Lincoln Educational Services, Schemes and Mind Maps of Marketing

Download Lincoln Educational Services and more Schemes and Mind Maps Marketing in PDF only on Docsity! 584 Lincoln Educational Services ________________________________ Introduction Lincoln Educational Services Corporation (“Lincoln”) provides traditional vocational programs, primarily certificates, to a student population that may have higher than average risk factors at on- ground campus locations. The programs are costly and Lincoln struggles with high withdrawal and student loan default rates. While Lincoln offers programs that have the potential to provide needed careers for its students, it is unclear that a sufficient number of students are realizing value from the programs to justify the increasing Federal investment in the company. Company Overview Lincoln is a publicly traded, for-profit educational company headquartered in West Orange, NJ. Lincoln operates a total of 46 campuses in 17 States, along with an online division and offers Diploma and Certificate programs in allied health, automotive, beauty, culinary, legal support, and traditional vocational fields.2380 Most students are enrolled in the company’s Certificate programs. Brands  Euphoria Institute   Lincoln College of Technology   Lincoln College of New England  Lincoln Culinary Institute  Lincoln Technical Institute  Lincoln College Online  Nashville Auto‐Diesel College  Southwestern College    Lincoln campuses are primarily accredited through two national accreditors: the Accrediting Commission of Career Schools and Colleges (ACCSC) and the Accrediting Council for Independent Colleges and Schools (ACICS). Mr. Francis Giglio, Lincoln’s Director of Compliance and Regulatory Services, plays a dual role as he also serves on the board of directors for ACICS, the board is the final arbiter of all disciplinary actions taken against campuses accredited by ACICS. Other Lincoln campuses are accredited through the Accrediting Bureau of Health Education Schools (ABHES) or the American Culinary Federation Education Foundation Accrediting Commission (ACFEFAC). Finally, the Lincoln College of New England, enrolling 877 of Lincoln’s students, is regionally accredited by the New England Association of Schools and Colleges, Inc. (NEASC). While Lincoln has been in existence since 1946, the company was purchased in 2000 by two private equity firms, Stonington Partners and Hart Capital. These firms controlled the company until the June 2005 initial public offering which took the company public.2381 Although the two firms have since 2380 A list of campuses can be found at: http://www.lincolnedu.com/campus-program-locator (accessed April 30, 2012). 2381 Steve Gelski, “Lincoln Educational Services IPO Debuts,” MarketWatch, June 23, 2005 http://articles.marketwatch.com/2005-06-23/news/30750491_1_ipo-price-shares-turbulence (accessed June 25, 2012). 585 sold off their financial stake in Lincoln, Alex Michas and James Burke of Stonington Partners continue to serve on Lincoln’s board of directors. The current chief executive officer of Lincoln, Shaun McAlmont, has been with the company since 2005. Mr. McAlmont plays a dual role serving as a director of the Association of Private Sector Colleges and Universities, the for-profit college trade association. Mr. McAlmont previously served as president of Westwood College Online. The Colorado attorney general recently reached a settlement with Westwood and its owners after detailing how Westwood misled prospective students, engaged in deceptive advertising, and violated Colorado’s consumer lending laws by enrolling students in a private loan program operated by the college without their knowledge. In the fall of 2010, Lincoln enrolled 33,157 students.2382 Enrollment almost tripled since the company was purchased by the private equity firms and grew by 67 percent since its subsequent initial public stock offering in 2005. Lincoln’s growth has been the result of both purchasing new campuses, including 10 acquisitions representing “about 40 percent of [the] company,” opening new campuses, and increasing enrollment in 2382 For companies that began filing with the Securities and Exchange Commission subsequent to an initial public offering between 2001 and 2010, enrollment is calculated using fall enrollment for all unit identifications controlled by the company for each year from the Department of Education’s Integrated Postsecondary Data System (hereinafter IPEDS) until Securities and Exchange Commission filings become available at which time SEC filings for the August-October period each year are used. See Appendix 7. The most current enrollment data from the Department of Education measures enrollment in fall 2010. In 2011 and 2012, news accounts and SEC filings indicated that many for-profit education companies experienced a drop in new student enrollment. This also led to a drop in revenue and profit at some companies. 12,514  14,554  19,278  22,067  19,824 18,556  19,463 22,404 31,509 33,157  ‐  5,000  10,000  15,000  20,000  25,000  30,000  35,000 Fall 2001 Fall 2002 Fall 2003 Fall 2004 Fall 2005 Fall 2006 Fall 2007 Fall 2008 Fall 2009 Fall 2010 Enrollment at Lincoln Educational Services Corporation, 2001‐2010 588 Lincoln tripled the amount of Pell grant funds it collected, from $49.9 million in 2007 to $160.3 million in 2010.2393 Spending While the Federal student aid programs are intended to support educational opportunities for students, for-profit education companies direct much of the revenue derived from these programs to marketing and recruiting new students and to profit. On average, among the 15 publicly traded education companies, 86 percent of revenue came from Federal taxpayers in fiscal year 2009.2394 During the same period, the companies spent 23 percent of revenue on marketing and recruiting ($3.7 billion) and 19.7 percent on profit ($3.2 billion).2395 These 15 companies spent a total of $6.9 billion on marketing, recruiting and profit in fiscal year 2009. 2393 Pell disbursements are reported according to the Department of Education’s student aid “award year,” which runs from July 1 through June 30 each year. Senate HELP Committee staff analysis of U.S. Department of Education, Federal Student Aid Data Center, Title IV Pell Grant Program Volume Reports by School, 2006-7 through 2009-10, http://federalstudentaid.ed.gov/datacenter/programmatic.html. See Appendix 13. 2394 Senate HELP Committee staff analysis of fiscal year 2009 Proprietary School 90/10 numerator and denominator figures plus all additional Federal revenues received in fiscal year 2009 provided to the committee by each company pursuant to the committee document request of August 5, 2010. 2395 Senate HELP Committee staff analysis of fiscal year 2009 Securities and Exchange Commission annual 10-K filings and information provided to the committee by the company pursuant to the committee document request of August 5, 2010. Profit is based on operating income reported in SEC filings. Marketing and recruiting includes all spending on marketing, advertising, admissions and enrollment personnel as reported to the committee. See Appendix 19. $50 $64 $91 $160 0 20 40 60 80 100 120 140 160 180 2007 2008 2009 2010 D o lla rs  In  M ill io n s Pell Grant Funds Collected by Lincoln Educational Services Corporation,  Award Years 2007‐10 589 In 2009, Lincoln allocated 15.8 percent of its revenue, or $87.1 million, to marketing and recruiting and 16 percent, or $88.3 million, to profit.2396 Lincoln devoted a total of $175 million to marketing, recruiting and profit in fiscal year 2009.2397 The amount of profit Lincoln has generated has risen rapidly since the company’s IPO, more than quadrupling from $25.9 million in 2007 to $122.6 million in 2010.2398 2396 Id. On average, the 30 for-profit schools examined spent 22.7 percent of revenue on marketing and 19.4 percent on profit. 2397 Id. The “other” category includes administration, instruction, executive compensation, student services, physical plant, maintenance and other expenditures. 2398 Profit figures for publicly traded companies are from Securities and Exchange Commission annual 10-K filings. See Appendix 18. Marketing, 15.8% Profit, 16.0% Other, 68.3% Lincoln Educational Services Corporation Spending, 2009 Marketing: $87  Million Profit: $88 Million 590 Executive Compensation Executives at Lincoln, like most for-profit executives, are more generously compensated than leaders of public and non-profit colleges and universities. Executive compensation across the for-profit sector drastically outpaces both compensation at public and non-profit colleges and universities, despite poor student outcomes at many for-profit institutions.2399 In 2009, Lincoln CEO Shaun McAlmont received $2.1 million in compensation, close to four times as much as the president of the Rutgers University System who received $593,800 in total compensation for 2009-10.2400 The chief executive officers of the large publicly traded, for-profit education companies took home, on average, $7.3 million in fiscal year 2009.2401 McAlmont’s $2.1 million compensation package for 2009 is one-fifth the average for publicly traded companies. However, it is still noteworthy given that more than half of the company’s students who enrolled that year left by mid-2010, and more than a quarter of students defaulted on their student loans within 3 years. 2399 Senate HELP Committee staff analysis of fiscal year 2009 Securities and Exchange Commission annual proxy filings and chief executive salary surveys published by the Chronicle of Higher Education for the 2008-9 school year. See Appendix 17a. 2400 Id. 2401 Includes compensation information for 13 of 15 publicly traded for-profit education companies. Kaplan, owned by the Washington Post Company, does not disclose executive compensation for its executives. And National American University was not listed on a major stock exchange in 2009. $26 $36 $88 $123 0 20 40 60 80 100 120 140 2007 2008 2009 2010 D o lla rs  in  M ill io n s Lincoln Educational Services Corp. Profit (Operating Income), 2007‐10 593 special refund policies, 10 percent-plus tuition reduction program, no out-of-pocket expense program and a military spouse program.2414 During the period examined and prior to the current ban on paying recruiters based on the number of students enrolled that took effect in July 2011, documents also indicate that Lincoln had a robust reward system in place for recruiters who successfully met or exceeded a quota of students. This included “Pride-in-Performance” trips to luxurious locations each year, including the Moon Palace in Punta Cana in 2010 and the Aventura Spa Palace in Cancun, Mexico, in 2009.2415 Some students complained that they felt misled or deceived by recruiters. For instance, one student stated: “When I applied, I was told there would be field trips and lots of hands on classes. There were only a few hands-on classes, and not one single field trip during the entire program.” 2416 Another student stated: I was told I was guaranteed a job after graduation. I was told I would be a certified insurance specialist while in school. I later found out the certification test is extremely expensive, and it requires that you have at least six months experience . . . I … graduated with a 4.0 grade point average. I am unable to find a job though because I have no experience.2417 Yet students have little opportunity for recourse; Lincoln like many other for-profit education companies includes a binding arbitration clause in its standard enrollment agreement.2418 This clause severely limits the ability of students to have their complaints heard in court, especially in cases in which students with similar complaints seek redress as a group. While student complaints may not be representative of the experience of the majority of students, these complaints do provide an important perspective. Outcomes While aggressive recruiting and high cost programs might be less problematic if students were receiving promised educational outcomes, committee staff analysis showed that tremendous numbers of students leave for-profit colleges without a degree. Because 98 percent of students who enroll in a 2- year degree program at a for-profit college, and 96 percent who enroll in a 4-year degree program, take out loans, hundreds of thousands of students leave for-profit colleges with debt but no diploma or degree each year.2419 Two metrics are key to assessing student outcomes: (1) retention rates based on information provided to the committee and (2) student loan “cohort default rates.” These metrics indicate that many students who enroll at Lincoln are not achieving their educational and career goals. 2414 Id., at LINC0001483 2415 Lincoln, PIP Trip Locations (LINC0130351). 2416 Email from Better Business Bureau, January 19, 2008 (LINC0000130, at LINC0000135). 2417 Lincoln External Email, January 2007, re: BBB Complaint Case#42006975(Ref#58-6023-42006975-4-12200) (LINC0000001, at LINC0000002-3). The Better Business Bureau did not pursue an investigation of this complaint. Id., at LINC0000001. 2418 Lincoln, Enrollment, LESC0002053, at LESC0002054. 2419 Patricia Steele and Sandy Baum, “How Much Are College Students Borrowing?,” College Board Policy Brief, August 2009, http://advocacy.collegeboard.org/sites/default/files/09b_552_PolicyBrief_WEB_090730.pdf (accessed June 25, 2012). 594 Retention Rates Information Lincoln provided to the committee indicates that of the 31,626 Associate and Certificate students who enrolled at Lincoln in 2008-9, 51.3 percent, or 16,233 students, withdrew by mid-2010. These withdrawn students were enrolled a median of 4 months.2420 Overall, Lincoln’s retention rate closely tracks the sector-wide withdrawal rate of 54.1 percent. However, more than two thirds of Lincoln’s students are enrolled in Certificate and Diploma programs, which show a withdrawal rate of 46.8 percent, significantly higher than the sector-wide Certificate withdrawal rate of 38 percent. Most of the remainder of Lincoln’s students enroll in 2-year Associate degree programs. The withdrawal rate for Lincoln’s Associate program is 69.9 percent, meaning that more than two-thirds of the Associate program students who enrolled in 2008-9, or 4,306 students, withdrew by mid-2010. This is the second highest withdrawal rate of any company examined by the committee.2421 Status of Students Enrolled in Lincoln Educational Services Corp. in 2008‐09, as of 2010  Degree Level  Enrollment  Percent  Completed  Percent Still  Enrolled  Percent  Withdrawn  Number  Withdrawn  Median  Days   Associate Degree  6,160  15.5%  14.6%  69.9%  4,306  129  Certificate  25,466  47.4%  5.7%  46.8%  11,927  119  All Students  31,626  41.2%  7.5%  51.3%  16,233  122  The dataset does not capture some students who withdraw and subsequently return, which is one of the advantages of the for-profit education model. The analysis also does not account for students who withdraw after mid-2010 when the data were produced. Student Loan Defaults The number of students leaving Lincoln with no degree correlates with the high rates of student loan defaults by students who attended Lincoln. The Department of Education tracks and reports the number of students who default on student loans (meaning that the student does not make payments for at least 360 days) within 3 years of entering repayment, which usually begins 6 months after leaving college.2422 Slightly more than 1 in 5 students who attended a for-profit college (22 percent) defaulted on a student loan, according to the most recent data.2423 In contrast, 1 student in 11 at public and non-profit 2420 Senate HELP Committee staff analysis. See Appendix 15. Rates track students who enrolled between July 1, 2008 and June 30, 2009. For-profit education companies use different internal definitions of whether students are “active” or “withdrawn.” The date a student is considered “withdrawn” varies from 10 to 90 days from date of last attendance. Two companies provided amended data to properly account for students that had transferred within programs. Committee staff note that the data request instructed companies to provide a unique student identifier for each student, thus allowing accurate accounting of students who re-entered or transferred programs within the school. The dataset is current as of mid-2010, students who withdrew within the cohort period and re-entered afterward are not counted. Some students counted as withdrawals may have transferred to other institutions. 2421 It is not possible to compare student retention or withdrawal rates at public or non-profit institutions because this data was provided to the committee directly by the companies. While the Department of Education tracks student retention and outcomes for all colleges, because students who have previously attended college are excluded from the data set, it fails to provide an accurate picture of student outcomes or an accurate means of comparing for-profit and non-profit and public colleges. 2422 Direct Loan default rates, 34 CFR 668.183(c). 2423 Senate HELP Committee staff analysis of U.S. Department of Education Trial Cohort Default Rates fiscal year 2005- 2008, http://federalstudentaid.ed.gov/datacenter/cohort.html. Default rates calculated by cumulating number of students entered into repayment and default by sector. 595 schools defaulted within the same period.2424 On the whole, students who attended for-profit schools default at nearly three times the rate of students who attended other types of institutions.2425 The consequence of this higher rate is that almost half of all student loans defaults nationwide are held by students who attended for-profit colleges.2426 The default rate across all 30 companies examined increased each fiscal year between 2005 and 2008, from 17.1 percent to 22.6 percent. This change represents a 32.6 percent increase over 4 years.2427 Lincoln’s 3-year default rate similarly increased, growing from 21.6 percent for students entering repayment in 2005 to 27.7 percent for students entering repayment in 2008. Lincoln’s most recent default rate is about 25 percent higher than the rate for all for-profit colleges and is the fourth highest default rate amongst the 30 schools the committee examined.  The default picture at some individual campuses is particularly dire. At Lincoln's Southwestern College in Dayton, OH, 19.7 percent of students entering repayment in 2005 defaulted within 3 years. That campus’s default rate jumped to 35.3 percent for students entering repayment in 2008. Additional poor performing campuses include those in Philadelphia, PA (42.8 percent default rate), Grand Prairie, TX (41.5 percent), NJ (Edison, Moorestown, and Parmus) (31.6 percent), and Melrose Park, IL (30.9 percent). 2424 Id. 2425 Id. 2426 Id. 2427 Senate HELP Committee staff analysis of U.S. Department of Education Trial Cohort Default Rates fiscal year 2005-8, http://federalstudentaid.ed.gov/datacenter/cohort.html. Default rates calculated by cumulating number of students entered into repayment and default for all OPEID numbers controlled by the company in each fiscal year. See Appendix 16. 21.6% 24.4% 26.2% 27.7% 0% 5% 10% 15% 20% 25% 30% 35% 40% 2005 2006 2007 2008 Lincoln Educational Services Corp. Trial 3‐Year Default Rates, 2005‐8 Lincoln Educational Services, Corp. Default Rate Average Default Rate, All Colleges 598 Staffing While for-profit education companies employed large numbers of recruiters to enroll new students, the same companies frequently employ far less staff to provide tutoring, remedial services or career counseling and placement. In 2010, with 33,157 students, Lincoln employed 711 recruiters, 122 career services employees and 47 student services employees.2438 That means each career counselor was responsible for 272 students, and each student services staffer was responsible for 705 students. Meanwhile, the company employed one recruiter for every 47 students. Career Services For-profit schools promote themselves as career-oriented skill-focused places. Indeed, most for- profit education advertising focuses on “getting the job” after graduating from school. With 272 students for every career services employee, Lincoln has a relatively robust career services program compared to other education companies the committee examined. However, some students report that those services are not helpful. One Lincoln student said: After graduation I went to the school to look for job placement and the two women who worked in that department had quit their jobs. I was told that no one would be able to help me find employment. I left my email address with an admissions representative and 2438 Senate HELP Committee staff analysis of information provided to the committee by the company pursuant to the committee document request of August 5, 2010. See Appendix 7 and Appendix 24. 19,463  22,404  31,509  33,157  711 Recruiters  ‐  5,000  10,000  15,000  20,000  25,000  30,000  35,000 0 100 200 300 400 500 600 700 800 2007 2008 2009 2010 N u m b e r  o f  St u d e n ts N u m b e r  o f  Em p lo ye e s Lincoln Educational Services Corp. Staffing, 2007‐10 Enrollment Recruiting Student Services Career Services 599 she never emailed me any job leads. My federal aid was wasted on something that I cannot even consider an education.2439 Internal documents also call into question the accuracy of job placement information Lincoln reports to its national accreditors. Documents reviewed by the committee reveal that three career services employees, including the director of Career Services at Lincoln Educational Services Corporation’s Grand Prairie campus, made arrangements with an employer to falsely state that Lincoln graduates had worked for that employer. The Director gave the employer gas cards and cash in return for his false statements.2440 Lincoln’s internal investigator, who was charged with figuring out the extent of the fraud, called 10 “placed” students, and found that all of the students’ records had been plainly falsified. As the investigator reported: The Career Services Representatives in question had knowledge that these placements were not true and legitimate placements. They chose to enter this information rather than perform due diligence and confirm these placements.2441 Presented with the findings, the senior group vice president of operations expressed frustration with the internal investigation that revealed the wrongdoing. His reply stated: “I’m concerned. If this is our method of conducting an investigation, we have a big liability.” It is unclear if Lincoln’s accreditors were informed of the career services staff’s conduct, or whether other job placements recorded by other Lincoln career services staff were reviewed.2442 Regulatory Strategies For-profit education companies are subject to two key regulatory provisions: that no more than 90 percent of revenue come from title IV Federal financial aid programs and that no more than 25 percent of students default within 2 years of entering loan repayment. As discussed in the main body of this report, some companies including Lincoln lower their reported default rates by placing students in forbearances and deferments to delay default. Moreover, many schools employ a variety of tactics to meet the requirement that no more than 90 percent of revenues come from title IV Federal financial aid programs. In addition to creating a tuition “gap” and pursuing military servicemembers and veterans, both of which are discussed above, other 90/10 tactics Lincoln employs include manipulation of campus identifiers (OPEIDs) and maximizing cash payments from students. For-profit colleges must report their 90/10 ratio by assigned Office of Postsecondary Education ID numbers (OPEID), rather than by campus or corporate owner. Many education companies, such as Lincoln, have many assigned OPEIDs. One OPEID may consist of a main campus and multiple branch campuses. Schools with multiple OPEID numbers can shift campuses to different OPEID numbers and classify them as branches even when they are many States apart. In 2009, Lincoln proposed merging nine campuses in different combinations to “manage 90/10 exposure.” 2443 The company could avoid the 2439 Letter from State of Connecticut Commission on Human Rights and Opportunities, December 24, 2008 (LINC0000264, at LINC0000266). The agencies to which the complaint was submitted closed the investigations into this complaint without finding violations of law or issuing sanctions. 2440 Lincoln Internal Memorandum, no date (LINC0088022, at LINC0088023). 2441 Id., at LINC0088024. 2442 Email from Stephen Buchenot, FW: Grand Prairie Investigation, June 4, 2010 (LINC0088022). 2443 Consolidations of OPE-ID# (LINC0001399, at LINC0001400). Note: Internal memorandum with no title or date. 600 repercussions of violating the 90/10 rule at certain high-90/10 campuses by combining them with lower- 90/10 campuses into a single OPEID.2444 Another tactic that Lincoln uses is maximizing cash collected from students by requiring regular payments from students. According to Lincoln CFO Cesar Ribeiro, “We get cash contributions from [students] because we don't give them a choice. If they want to come to school, they have to make monthly payments. If they miss two payments they are kicked out of school.” 2445 While asking students to make up-front payments on their education can be a good idea because it is interest-free and also helps prepare them for making payments on their loans in the future, Lincoln’s requirement appears to be aimed at collecting as much cash as possible for 90/10 purposes. Enforcement Actions Lincoln is one of five companies currently under investigation by the New York attorney general as to whether the schools and their recruiters misrepresent their ability to find students jobs, the quality of instruction, the cost of attending, and their programs accreditation. Conclusion Lincoln offers programs with the potential to provide careers and increased earning power to students underserved in higher education. Yet the programs are costly, more than twice as much as at local community colleges, and Lincoln makes virtually no investment in student services despite enrolling the students most in need of these services. As a result, Lincoln’s student retention and default rates are among the worst of those the committee examined. The company has some of the highest numbers of students failing to complete Certificate and Associate degree programs of any company examined by the committee. Although the majority of students are leave the company’s schools with no degree or diploma, the company also receives increasing amounts of Federal taxpayer dollars and profit. It is unclear whether taxpayers or students are obtaining value from their investments in Lincoln. 2444 This requires the blessing of the Department of Education, the college’s accrediting agency, and the State regulator, which usually grant these shifts. 2445 Lincoln, SignalHill Corp Education Conference, November 17, 2011.