vacations and private residential lawn care.
Alva Sullivan did not return calls seeking comment for this story. In an interview, his attorney, Grover Potts Jr., said Sullivan worked for more than 40 years to establish his college as a profitable success.
If Sullivan University is the recipient of much financial aid, that's only because many students want to attend, Potts said. Especially during rough economic times, a vocational education can look more useful than the liberal arts degrees offered by public universities, he said.
"I've called it the difference between teaching Plato and phlebotomy," Potts said.
"Who are producing the students who are finding jobs in this current environment?" Potts asked. "I think you're going to find that career colleges are producing most of these graduates."