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Austin When the Observer last printed anything about the state’s profit-seeking trade schools or “proprietary schools” as they are called in educators’ jargon, we reported that the Texas Legislature had done something good for a change and had passed Sen. Joe Christie’s bill to regulate the schools \(see “The Knowledge Hucksters,” Obs., April 23 and June 18, Observer smugly asserted that Christie’s bill would “regulate the grosser abuses” in this scandal-prone business. But things didn’t get better. If you take into consideration the way the regulators promptly got into bed with the regulatees, you’d have to conclude that things got worse. You see, there’s a lot of money to be made selling dropouts expensive courses on television repair, computer programming, forest management, court reporting, and all manner of allegedly profitable career skills. Congress set up a program for college education and for tuition at accredited proprietary schools. FISL graduated the proprietary school business from mom and pop operations to big business. WHEN LTV had a cash flow problem in the late Sixties, this giant conglomerate snapped up about 40 small schools throughout the South. Hundreds of hot-shot salesmen working on commissions beat the bushes for prospective students. The students were urged to take out FISL loans for the full cost of their courses. In Texas, the Republic National Bank of Dallas processed the loan applications, handed some of the cash over to LTV, and pledged about 70 percent of the federal funds to a consortium of New York banks to finance LTV’s ambitious acquisition program. The problem was that LTV got the full amount of the student loans up front, but usually only a minority of students completed the courses. LTV’s schools were certainly not the worst \(see “All this and typing theory too,” Obs., but some of the courses were pretty awful: Despite the fact that a number of LTV’s Texas schools offered computer programmer courses, LTV never acquired a computer for the schools. In Dallas, however, one of the schools was reported to have a machine made to resemble a computer. An attorney described it as “a big box with lights and stuff and a typewriter attached.” By 1972, LTV’s interest in private schools had waned considerably. Federal investigators got interested in one of the conglomerate’s Draughon Business Colleges in Atlanta where 62 percent of the students were defaulting on their loans. At this particular school, the feds discovered that among the 113 defaulters, 93 were owed a total of nearly $60,000 in unpaid refunds. LTV did an audit and discovered that its schools owed student dropouts at least $5 million in unpaid refunds. The company had the assets to make good on the refunds and claims that it did, although the record is somewhat unclear on this point. But many owners of proprietary’ schools can’t or won’t pay refunds to their students. This amounts to a lot of money nationwide, because 96 percent of the FISL defaults are on proprietary school loans as compared to 4 percent on college and university loans. The feds have paid out more than $200 million in defaulted loans nationwide. Conscientious state or federal administrators could stop schools from piling up large refund obligations, but they haven’t, and that’s the crux of the present proprietary school scandal. It’s a classic case of government inisregulation. The FISL program has been perverted to do the opposite of what it was designed to do. Both the federal and state agencies charged with looking after the schools and the FISL loans have failed miserably. Although HEW gets one third of the federal budget, it has only seven people in Washington to monitor $115 billion in programs. “I think HEW is out of control,” one investigator involved in school suits said. “Half their projects have no built-in audit control.” In the case of the FISL program, the feds simply poured vast amounts of unregulated capital into private schools and the students were left holding the bill. Recruiting by schools has often been ruthless. In 1972, Community College in San Antonio assigned three of its salesmen to the local welfare office where people went to get food stamps. “A very , high percentage of these welfare recipients,” an accrediting association investigator wrote, “were migratory farm workers who could be expected to remain in the area only a short period of time before moving on to another part of the country, automatically producing a dropout. . . .” The quality of most of the proprietary schools’ courses is another can of worms which neither state nor federal law treats with any degree of seriousness. THE OPERATIONS of HEW’s Dallas regional office came under scrutiny late last year. The investigation, oddly enough, was the offshoot of customs agents’ attempts to bust federal employees July 4, 1975 11