by Sharona Coutts ProPublica, July 23, 10:34 a.m.
July 26: This story has Corrections
to Marketplace’s version of this story.
After being laid off from her job as a high school teacher in Dayton, Ohio, Nicole Massey decided to go back to college. For months, she scoured the Web for ways to fund her tuition, while supporting her 10-year-old son, Tyler. So when ads turned up in Massey’s inbox claiming that President Barack Obama had created special college grants and scholarships for single mothers, her hopes soared.
“You see his picture,” Massey said, “so I clicked on it.” The link took her to a new window, where she was asked to enter her name, age and other information about the degree she wanted. The site then produced a list of schools that lined up with Massey’s choices.
Almost immediately, recruiters from for-profit colleges, including the University of Phoenix, Kaplan University, Grand Canyon University and a couple of local schools, bombarded Massey with e-mails and calls.
“That’s when I would bring up the thing, ‘What about the Obama loans? What about the money for the single moms in the stimulus?'” she said. “And they would say, ‘Well, we’ll call you back with more information about that.'”
They never did — and little wonder: “There is no such thing as an Obama grant for moms,” said Robert Shireman, who until early this month was deputy undersecretary at the U.S. Department of Education. “Moms are eligible for federal financial aid generally — Pell Grants, student loans and other aid — but nothing specific to moms or single moms.” Nevertheless, the Obama mom ads have become “ubiquitous,” he said.
For-profit universities and career colleges are flourishing in the down economy, thanks in part to a gusher of taxpayer money flowing into the federal government’s Pell Grant program for economically needy students. Hundreds of thousands of Americans have already enrolled in for-profit colleges, which are fiercely competing for new recruits.
The grant windfall has fueled another boom: for online marketers that gather contact information from prospective students and sell it to schools. Just a few years ago, these firms, known as lead generators, fed the subprime mortgage machine. Now they are earning more than $1 billion a year for finding prospective students, according to one industry estimate.
Consumer advocates say they are alarmed by parallels between the subprime mortgage industry and for-profit schools, which also have come under fire for targeting low-income groups and signing up students for loans that can leave them buried in debt. Some schools earn nearly 90 percent of their revenue from federal student aid programs.
Single moms, the critics say, are especially vulnerable.
“In comparison with an 18-year-old traditional college student, a single mom faces unique, often unsurpassable obstacles to getting an education,” said Greg C. Frazier of Community Connections of Jacksonville, a group that works with disadvantaged women in Florida. “Frequently she will be lured by the promises of low-cost, easy online courses that in reality do not deliver.”
Harris Miller, president of the Career College Association, said the 1,400 for-profit colleges, universities and trade schools his organization represents object to using misleading or false advertising to recruit students. But Miller said lead generators often are subcontractors a couple of steps removed from a school’s recruiting operation, making them hard to police.
Shireman, while denouncing the ads, said the Education Department lacks authority to crack down on subcontractors. A spokeswoman for the Federal Trade Commission, which does have such power, called the ads misleading but declined to say whether the agency is investigating them.
Vital Market for Career Schools
Mothers are an important market for the for-profit schools. Women account for 65 percent of their students, and more than half have dependent children, according to the Career College Association. In many instances, returning to school could provide mothers with a step up to a better job and improved circumstances for their children.
But women who’ve responded to the ads told ProPublica they felt “targeted,” “victimized” and “insulted” once they discovered the Obama grants do not exist.
When banner ads and pop-ups appeared in her Facebook profile and on the Web site Blackplanet.com, Lisa Jackson, a single mom from Washington, D.C., clicked on the links.
Jackson lost her job as a project manager in a furniture dealership last year and spent a lot of time online looking for ways to escape unemployment. She realized there were no Obama grants for single moms after receiving e-mails from several for-profit schools.
“I feel it’s an insult to my intelligence to some degree,” she said.
The use of President Obama’s name also troubled Jackson, who is African-American.
“Some of these advertisers are playing on the sense that we have our first African-American president,” she said, noting that Obama’s image and name have been used to promote mortgage refinancing in minority neighborhoods. “It’s sad. They’ve used it for the wrong reasons.”
Priya Raghubir, a marketing professor at New York University’s Stern School of Business, said it’s not a coincidence that marketers are recycling techniques from the subprime mortgage boom. Obama has strong appeal among younger people, minority groups and lower-income households, she said. The same people were disproportionately targeted for subprime loans, according to research by the Department of Housing and Urban Development.
“For these groups particularly, he is a figure, a celebrity, who is highly liked and also signals something they would like to associate with — the way he has used education to break a number of barriers and get to where he has at such a young age,” Raghubir said.
Watchdog groups, Congress, the Education Department and some investors have voiced concerns (PDF) about recruitment at for-profits schools. A recent report (PDF) by the College Board found that more than half of the students at for-profits graduate with $30,500 or more in debt — compared with about a quarter of private college grads and 12 percent from public schools.
Middlemen in the Recruiting Game
Last year’s economic stimulus bill added $17 billion for the government’s need-based Pell Grant program, and an expansion signed earlier this year by Obama is expected to provide around 820,000 additional grant awards over a decade, according to an Education Department spokesman. The money began rolling in during the fiscal year that ended in June, and while public, private and for-profit schools all saw big gains in Pell Grant revenue, the overall increase to for-profits was highest — 70 percent over the prior year.
The University of Phoenix — the largest for-profit school — took in more than $1 billion from some 300,000 Pell Grants alone in 2009-2010, Education Department data show. That’s about what Phoenix’s parent company, the Apollo Group, spent on “selling and promotional” activities in 2009, according to company financial filings.
For-profits spend heavily on lead generation, typically some 20 to 30 percent of their ad and marketing budget, according to Ampush Media, a San Francisco lead generation firm. An Ampush research report prepared in February estimated that higher-education leads were a $1 billion market and said that market was “expanding rapidly” while mortgage leads had only “muted growth.”
Experian PLC, a company that provides consumer credit reports and advice, also operates lead-generation businesses. The company once used a video of a woman dancing energetically in front of her computer to funnel people to one of its websites — LowerMyBills.com.
The site was a major source of leads for subprime lenders during the housing boom, according to Sam Rogers, mortgage industry analyst at the Center for Responsible Lending, a nonprofit that monitors lending practices. (The Sandler Foundation, the principal funder of ProPublica, also provides significant financial support to the center.)
Experian used the same video at another of its websites, ClassesUSA.com, which collects information to sell to colleges. Another ad for LowerMyBills.com features a buxom blonde dancing suggestively under the text, “New Housing Bill Passed! $133,000 Mortgage for Under $529/Month!” That same dancing blonde sometimes also linked to ClassesUSA.com.
A third Experian ad is an animation of two young women walking side by side, with a banner saying, “Obama Asks Moms to Return to School.”
Steve Krenzer, president of Experian Interactive Media, declined to comment on why Experian used the ads to target both subprime mortgage borrowers and students.
“Here’s an example of an icon of the American financial sector luring unwitting consumers into prohibitively expensive borrowing that they can’t afford and that the taxpayers will have to make good,” said Barmak Nassirian, spokesman for the American Association of Collegiate Registrars and Admissions Officers, an industry group whose members include some for-profit schools.
ProPublica asked the two other major consumer credit reporting companies, Equifax and TransUnion, whether they had any such ads. TransUnion said it does not engage in direct-to-consumer lead generation. Equifax did not comment.
The most common ads are pop-ups that show up onscreen automatically. ProPublica also found examples of websites that referred to Obama mom grants or loans and provided links to lead generators.
“Barack Obama has made the pledge to help moms go back to school while the government pays for it,” said one. “Unemployed mothers can snatch a college diploma at the comforts of their own home without spending a dime for baby-sitting (sic),” read another.
Schools pay anywhere from a few dollars up to $85 per lead, said Daniel Kim, president of a small New Jersey-based lead generation company called MyCS Network. Although some nonprofit schools use lead generators, the biggest clients for higher-education leads are for-profit universities, according to Kim, who has worked in the industry since 2004.
ProPublica contacted several lead generators linked to the Obama mom ads, but all either declined to comment or did not return calls or e-mails. To determine which schools were buying those leads, we asked volunteers from the ProPublica Reporting Network to click on the links, fill out the online forms and report back.
Hana Shepherd, of New York City, received 10 calls and nine e-mails from recruiters within a day of filling out a form. Susan Sawyers, also of New York City, received pages of e-mails.
The schools included Walden University, Kaplan University, Ashford University, American InterContinental University, Capella University, Colorado Technical University and the University of Phoenix — all for-profit institutions.
Volunteers also received e-mails from two private, non-profit universities: Golden Gate University and the University of Southern California Rossier School of Education. Jennifer Hanlon, director of marketing at 2tor, the company that manages the Rossier School’s online advertising, said she was surprised and disappointed to hear about the ad.
Part of the problem, said Hanlon, is that lead generators frequently farm out work to subcontractors. “It’s frustrating being an advertiser because you contract with one person and they have a group of affiliates they work with,” she said. “You just have to be a diligent advertiser and find out where you’re being seen, and if you see anything on the shady side, you have to do your due diligence.”
A spokesman for Capella said school officials also “periodically review messaging” used by lead generators, and that they had terminated Capella’s “involvement” with several ad campaigns earlier this year after discovering they were “paraphrasing President Obama.” A spokeswoman for Golden Gate University said the school would “immediately” ask any of its lead generators to stop should they find the marketers using Obama mom ads. The other schools did not comment.
At our request, volunteers asked the lead generators and college recruiters about Obama grants or scholarships for moms. While no recruiter claimed the grants actually existed, they generally did not dispute that they did. More often, said Shepherd, “I was told that a financial aid person could assist me later when I asked about the Obama grants.”
A Regulatory Vacuum
At a round-table meeting in Northern Virginia this winter, Education Secretary Arne Duncan was surprised by a question from one of the attendees.
“One of the students participating in a discussion actually asked: ‘Is there an Obama scholarship for moms? Because I’ve seen ads about it,'” said Shireman, who was Duncan’s deputy.
Duncan had never heard of the ads, let alone an “Obama” scholarship for moms. But Shireman had. “I’ve seen the ad myself on my personal e-mail,” he said, describing it as “misleading.” Yet the department lacks authority to stop the advertisements, Shireman said.
“We’re not a general regulatory agency around issues of marketing,” he said. “The Department of Education doesn’t have any direct authority over third-party entities, unless those third-party entities are working for the schools.”
The department recently released draft regulations that would strengthen its ability to crack down on misleading ads, Shireman said. But the new rules apply only to the schools or companies that work for them directly — not to subcontractors.
The Federal Trade Commission does have jurisdiction over fraudulent marketing, and is “actively looking at scams that use news about the economic stimulus package to falsely claim that the package includes money for government grants, home repair, to pay off debts, scholarships,” said Lois Greisman, director of the agency’s Marketing Division.
But Greisman said she could not comment on whether the FTC is looking at any specific entity and could not point to any previous enforcement action involving the Obama mom ads. Blackplanet.com did not respond to our request for comment and Yahoo! declined to comment about ads on its sites.
Miller, the Career College Association president, said for-profit schools have objected to the tactics used by some lead generators. In one instance, he said, schools were stunned to discover that a lead generator was using the promise of free food or housing to attract people to enter their data. “No one thought this was OK,” he said.
Schools often work with a primary lead generator and may require that company to sign a contract giving the school oversight of ad copy. Miller said his group is encouraging schools to hire their own “mystery shoppers” to police lead generators.
But Kim, of the lead generator MyCS Network, said all misleading techniques make the industry “look bad.” They persist, he said, for a simple reason — they work.
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“It’s tough because there are these large companies doing it,” Kim said, “and they’re getting these leads to the schools, and the schools think these leads are good.”
ProPublica’s Joe Kokenge contributed to this report.
Several ProPublica readers belonging to our Reporting Network assisted reporter Sharona Coutts with identifying schools buying leads. If you’d like to help ProPublica with its reporting, join our Reporting Network.
Correction (7/24): An earlier version of this story incorrectly described the University of Southern California Rossier School of Education as a public school; USC is a private, non-profit university.
Correction (7/26): An earlier version of this story also incorrectly described Golden Gate University as a for-profit school; Golden Gate University is a private, non-profit school.