Scholarship Started by Donald Graham Sends Donor Money to Graham's For-Profit College

05/29/2015 12:34 am ET | Updated May 28, 2016

The New York Post today reports on an astounding fact that has been in plain sight for more than a year: Washington business scion Donald Graham has co-founded a scholarship program for young immigrants that is sending some of its students, and donor dollars, to colleges owned by Donald Graham's own for-profit company.

When I read this fact in February 2014 in the Washington Post, the newspaper formerly owned by Graham's company, I was taken aback. It seemed like a clear conflict of interest. But then, there have been many troubling actions by the for-profit college industry, including by Graham Holdings' for-profit college subsidiary, Kaplan Higher Education, and I have only about a day a week available to write about these issues. I put the story aside.

To be honest, I also hesitated to write because this scholarship program is aimed at benefitting the Dreamers, young people who were brought to this country as children, who are not citizens or permanent residents but know the United States as their home, who want to build futures here, but are ineligible for many of the opportunities available to others, including access to federal college student aid. The organization I founded and ran for eight years, Campus Progress (part of the the Center for American Progress and now called Generation Progress), collaborated frequently with the Dreamers. Indeed, I've had the chance to work with Dreamer Gaby Pacheco, who has been part of Graham's TheDream.US scholarship program since its launch, and she is one of the most outstanding young leaders our country has.

A scholarship program to help the Dreamers advance is an extraordinarily worthy cause. Hence I am dismayed that Donald Graham apparently could not help himself from building into the program a benefit to his for-profit business. Allowing a charity you launch to send money to a business you own is textbook conflict of interest and abuse of the rules governing non-profit organizations. But what Graham has done is worse than that, given the troubling record of Kaplan, the particular advantages that this arrangement could bestow on Kaplan, and the fact, it turns out, that the scholarship's participating schools are determined by a Graham company employee.

Kaplan's Troubling Record

The initial press release announcing that Graham had founded TheDream.Us scholarship with entrepreneur Henry R. Muñoz III listed the colleges that would participate as follows:

the Borough of Manhattan Community College, Bronx Community College and Kingsborough Community College in New York; Miami Dade College in Florida; Trinity Washington University in Washington, D.C.; El Paso Community College, South Texas College, University of Texas Pan American and University of Texas El Paso in Texas; Long Beach City College and California State University, Long Beach in California; and Mount Washington College, a national online college.

There was no mention in the press release that the relatively obscure Mount Washington College is part of Kaplan, which is a wholly owned subsidiary of the public company Graham Holdings Inc., formerly known as the Washington Post Company, of which Donald Graham is the CEO; his family owns a controlling interest in the company.

Mount Washington was offered at the time as the only choice for scholarship recipients who wanted to study exclusively online or did not live in one of the states that had a participating school. The Washington Post story mentioned Graham's ownership of the school, but without any discussion that it might be an issue. And there was no press release when, at some point in the past fifteen months, the much larger, better-known Graham company unit Kaplan University was added to the list of school options for scholarship recipients.

Kaplan has been receiving as much as $1.5 billion annually in taxpayer-funded federal student aid. Yet its schools have often been bad actors in the for-profit college industry, charging sky-high prices for the kinds of programs that are often much more affordable at state and community colleges, tallying high dropout and loan default rates, and sometimes engaging in deceptive and coercive recruiting and other abusive practices.

I know from talking with dozens of people inside Kaplan schools that there are many fine, caring teachers and good students in Kaplan programs. Some of the students get good training and good jobs. But there also have been far too many cases of students being misled, overcharged, and under-credentialed.

The recent blockbuster Miami Herald investigation of the industry led with the story of a Florida mom, Sara Pierce, who says she was misled by a recruiter for Kaplan into signing up for an online bachelor's degree program in Nutrition Science. Pierce thought the program would directly qualify her to be a licensed nutritionist, when in fact it was not accredited by the appropriate agency. When, near the end of her studies, a professor let Pierce know that the degree would not make her eligible for the job she sought, and she complained, the school pointed her to fine print in a Kaplan manual. But it stands to reason that had Pierce actually known the low value of the degree, she would not have enrolled. And there are other instances of Kaplan students feeling similarly misled --  in Kaplan's dental assistant program in Charlotte, in Kaplan's online Concord law school -- and left deep in debt, without the useful degree they sought.

Kaplan's misdeeds are now being probed by law enforcement. The company has been under investigation by at least five state attorneys general in the past few years, and it agreed this year to pay about $1.3 million under a settlement with the Justice Department to resolve whistleblower allegations that it employed unqualified instructors at its campuses in Texas.

Not only has his school been a troublesome actor, but also Graham himself has been an aggressive lobbyist to ensure that Kaplan and other poorly-performing colleges can continue to receive billions annually in federal money, regardless of the harms to students and taxpayers. Graham has used his stature as a pillar of the Washington establishment to help water down both versions of the Obama Administration's gainful employment rule, which some Kaplan programs have been in danger of flunking. (If Kaplan has made serious reforms to benefit students in the last few years, as it claims, why did Graham so vehemently oppose a rule that put at risk of losing federal aid only five percent of career education programs, those at or near the bottom?)

And Graham and his niece Katharine Weymouth, who was the Washington Post publisher for a period even after Graham sold the newspaper in 2013 to Jeff Bezos, repeatedly used the Post as an editorial cheerleader for for-profit colleges, sometimes without disclosing to readers that the paper and Kaplan had the same owner.

Nor did the Post disclose in such editorials the fact that Graham's company also owned a 5 to 8 percent stake in the now-disgraced and shuttered Corinthian Colleges, one of the worst for-profit colleges. If you are a DC person and someone tells you that Kaplan must be "one of the good ones," because Don Graham owns it, ask how Graham's company could have owned such a large share of Corinthian for so long and did nothing to stem the abuses there.

Nor did Kaplan publicly disclose, until I confronted them with proof, that Kaplan, and thus the Washington Post Company, was a member of the secretive business group the American Legislative Exchange Council (ALEC), now notorious for its Voter ID and Stand Your Ground model laws.

Sending Donor Money to Kaplan Schools

Despite this troubling record, Kaplan is one of the small number of schools eligible to receive payments under the Dreamer scholarship program founded by Graham.

A spokesman for Kaplan, Ken Brown, told me "approximately 5% of all DREAM.US awards have been granted to scholars at Mount Washington College and Kaplan University." Candy Marshall, president of TheDream.US, confirmed that figure. She told me that as of February 2015 there were more than 800 Dreamers receiving scholarships.

But Brown painted Kaplan's participation in TheDream.US scholarship program as a selfless act; he wrote to me: "Kaplan has made no profits serving Dreamers and never will. ​We've committed to providing services to the students from TheDREAM.US at no financial gain to us. In addition, Kaplan has received no state or federal funds attributable to these Dreamers."

Brown and Marshall each ignored my request that they tell me whether or not Kaplan was receiving cash revenue from the scholarship program. Which leads me to assume that it is receiving such cash. If Kaplan was simply providing each Dreamer who wanted to attend Kaplan with a full-ride scholarship, with no money changing hands, the conflict of interest would not be nearly as bad. Graham's company would still reap promotional and spillover benefits from the association and student enrollments, but at least it wouldn't be cashing checks generated by Graham's charitable venture.

Brown also repeatedly ignored my request that he clarify his statement that Kaplan would make "no profits." Did that mean the school was charging Dreamer scholars a discounted tuition, or what? The Dream.US FAQ states that scholarships cannot exceed $12,500 for an associate degree or $25,000 in total for a bachelor degree, and Kaplan tuition can be much higher than that; a bachelor of science degree from Kaplan University online now costs $53,512.

Marshall, the Dream.US president, told me that all the colleges participating in the program "(including Kaplan and Mount Washington College) have committed to ... provide an affordable education (targeted at or under $25,000 in tuition and fees for a bachelor's degree)." Perhaps that means that Kaplan is in fact capping tuition for Dreamer scholars at or near those scholarship levels, at least for students with no other scholarships or funding. But that doesn't prove that Kaplan is not making a profit by adding Dreamers to its online programs at those discount prices, especially given that: Kaplan programs are generally overpriced; enrollment levels at Kaplan and other for-profits are way down right now compared with several years ago; the industry is starved for students; and these Dreamers are new enrollees obtained without the expensive marketing efforts for-profits normally need to chase down new students.

Dreamers attending the Kaplan schools might also be able to obtain other private scholarships, and even state financial aid, and that money would go to Kaplan as well; the Dream.US scholarship award "only covers tuition and fees that are not otherwise paid for by other available financial aid or scholarships."

TheDream.US scholarship is run through the fiscal sponsorship of the Minnesota-based non-profit organization Scholarship America, and that organization's board of directors serves as the governing board for the scholarship, according to Marshall. TheDream.US also has an advisory board that includes Donald Graham, Kaplan CEO Andrew Rosen, and some prominent civic leaders.

I had gotten Candy Marshall's email address from Kaplan. It's a Graham Holdings email address. In response to my written question, "Are you employed by Graham Holdings?" Marshall wrote, "Graham Holdings pays the administrative costs of TheDream.US program - including compensation and benefits - to ensure that the funds raised go directly for scholarships." So, yes.

It is admirable that Donald Graham, in addition to founding TheDream.US and making a major personal financial contribution, is paying these administrative costs for the program. But it does heighten concerns about the fact that the scholarship program is steering donor money to Graham's for-profit business -- the same business that employs Marshall, the head of the scholarship program.

The selection of participating colleges for TheDream.US is made by Marshall, she says. But Marshall works for Graham. And it would not be credible to suggest that there is no connection between Graham being a founder of the Dreamer scholarship and Graham's Kaplan schools being designated, initially, as the only national online college option for the program. There are plenty of more affordable online colleges, and plenty of online colleges that are not under investigation by multiple law enforcement agencies. (Arizona State online programs have since been added to TheDream.US, but right now, it seems, only for Arizona residents or Starbucks employees.)

Who is paying for the Dream.US scholarships?  When the program was launched last February, it announced commitments of more than $25 million from donors including the Bill & Melinda Gates Foundation, the Fernandez Foundation, and Bloomberg Philanthropies, as well as the Graham family. Marshall told me that the donor list now also includes The Coca-Cola Foundation, The PepsiCo Foundation, Pershing Square Foundation (which is funded by hedge fund manager Bill Ackman), Mark Zuckerberg & Priscilla Chan, Pierre & Pam Omidyar, and the Silicon Valley Community Foundation. Pledges have now grown to $81 million, reports the New York Post. 

But another listed donor at the launch of the program is the Inter-American Development Bank, which receives funding from the United States and other governments -- which means that U.S. taxpayers are sending some of the scholarship money to Kaplan. We're also all paying, in a sense, when other donors contribute and take a tax deduction. 

Potential 90/10 Rule Benefits for Kaplan

In addition to the fact that Graham's company is getting cash from the charity he founded, it's also possible that receipt of the Dreamers scholarship money will assist Kaplan in meeting the demands of a critical federal regulation -- the requirement that for-profit colleges receive no more than 90 percent of their revenue from U.S. Department of Education student grants and loans, called Title IV aid.

The premise of this 90/10 rule is that federal aid should not support schools for which no student, employer, state agency, or scholarship fund would contribute its own money. But some for-profit colleges have had a devil of a time getting that 10 percent of non-federal money. Many have focused hard on recruiting veterans and active-duty military, because they bring VA and Department of Defense money that, bizarrely, is counted as non-federal aid. Some schools have jacked up tuition even higher, and pushed students, to make up the gap, into high-interest private loans, often loans that the schools, including Corinthian and ITT, own a piece of.

But what if a scholarship program for immigrant students who are ineligible for federal aid could help bridge a for-profit college's 90/10 gap?

Ken Brown of Kaplan dismissed my questions regarding 90/10 as conspiracy theory:

Any imagined 90:10 benefit would be so tiny as to be immaterial. David, you're working so hard to find scandal where there is none. TheDREAM.US is doing great work, and we're proud to work in a small way with them because we believe in that work. There's nothing more to it.

But when you do the math, it looks as if money from the Dreamer scholarships could in fact help Kaplan with 90/10 compliance, whatever Graham intended. 90/10 calculations are made not by company, or by physical campus, but by units designated by the for-profit company and tagged by the Department of Education with OPEID (Office of Postsecondary Education ID) numbers. (Sometimes for-profit colleges have seemed to manipulate OPEID units, merging far-away campuses together, for example, to stay in compliance with the rule.)

Some Kaplan OPEID units have been perilously close to the 90 percent limit. The Senate HELP committee found in 2012 that Kaplan had received in 2010 $1.5 billion from Department of Education Title IV aid -- 85.9 percent of its total revenue. In the most recent year for which federal data is available, 2012-13, individual Kaplan school units reported receiving as much as 88.43 percent of their revenue from Department of Education aid, with most of the Kaplan units reporting a percentage between 88 and 80 percent.

Mount Washington College, initially the only Kaplan participant in the scholarship program, reported receiving $22,589,455 in federal aid -- 86.09 percent of its revenue -- for 2012-13, meaning that it was staying within the 90/10 limit by just about $900,000.

Kaplan's latest annual report says that for 2014, "Kaplan University derived less than 81% of its receipts from the Title IV programs, and other [Kaplan] units derived between 65% and 91% of their receipts from Title IV programs." The report warned that several Kaplan units were at risk of exceeding 90/10 in 2015.

The Dreamers -- young people in Deferred Action for Childhood Arrivals or Temporary Status Protection immigration status -- are categorically ineligible for U.S. Department of Education aid.  All of their college tuition and fees must be covered by private scholarships, state financial aid, or their own family contributions. As such, in large enough numbers they represent a golden opportunity for schools, like Kaplan, that are on the edge of losing eligibility for federal aid for failure to comply with the 90/10 rule.

If five percent of all TheDream.US awards have gone to Kaplan's Mount Washington College and Kaplan University, as the Kaplan spokesman told me, one can assume that that represents at least five percent of the total scholarship funds issued, since those Kaplan schools are more expensive than most of the other participating schools (even if Kaplan agreed to discount its prices to the $12,500 and $25,000 scholarship limits).  If the fund distributed, say, $30 million in a coming year, that would mean $1.5 million for Kaplan schools.  That isn't a big amount compared to Kaplan Higher Education's 2014 revenue of $1.o1 billion. But if most of that Dreamer scholarship money went to Mount Washington College, instead of Kaplan University, that could make a major difference in ensuring that institution's 90/10 compliance.

Other Kaplan units at the margins of 90/10 compliance could obtain similar benefits going forward, especially as the Dream.US fund grows, which it just announced plans to do.  There are perhaps 1.7 million Dreamers in the United States.

So including Kaplan schools in the Dreamer scholarship portfolio potentially offers much to Donald Graham and Kaplan: the chance to enhance Kaplan's standing by appearing on a list of civic-minded schools, alongside vaunted public colleges, at a time when the for-profit college industry's reputation is in tatters; a pipeline to new students and their families, in a period when for-profit college enrollments have plummeted, and some of the biggest competitor schools are shuttered or in free fall; and possible insurance that Kaplan won't flunk the 90/10 rule, which is essential to keeping nearly a billion taxpayer dollars a year or more flowing into the company's coffers. What including Kaplan schools on the scholarship list offers to the donors, the public, and the Dreamers is much less clear.

I credit Donald Graham and the other founders and operators of TheDream.US for providing educational opportunity for the Dreamers, because the Dreamers have earned, and they deserve, such opportunity. I hope TheDream.US fund and other efforts to invest in the Dreamers do keep growing. But I also hope the leaders of TheDream.US quickly decide that it is being tarnished by including as a participant a college that represents a blatant, unacceptable conflict of interest.

This article also appears on Republic Report.