production. >> to and is on twitter be -- join us on twitter. >> timothy geithner discusses the financial health of the social security and medicare programs. the justice department announces the rest of several people accused of ties to terrorism. microsoft founder bill gates discusses his charitable work at the aspen ideas festival. a senate hearing looks and accusations of financial aid fraud at for-profit colleges pep. . .

ab >> thank you for coming. i want to welcome my fellow trustees and want to read knowledge the hard work and dedication of the cheap

actuaries in particular. 75 years ago this month, president roosevelt signed the social security act into law creating a program that tens of millions of americans rely upon to help them retire with economic security. 30 years later, president johnson signed commitments to that law creating medicare providing health insurance for older americans. this year, president obama signed into law the affordable care act. this gives americans more control over their health care decisions, will improve the quality of health care, and will address insurance company abuses. this law so it takes major steps to bring down the rate of growth over time. the positive impact of these reforms is made clear by the trustee reports. medicare's hospital insurance

trust fund is expected to remain solvent through 2029. that is 12 years longer than what was projected last year. the record extension of the life of the it trust fund. it has been reduced from 3.88% of taxable payroll to just 0.66% of taxable payroll and projected costs for the medicare supplementary medical insurance program over the next 75 years expresses a share of gdp are down 23% from what was projected in the report last year. the affordable care at also approved -- improved social security's finances. while the recession has taken a toll on social security in the near term, the long-term outlook is nevertheless improved as a result of the affordable care act through provisions that are expected to shift some

compensation over time from health insurance earnings. these are very encouraging projected improvements in the financial position of these critical benefits for americans. projected improvements in the financial position of these critical benefits for americans. now it's important to note that for the benefits of these reforms to be realize, they have to produce large improvements in efficiency and productivity, they have to be allowed to work. congress will stick with them. now, of course, both social security and medicare still face considerable challenges, but today's reports are evidence that with resourceful and responsible policy making, we can achieve very substantial improvements in limiting the rate of growth of health care costs. thank you. >> today, as a trustee for the

medicare trust funds, i am pleased to join my colleagues to report that the outlook for medicare has indeed improved greatly compared to this time last year. thanks, secretary geithner said, to the pass a affordable care act. the trustees' report backs up the finding of the report issued earlier this week for the centers for medicare and medicaid services and concludes that the reforms in the new health care law will extend the solvency of the hospital insurance trust fund by an additional 12 years until 2029. also shows these reforms from developing new models of care would to rae warding quality to crack down on fraud, waste and abuse, have kut the projected 74 year hospital shortfall as a share of taxable payroll by more than 80%. for the supplemental medical

insurance trust fund, which helps medicare beneficiaries pay for services and prescription drug, the report projects a balanced budget for the foreseeable future, but for both trust funds, the report shows that we have a lot of work left to do. to achieve the gains projected by the report, we must continue to work hard with our partners across the country to implement the reforms in the affordable care act effectively and on time. as we work to secure medicare's future, we're also committed to honest accounting. and that's why president obama and i have asked congress to pass a permanent fix to the sustainable growth rate formula for doctors. so our projections can be based on the most accurate information. that's with i'm pleased to announce that last month, i re-established a panel of experts that will review these reports with a special focus on our long-term health care spending.

the panel will hold its first meeting in the near future so its recommendation can be incorporated into next year's report. medicare, as secretary geithner has said, is a promise to all americans made 45 years ago that if you work hard you can retire knowing that medical bills will not force you into bankruptcy. today, we've taken another very critical step towards securing that promise. the report demonstrates to the american people that we won't stand by while medicare's future is threatened. as we move forward, we need to cannot our work to strengthen medicare for today and tomorrow. and now i'll pass it over to trustee secretary hilda solis. >> thank you, i also want to thank everyone for joining us today. today, we heard from the long-term outlook gore social security and medicare have improved relative to last year. much of the projected

improvement in medicare finances is tao to the program changes under the affordable care act which will take effect in the coming years. this highlights the importance of making every effort to ensure that the affordable care act is successfully implemented. due it a deeper and more prolonged recession than was projected last year, unemployment remains near its peak. loss of wages, or income has a severe impact on the livelihood of many american workers and their families. it also erodes the payroll tax business and revenues needed to pay current program benefits. as baby boomers, that generation, workers are retiring faster than the number of covered workers, we expect that the annual gap between social security tax receipts and benefit expenditures will begin to grow rapidly beginning in 2015. while trust fund earnings are projected to cover the gap for a few years, ultimately the trust fund assets will be needed. we know in particular that the social security disability insurance trust funds are

projected to be exhausted in 2018. new policies should create more jobs with better pay that revitalize the medical class. more good paying jobs would mean more revenue for these programs. new policies are also needed to enable disabled and older workers to continue to working both to increase their retirement savings and to delay collecting thus optimizing their social security benefits. the affordable care act adds tens of millions of additional people to the health insurance marketplace. policies are needed that reign in cost even as we expand and promote quality, not just for medicare but for everyone. a more efficient health care system would make medicare's problem problems more manageable. we all know they provide a safety net for retired workers and beneficiary, yet financial challenges facing social security and medicare remain. this administration looks forward to hearing the guys phys

cal kmigs's recommendations on ways in which we can address the imbalances between income and cost to the program. by work together we can find solutions that ensure these programs are sustainable so america's workers can continue to count on them in the future. thank you very much. >> in a 1934 fires side chat, president roosevelt described his proposal in this way. i believe what we're doing today is a necessary fulfillment of what americans have always been doing, a fulfillment of old and tested american ideals, he then went on the to compare his legislative proposal with the imminent renovation of the white house complex. wooirl while i'm away from washington this sum, a long-needed renovation of the addition to our white house office building is to be started. but the structural lines of the old executive office building will remain. the artistic lines of the white

house buildings were the creation of master builders when our republican was young. the simplicity and strength of the structure remain in the face of every modern test. but within this magnificent pattern, the necessities of modern government business require constant reorganization and rebuilding. it is this combination of the old and the new that marks orderly peaceful progress, not only in building builds but in building government itself. our new structure is a part of the fulfillment of the old. it is in this spirit of rebuilding that president obama established the national commission on fiscal responsibility and reform that in december will make recommendations for social security. it is in this spirit that all americans should participate in a civil zee bait about our expectations of social security and our willingness to make those expectations a real at by what we pay. i have two wonderful children

who have enter the workforce in the past year. one is being called up for military duty in october and the other starts teaching inner city children next week. what is important about the debate and its resolution is that they and their friends and millions of other young americans have confidence that we will continue to honor the great intergenerational contract that is social security. to help this debate stay civil and fact based, i do want to ask the members of the media who have joined us here today to be very precise in their descriptions of the phrase trust fund exhaustion, while the osgi fund will reach exhaustion in 2037, that does not mean there will be no money left. what it does mean if congress takes no action at all, we would be able to about about 78% of our current level of benefit payments that would be a bad result, but a far cry from

having no money for benefits at all. this misreporting has caused many young people to despair about social security and so i urge all of you to be careful with this critical and often misunderstood term of art. with the 74th anniversary of the social security acted just nine day dayes away, the agency about revitalized despite the huge work loads caused by higher unemployment. compared to four years ago, productivity is up, backlogs are down and in an aging i.t. infrastructure is being replaced by state-of-the-art systems ant very best electronic services in the federal government. i'm excited about the next 74 years of social security and i think all of you should be, too. thank you. >> with that we'll take a couple of questions. down front. >> secretary, and any of you, actually, do you expect a civil debate over what the deficit

commission seems to be leaning towards recommending, which is of course raising the retirement age slowly? do you expect the civil debate when even a lot of democrats consider themselves tour protectors of social security? >> well, we're going to have to have a debate and we can always hope it will be civil. but i think you're a little ahead of the commission. it's clear that the commission has been asked by the president to take a broad look at our long-term fiscal trong problems an to lemd changes that will bring our commitments and our resource more into balance. and what he did, he asked those men and women to step away from politics and take a careful look at how best to restore gravity to our fiscal position and they are in the process of sorting through what it's going to take and how best to achieve that, but we don't have any sense today and i don't think they do yet about where they're going to

find consensus an what mix of proposals they're going to introduce, certainly no spirvgs at this stage. >> so we're looking forward to their recommendation, we'll have a chance to reflect on them as will the country as a whole and ultimately of course the president and congress will have to come together and continue the progress. you're seeing at lot of progress today in these report, but continue the progress of again restoring balance, restoring gravity, restoring sustainability to our long-term fiscal commission sthanchts easier for the trustees? >> what would. >> if the commission would recommend raising the retirement age? >> again, people are are going to have different views on what is appropriate, what the right mix is. the challenge for the commission is to try to find way to begin to build a consensus among both republicans an democrats an how west do to do it. thooes are national challenges that have have to come with bipartisan solutions. we've got a terrific model in

the commission that president reagan established to undertake a previous set of challenges in social security. the best model, most successful model of the commission, i think we've had is on that basis of that model that the president formed this commission. and they are working very hard and they are terrifically capable people and we're very hopeful they're going to find a way to begin helping us build a consensus on making changes. >> you had a once in a generation opportunity with the health care law it restore solvency and today you're tagging this good news about an extra 12 years. but did you miss an opportunity to set the program solvent? i mean to set it on a real path towards solvency. 12 years doesn't seem like a lot when this type of legislation comes around very seldom. >> i'll let the secretary speak to that, but let me just make the following initial point. if you look at the full scope of these reports an you look at

what cbo itself provides in terms of its analysis, if you look at the analyses presented by a wide range of independent economists and experts, these are very, very, very substantial improvements knit rate of growth and health care cost that make a very substantial improvement in our long-term fiscal position, much, much larger than anything we have considered, much less embraced as a country over the last several decades. so it's a very promising set of reforms. as we know, the future sun certain. these are long-range projections and those require that we receive substantial improvementmeimprovements in efficiency and productivity. but look at the full mix of the change in estimates and you'll see a very substantial reduction in projected growth in health care costs, on a scale that make a, very substantial improvement in that piece of our long-term

fiscal challenges. >> well, i would just add to that economic picture the fact that an underlying assumption of the affordable care act is a true transformation in the delivery system involving health care in this country. and not only the productivity increases but the notion that we are changing emphasis and focus into entirely new areas on prevention and wellness, on increasing quality of things that currently we pay for and pay way too much for. so if indeed those transformation are as successful as the pockets of those practices indicate, if we can really bring these to scale and drive that sort of not only productivity but quality across this country, some of the underlying assumptions will be

much more robust. cbo, for instance, doesn't even score prevention and wellness because they don't know how to do that. if we have fewer diabetic, far less chronic disease, 20, 25 years from now, these projections will look very, very different. if we cut dramatically into the 20% of the americans who smoke and end up therefore with far fewer diseases, so there are a number of initiatives that are contemplated by the passage of this act that don't show up in the economic projections at this point but we think hold enormous promise for far lower costs well into the future and a far different rate of growth of overall health care spending. >> are you concerned that the economic performance throughout this year and into 2011 could impede the 12-year extension? >> not that i know about. i mean i think that it may have

more impact on the social security fund overall than the medicare funds and i think there's a balance in that program, but we, given the fact that we are likely or hopefully have seen the bottom at least of the economic downturn and are now slowly recovering, we're optimistic that these targets can be met. >> last question. up here. >> hi, secretary sebelius, can you get into a little bit more >> which we do not think will

occur which is why we continue to provide cautionary notes. the president has suggested and a very strong supported a permanent fix. he includes the sgr in his budget each year but feels that congress relents to tackle this as a long-term solution because if you look at the projections just over the next three years, we would have a 32% cut in medicare provider rates which would be untenable. if you want to destroy the medicare program, the fastest way to do what would be to drive the buyers out of the program and i think that is how it would be done. we intend to work on not just the short term but the longer- term. congress is intent upon finding and paying for it and have a fully paid for sgr and having said that, the impact on the

trust fund would not be significant. we would have other areas to pay for the sgr fix. the report reflects current law. >> tomorrow, the government releases the monthly unemployment figures for july following the report -- following the release of the jobs report, we will talk about the new jobs numbers at a hearing of the joint economic committee. you could watch live coverage of the hearing at 9:30 a.m. on c- span2. >> the osprey over the years has

come as close to being a religious issue as any defense issue ever is. >> this weekend, a veteran pentagon reporter looks at the decade-long battle for the marines and politicians to build or to kill the v-22 tilt-rotor aircraft. find the entire week in scheduled bootv.org. attorney general eric colder announces the arrest of somali americans tied to the group al- shabab. the group has claimed responsibility for bombings in neighboring you gone up. the attorney general is joined by officials from the fbi and several u.s. attorneys. this is 15 minutes.

>> good afternoon. two of these individuals have been arrested. these indictments and arrests are from minnesota, alabama and california and shed further light on a deadly pipeline that has rooted funding to al-shabab from across the united states. the indictment was unsealed in minnesota charging 10 men with terrorism offenses for leaving the u.s. to join al-shabab as foreign fighters. seven of these defendants had previously been charged with either indictment or criminal complaint. the remaining three defendants had not been charged before. in the district of minnesota alone, a toll of 19 dependents

-- defendants have been charged in connection with this investigation. nine of these defendants have been arrested in the u.s. or overseas, five of whom who have already pleaded guilty. 10 of those charged are not in custody and are believed to be overseas. additionally, two u.s. citizens and former residents of alabama and california, have been charged in part cases for providing material support to al-shabab. both are believed to be in somalia and fighting al-shabab on-of. according to reports, one of them has for -- has appeared in several propaganda videos which have been distributed worldwide and he is believed to be a ranking member of the al-shabab organization and has operational responsibilities. finally, another to individuals

are both naturalized u.s. citizens and residents from minnesota and were arrested by fbi agents earlier today. they have been charged with providing material support for terrorists among other offenses. the indictment alleges that these two women raised money to support al-shabab and went door- to-door and-in somalia and communities in several locations in the u.s. as well as in canada. in some cases, these funds were raised under the false pretense that they would be used to aid the needy and the poor. if you choose this route, you can expect to find yourself in a united states jail cell or to be a casualty on eight some of the

battlefield. as demonstrated by the charges unsealed today, we are seeing an increasing numbers of individuals, including u.s. citizens, who have become captivated by ideologies and has decided to carry out terrorist objectives at home and abroad. this is a disturbing trend that we have been intensely investigating in recent years and will continue to investigate and will root out. we must also work to prevent this type of radicalization from ever taking hold. members of the american muslim community have been and continue to be strong partners in fighting this emerging threat. they have regularly denounced terrorist attacks and those who carry them out. they have provided critical assistance to law enforcement to help disrupt terrorist plots and combat radicalization. these individuals have consistently and correctly

expressed deep concern about the recruitment by terrorist groups. many members of the committee have taken steps to stop recruitment of their youth by terrorist groups. recently, a group of prominent american muslims joined together in a video to repudiate the tactics employed by radicalized militants via the internet. there needs to be more recognition of the losses suffered by the muslim community here and around the world. many of the victims of terror attacks by al-shabab, al qaeda, the taliban and other terrorist groups are innocent muslims. they are innocent. i want to applaud the tremendous work of the fbi terrorist task force for their work on these cases. i also want to thank the d utch ministry of justice, the

state department including the u.s. embassies in the united arab emirates and yemen, the hague and the department of defense for their assistance in the minneapolis cases, in particular. these indictments and arrests would not have been possible without the critical contributions from the national security division and the u.s. attorney's offices throughout the country. they are represented by individuals on the stage with me today. i would now like to turn it over to the fbi executive assistant director. >> thank you. good afternoon. today marks a significant milestone in our efforts to bring justice to members and supporters of the terrorist

group al-shabab and to deter others who would seek to follow their example. as attorney general holder just noted, these arrests give us greater insight into the evolving nature of the terrorist threat we face. terrorist organizations such as al-shabab continued to radicalize and recruit u.s. citizens and others to train and fight with them and to provide support for their violent activities. our success in identifying and charging these individuals is due to the dedication and commitment of the intelligence committees, specifically the joint terrorism task forces of san diego, mobile, and minneapolis. on behalf of the fbi, i want to thank the agents, analysts, the offices, of all of the federal state and local agencies that serve on this task forces. they have worked diligently and tirelessly to obtain and share information and carefully pieced

together each element of these cases. i would also like to join the attorney general in thinking our international partners. the cooperation of our citizens is critical to our efforts to prevent radicalization activities of terrorist groups. the fbi is extremely grateful to the members of the somali- american community. i finally went to join the attorney general in recogniz ing and thanking the u.s. attorney's offices in diego, mobile, and minneapolis. while today's indictments and arrests are significant steps, they remind us that our work is not finished. the fbi will continue to work side-by-side with our partners to see that justice is done and that the u.s. remains safe. thank you.

>> in light of that and in light of the ongoing recruitment, how you assess the threat from al- shabab directly against this country? >> we do not have any direct evidence that they are threatening the homeland o. the fact that they have expanded their range of operations outside of somalia to uganda gives us pause and we are monitoring it. >> since the first indications that people in the u.s. were willing to go to somalia for support al-shabab until now, do you think that you have a pretty good handle on the extent of their recruitment and the willingness of people in the u.s. to join or argue still in

the early stages of identifying this? >> i think we have a pretty good handle on it given the upper jeffords would have made to the somali community in the u.s. given the efforts we have under way, the good work that is being done by the joint terrorism task forces here and our work with our foreign counterparts, we have a good sense of what we are facing. it does not mean that we are not concerned or think this is something that we have totally under control. it is something that will require constant vigilance and a great deal of work. >> from the beginning when the young men from minnesota were found a couple years ago, we have heard from the fbi that it appears that most of this was nationalistic. people recruiting people because their country was invaded. what has changed in the

intervening years? >> early on, if you have been following it, there have been waves of travelers. we have a good handle on those waves in 2007 and 2008 and 2009. there are indications from our workforce that the initial motivation was based more along the lines of nationalism with the event with ethiopia and african union forces, but it has more overtime. i think this third superseding indictment where we have added five additional defendants, three of whom who are no, i think we have a good handle on our traveler cases. frankly, we have done some pretty good work in the somali community in minnesota. it is a vibrant community. it is the largest in the u.s.

and they have been very helpful because bottom line, it is their kids that had been recruited and in some cases ended up as casualty's in somalia. parents are parents and they are very concerned and we have had a good effort. to answer your question, that may have been initial motivation but it has morphed into other things. >> is there anything unique you can put your finger on as to why al-shabab had so much success in recruiting americans decide what you mentioned just now? it seems like they are getting a lot of records. >> if you look at the indictments, there are indicators about their recording techniques and the demographics of the communities that they have been targeting. it is young men, young people. very difficult points in their lives, just like any normal american teenager and there are

certain hopes they can draw people into and they have been used. that has been a concern for us. that is probably the underlying basis for any success that we have had with our somali community. >> you mention the risk that individuals who go to somalia to fight risk being a casualty on the battlefield. are you signifying a ramped up effort by the u.s. to combat al- shabab? >> what i meant by that statement was those who decide to join the fight run the risk of ending up either in u.s. jails sell or a casualty on a battlefield. they run the risk of being killed by those who are opposing al-shabab in somalia. i was thinking more about the fight over there as opposed to any efforts on our part. >> related to that, do you know

if any or how many of these individuals indicted today have been designated as special local terrorists which would allow the u.s. to target these individuals? it is a chaotic environment and there have been reports in the past of u.s. drone attacks against terrorists. are these people potential targets for u.s. attacks? >> i would not want to comment on any possibility that the action of the u.s. or get into things that might be intelligence-derived. >> but is there any evidence that any of these people have a beef against the u.s. or had plans to come back and do anything here or did they want to fight over there? >> can you tell us a bit about

the involvement of the uae and yemen, what was their role? >> a lot of these investigations, and there are many more not including today, involving some of the somali- american community. those tentacles reach overseas and we continue to work with our partners overseas and in this particular instance, the attorney general noted, they have been particularly helpful. we are extremely grateful for their cooperation. >> they are flying through these countries in some cases? >> i will not comment on the specifics of an ongoing investigation. >> you mentioned that there is a thought that omar hamami is in a leadership role. do you know in what capacity? >> i did not want to go into things that our intelligence

derived. i feel safe in saying he has assumed an operational role in that organization. >> my team play some role and the decision to carry out the bomb i the inn uganda? >> there have been reports that he has been a key financial facilitator. >> i do not want to go beyond that which i have said which is to say he is an operational person in that terrorist organization. >> what do you mean by operational? the one to define that? >> nope. [laughter] >> there is a somali element and there are cases where individuals have no relation to this group. >> he has made those videos and those are of concern. that is what it is particularly

important that recent efforts done by leaders of the muslim community on video to counter the message that he has been spewing was so important. the voices need to be heard from the other parts of the muslim community that really represent with that community actually is. we are talking about a fringe part of the community and that has to be recognized and that has to be understood for what it is, people who are trying to kill innocent muslims in whotion to those people they view as westerners. these people are murderers and we will hold them accountable for their actions. >> thank you. >> thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010]

>> is that hearing looks into accusations of financial aid fraud at 4-profit colleges and timothy geithner discusses the financial health of the medicare and social security programs. >> we cannot go around expecting double dealing and career. you cannot run a democracy like this. >> watch this candid interview with new jersey rep millicent fenwick. it is part of a treasure trove of the past 30 years. it is free and on-line at the c- span video library.

microsoft founder and chairman bill gates. and he was at the annual aspin ideas festival to talk about his charitable work and health care. as chairman of the foundation, he manages the $33 billion endowment and fund health care and education initiatives around the world. this is one hour. >> thank you i very much. [applause] >> welcome to aspen. bill days. [laughter] -- bill gates.

quest this started with some downbeat talked from neil ferguson and others. i will ask you to uplift us as it you are the preacher we sometimes have in this revival tent. what are you optimistic about? >> most things. if you avoid politics, that helps. if you look at the last 50 years, what has happened in the world in terms of health, education, women's rights, almost any metric you can pick, and fact every metric that goes into what we call the human development index, there has been unbelievable improvement. one of my favorites is the under fire at -- under 5 childhood death number which in 1960, it was 20 million. it is now because of increased

population is up about 40% but the number who died is under 8 million. you have almost a factor of three reduction in the rate of death and the vaccinations explain about two-thirds of that. we can look and see things that kind of scare us. take literacy in africa. about 10% and 1960. today about 50%. we are making progress. whether it is advances in medical sciences or information technology or energy-type systems, there is a lot to be optimistic about if you look at it the right way. >> what about education in the u.s.? is that going in the right direction? >> no. that is a tough problem.

since 1970, a lot of resources were put into the system. that is coming teachers' salaries, particularly because of a generous pension piece, were increased to be well above the average. there were below the average and there were increased to be above the average and the number of adults was more than doubled. the adult-student ratio was increased by a factor of two. >> does that mean teacher salaries did not increase? >> some went into the classroom. the average class size today is lower than it was back then but much of it went into special needs education where you have traditionally mandated resource intensive activities. some went into counselors and some money to security guards. there are often arguments about which part of that has merit and

which do not. it is when you take a charter schools, they get a much higher percentage of their adults in the classroom teaching as compared to typical schools. >> what can we do to improve education in the u.s.? >> if you are motivated to learn, if you really want to learn, this is an amazing time for everyone. you have access to wikipedia, the latest information on the web. there is a new web site called khanacademy. he does 15 minute tutorials. there are college lectures out. if you are motivated, you can go to the electors. the average quality of a lecture is greater than any individual university because it brings

together 15 different universities and it brings together the best teachers, the best teachers from mit, the best from stanford, the best from berkeley. it is a phenomenal thing. you can get online, talk to other people about what you agree with or what you are confused about. you can hire a tutor for about $28 per hour for any of your scientific misunderstandings. the learning in parliament at one level is showing the potential that every student will be able to assess their skills and understand what part of nafta why not understand. there is great promise if we use technology well. more importantly, is to take the ferry best practices, take the great teachers and a great environment for teaching that have been created and learn what is there and spread that out

through these rest of the system. there is a small part of the system that is high-performance charter schools that proved that for less than what we spend on average for students in the public school system, that you can get over 90% of the kids to go to a four-year college and have incredible learning in any metric you want, creativity, they can add and subtract, it is a phenomenal experience in the most deprived inner-city kids are the ones that it seems to work well for. >> should we have competition in education? >> i am a big believer in charter schools. charter today, high-performance charter, to%, the best over a 15 year.

it is going up 10%. you are going to have 90% of the students in public school. you have to believe that changing the personnel system, using on-line technology, and spreading best practices from charter into those schools, that is where you get the dramatic change. we should keep growing chargers. there are some low-performing charters that need to be shut down that messes up the overall statistics from the charter movement. we need people that are good to grow as fast as they can. the heart and soul of this issue is going to be about how teachers are encouraged to improve, how they are told what they are good at, given positive feedback that is the management challenge and personal challenge

of taking great teachers and having more of them. is the big win. >> you are about to address the american federation of teachers which is one of the two big unions, probably the more reform oriented of the unions. between us, what will you say to them? [applause] -- [laughter] the union has reached out and gotten involved in a number of these reform efforts. our foundation has four districts with both the district and the union has agreed to really measure the teachers and give them feedback and where they are short in terms of keeping the classroom for helping the student who is behind or helping the one that is ahead. there are ways you pick the dimension that somebody is better at it and give them the way of transferring that knowledge. in the four districts, two of

those are ast districts. i praise the union leader who took the part of the contract that said you have to notify somebody weeks in advance if you are coming into the classroom and you can only be in the classroom for a period of time, they're changing that to say there is a web came in there that is taking video and if you have a part were don't think you did a good job, remember what time it was cannot show it to someone else and get advice. look at something you did well and put it into a library of best practices said teachers look at teaching various concepts and they will see who is the best and learn from it. it requires a radical change to say that the evaluation system is not going to be capricious and high overhead. what you have but the fault is an evaluation system where you

just have to know how many years to have been in the job and if you have a master's and you know the salary. there is no other factor that has to do with how well your kids are doing and the data shows that the top quartile of teachers gives you about two- years of learning and the bottom quartile gives you close to zero years of learning. the variants is mind blowing. it is a factor of 50 difference between the best and the not best in terms of how much learning. >> why don't we get rid of the worst? >> once you really evaluate people and give them a chance to improve, all personnel systems that are in most areas to include that if you have been given enough chances, it is not a profession for you. we tend not to emphasize that because the big win isn't the five pat -- 5% or 10% that do not belong taking the people

that do want to do well but are not doing a few things well, that is where you get the improved achievement, not so much the piece about the bottom. but that is part of the natural personnel system that you would have some of that with the appropriate safeguards. >> on your campus tour, you talked about doing something in life that really matters. how do you get more young people to believe in that? teaching is a noble profession. >> certainly, we are in a period where demand the students for the greatest -- with the greatest opportunities to go in to teach for america which is the option for them if they did not kick a teaching certificate, the demand exceeds the number of positions. it is stunning to see that at

harvard and yale you have somewhere between 10% and 18% of the class applying for teach for america and one of the four of those, there was enough capacity to let them in. to compound that, not only is it a finite number, but in many states over the next few years, there are going to be a significant number of teacher layoffs, anywhere up to about 6% of the teacher workforce will be laid off in some states. the way the rules work, it is not based on who the best teacher is, it is based on who has the most seniority. you have a lot of young teachers who come in and put more time into the classroom and by year three, they are getting better results on average than the veteran teacher is, you have big variants of there. this fiscal situation is going

to make things tougher and some people went into the profession and are finding themselves temporarily not having a job. overwhelmingly, we need more young people and talented people to go into teaching. part of the reason the u.s. had better teaching in the past was because it was the injustice that women did not have equal opportunity. you had a very talented women going into teaching. it is better that they get to pick any profession they want and most professions, there are very few left where it they do not have opportunities. that means that teaching has to get serious about identifying those best practices. you cannot rely on natural talent as you did in the past. >> how can technology help us with teacher assessment? >> in an area like math, you take the math scores of the kids

coming in and the math scores of the kids going out and see if they improve. we can correlate that with other metrics. if you go to the students and ask them to questions, does your teacher use class time well and when you are confused, does your teacher help you out? if you ask those two questions, you get a result that correlate perfectly to the test results. the students know are the good students -- who the good teachers are. it is different from the teachers they like. they're not kidding about what will happen when they go into that room. if class is column. if they're not paying attention. if you visit a charter school, that is when you see that teachers are really tracking everybody in the room. it is not just small class size,

they are up to 35. they learned the technique, which is not a natural thing, to behave to learn how great teachers. they found examplars and worked hard at it into pieces of what they found. the high-performance charters are doing that in a systematic way. they are bringing teachers in and do team teaching with huge numbers of students and make that work. it can be done. we also take the with the cameras, we survey the parents, we survey the other teachers. all of these indicators line up and so for reading, math, you have a very strong data that are constant and we think that teachers are involved in these are willing to tell the other teachers. this worked well, it helped me identify where i need to improve.

we care about it. this is a good system. that is the goal. we do not that the teachers out of the -- or use a web cams and electronic surveys but if we do not get some evangelizing, we are done. you cannot change this without bringing teachers as a whole along and a majority being enthusiastic about what you're up against. >> do you worry about the criticisms of teaching to the test? should we teach to the test? >> 8% of the things that are called teaching to the test are actually defined. there are extreme things where you learned about things in a funny way. you can get really narrow stuff that is teaching to the test. it is hard to be creative if you cannot add and subtract or read

a complex sentence and understand what it means. that is not the only thing that counts. if you go into those charter schools and see how they are encouraging kids to do projects and how they are learning to work together, you will not see any misalignment. here is a class that is creative but cannot add. if the class is engaged, there is a culture of connecting with that teacher, they will learn how to add and they will learn how to do projects together. >> why do we still have textbooks and when do we get rid of them? >> textbooks in the u.s. are particularly small line because they have been designed by committees and the incentive is to change them because the textbook as to not like competing with the used textbook dies. we do not -- an american math

textbook is three times larger than an asian textbook. we read teach concepts many times poorly as opposed to teaching a modest number of concepts a few times. it is stunning but there would be this systemic difference. we have 50 states but they all fall into this trap. they all fell into the trap of committee-designed textbooks. and, the asians and did not fall into that trap. there is this common curriculum written about. there will be textbooks that will be on line and free. you still have a problem. you cannot assume everyone has an electronic key by -- and device. our foundation was involved in putting personal computers into every library. but, even that, that is not perfect universal access. in the next three or four years, some evolution of the

netbook, or ipad, or phone will be adequate for engaging in that text book in an interactive way. the price will come down enough that you can do that for a while last that you -- well less than you spend for the textbooks, but what you get is a lot better than that. beyond the textbooks, in need self assessment. the thing in that is that people progress in different speeds. people need to be reinforced -- you got this piece, you can move on. or, if you get further up, and you are doing story problems, you need diagnosis that says "look, the reason you are messing this up is not because of anything in the story problem, you just keep taking two minuses and keep getting a negative number, or long division, or turning an improper fractions into an integer fraction. you have got that nonstop." -- you have got that messed up." self assessment software is a big part of this, where any student can sit down and try this out. that is happening. whether it is stuff that we are

funding, raced to the top money is funding, -- race to the top money is funding, the contrast of what happens today, were you graduate from high school, and when you go to community college, it hit this test that the majority of minority students fail, and you get stuck in remedial math. the majority of the people get stuck in their, and never get a degree. so, they have wasted money, they have been humiliated, they spent a lot of time, and they get nothing out of it. that is because it is completely opaque. you are not told which part is wrong. that task is this black box that neither you nor your teacher knew about afterwards, and you did not know about before hand. our view is you should be able to go online, spend 15 minutes, and know exactly what results you are going to get -- which areas in need to go and work on, and everyone should teff free access to that. -- everyone should have free access to that. >> what are you funding at the gates foundation during secondary education that you are particularly excited about now? >> well, most of it falls into this kind of teacher measurement and improvement activity. that is a very big process.

>> have fun explaining that to the aft, one more time. >> well, the aft is not monolithic, you know? there are a lot of teachers, and every teacher there wants to teach well. if they teach well, they want the student in the next grade, that they put so much energy into to continue to have a good educational experience. when you contrast that to -- yes, maybe in terms of what they want intentions, or job protection -- in pensions, or job protection, or things like that -- that has been over emphasized. it is not like we have some magic measurement system that they know about, and they know is good, and they are rejecting that. the status quo is very attractive. the system works. you know what your salary is going to be. he stick around long enough, -- you stick around long enough, you are going to do very well because the pension is so much jen -- so much more generous than it is in other sectors of the economy.

it is understandable that getting people to take a rest, and do these new things -- they will be conservative about that, particularly in a time when state budgets are so messed up, and with that money is allocated to various things within education is not a very rational. as you cut budgets, the time you actually cut them, you cannot renegotiate the pension thing. you cannot go back and say "ok, the special needs thing -- in no, maybe we can read and that -- retune it." those things barr untouchable. the things you can touch are like the legnth of the school year. hawaii cut -- had one of the shortest school years in the nation, and this nation has the shortest school year of any country, even the asian countries and the rich countries. and, we are going in the wrong direction. the good charters, almost uniformly, have long school days. the extreme is the boarding

school, where you have that sort of a 24-our environment. >> should school days be until 6:00 p.m. or 7:00 p.m., and school years be 11 months? >> you do not have to go that far. the school day is about and eight and half hour day, and they go every other saturday, and they go three weeks in the summer. of course, the teachers are working longer hours because they make themselves uniformly available to the students after hours. the commitment of those teachers, and there are equivalent in non-charter schools -- a lot of those people in that top quartile are not only natural, but the energy and devotion they're putting in is pretty phenomenal as well. you imagine that if you raise the average up, they would feel more unrewarded, and maybe feel even better, and do even more of -- feel more rewarded, and maybe even feel better, and maybe even do more of that.

>> do you think that -- you talked about this pension that is very generous for teachers, and it kind of kicks in, not right away, but after 15 years or something. and then you talked about state budgets. do we have a huge, and accounted for pension -- unaccounted for pension overhang problem that is going to hurt our budgets? >> absolutely. it is pretty mind-blowing. there was a book written about it about eight years ago called "while america slept." and, america's continuing to sleep. it is partly because the way that state budgets are presented this so fraudulent -- there is a thing called the government accounting standards board that allows you not to take full pension costs, not to take retired health benefits. so, whenever something is free, it gets over used. improving the pensions of the people already retiring at never shows up on the state budget. letting people retire early, having more overtime factor begin -- factored into the retirement thing -- all of

these things come from the fact that when the person that says yes to those things, the government person, it does not feel any pain at all. there is no number that ever shows up. so, we need a lot more transparency about this, which will be bad news, at time when state budgets are already very bad, and then, maybe we will be more rational about it. it's like when stock options were free, and people were saying we would use them even if they cost a lot because they are so magical. no. in fact won the true cost was accounted for, -- in fact, when the true cost was accounted for, they were still used, but they were used about one-fifth as much as they were before they were in this accounting window that they were free. now, the pension payments to government employees -- lots of that looks free, and we messed up long enough that we have a huge overhang here. you also get some inbalance between the people who do not vest in and do vest in because of how big that discontinuity is. >> in terms of a big, overall

economic issue, did we not get a wake-up call from greece, and for that matter california and illinois now, and is there not something radical we are going to have to do to get these numbers aligned? >> no, we did not get a wake-up call. the wake-up call, unfortunately -- there are only two types of wake-up calls. one is a society that has a lot of centrist politicians who are very intelligent, who were looking at these long-term trade-offs involving people in these discussions. that is one way you do this stuff. the other is called the bond vigilantes'. when your debt rates spiked up, and they are acting like there is some doubt you are going to repay your debt. why was clinton able to balance the budget in the 1990's? medical costs one not as out of control as they were. some of these pension things had not come along. you did not have the reagan tax cuts, but you did have the bond rates saying action should be taken here, and maybe we need to do something.

for a variety of macro-economic factors, the u.s. treasury rates are super, super low today, so it looks really free to consult -- to continue federal deficit spending, and state deficit spending, which is normally a balanced budget, but only accounting fraud allows you to pretend it is balanced. 49 states at and the constitution -- everybody but vermont has to balance their budget. so, no, the great thing did not -- the greek thing did not pause good information -- cause good information to be put together. tell me what the projection for the california budget five years from now is? they are not required to do it. there is nothing that forces these types of analysis. so, you do not get these discussions. you look at how many letters as the governor have to pull. -- levers does the governor have to pull? when, all the sudden he gets notice his budget is out of balance, schwarzenegger try to lay off, and the courts would not let him do that.

he tried all sorts of things that are really inefficient. it is the same thing for school districts when they want to cut their budget. they cut certain programs. they will cut buying software, not the kind of software that microsoft does, but educational software. they will cut some good overtime requirements. they will cut things that are very effective because you have got into a point where you cannot trade anything else off. local governments will shut parks. oft's his tiny amounts money. -- that saves tiny amounts of money. so, we need to see what these fiscal situations are like, and create some sort of centrist dialogue about the trade-off -- what do we spend on, what does the tax level look like, and if we get too close to this, you could despair that that conversation will ever happen, until the bond market does something strange, at which point your tools that are left are really very inefficient, their report. -- very poor. you are in trouble.

our current course and speed will get us to that point sometime in the next decade. >> the overall structure of that conversation would have to be how do you allocate resources, in a sense. >> that is what government is all about. yes. somelk about -- let's do allocation of resources. the proportion of gdp that goes to health care -- is that over- allocated? >> well, the u.s. spends 17% of the gdp on health care, and you drop down to number two, which is switzerland at 12%. so, you say "hey, what do we get for that?" well, we get nothing. the health outcomes, which are complicated to compare, but the health outcomes are basically slightly worse, both in terms of averages and the inequity. our bottom quartile is very ugly compare it to all other

rich countries' bottom quartile. our upper quartile is somewhat better, but that is how you get the inequity. so, we are spending at a huge rate, which if it was not increasing fast in -- faster than inflation, then, you could probably afford it. as it continues to grow, it squeezes. unless, people say "yes, i would like to be taxed a lot more." most states have the super- majorities that are required to do that. it is not clearly a good thing either. as long as you are dealing with a finite amount, as the medical cost goes up, and that shows up in state medicaid spending, and in the federal budget as medicare, and they're part of medicaid, it squeezes out everything else. so, what would you see is that it is squeezing higher education.

they are raising tuitions at the university of california as rapidly as they can. the access that used to be available to the middle class, or whatever, is just rapidly going away. that is a trade-off society's making because of these very, very high medical costs, and a lack of willingness to say is spending a million dollars on that last three months of life for that patient -- would it be better not to lay off those 10 teachers, and make that trade off in medical costs? but, that is called the death panel, and you're not supposed to have that discussion. >> that is an interesting thing that you just said, which the last three months in life, for one person or something, because we have not had discussion of how to allocate that money, it means we lay off three teachers to do so. i mean, in other words, we have not had this type of allocation. >> we are making that trade-off

because of huge medical costs that are not examined to see which ones actually have no benefit whatsoever, and because of pension generosity, we will be laying off over 100,000 teachers, which i am very much against, and the whole aft would agree with me on that. >> what is it that causes us to spend 17% of gdp, and switzerland to spend 12%? what is the differential? >> i have read a bunch of books on that. it is complicated. i have a bunch of agitators that come educate me. it is a variety of -- i have a bunch of educators that come educate me. it is a variety of things. the last year of life we are not particularly good at. diabetes a huge problem in this society because of obesity, which each -- which it is not as much in some of those other societies. one of the things that jumps out, and i do not claim to be an expert on this, i am trying to learn enough to understand what would cause innovation to reduce what has been this in exorable ride -- how you get

innovation on your side to reduce those costs, which i think can be done. one of the things that jumps out is that we have three times as many specialists as we have general practitioners. no one else's system has anything like that. that is unique to the united states, and it is because it is a rigged market -- that is the reimbursement rates have been set. the patterns set by the government through medicare, and it was a rational decision to become a specialist. what that means is if you are impatient, you have lots of doctors -- if you are a patient, you have lots of doctors coming in and doing little pieces of things, where in germany, which is the best, their one-to-one ratio, specialist-to-general practitioner, is having to do a lot, and really manage your care. so, both in terms of quality, and cost, it is a much superior system. >> would we get there better if

we'd moved from a service system to a health maintenance system? >> absolutely. if you look at what effectively the other countries are doing that gets the incentives aligned properly, it is effective you have someone who has got the -- has to look at the long-term costs of somebody's sickness, so there are incentives to invest up front, in preventive care, and the relationship with that patient, and there is not some artificial thing where the more sick your patient is, the more money you make. in medicare, if you can get your asthmatics to have acute episodes, you get rich. if you teach them how to take their medicine, and how to do the right things, you go to the poorhouse. it is an odd system that we have designed. now, if you are in and hmo like kaiser permanente, it is the opposite. you say let's look at the data on asthmatics that are in the that hmo versus, those that are

not, it is a very dramatic difference. forcing people into an hmo, i am told, is politically very difficult. that would be a huge mode change in terms of the incentive system, maybe not a doable one. if there is any clear lesson from the european systems, it is having that alignment of interests. >> speaking of allocation of society's resources, i think he said on your campus tour -- i think you said on your campus tour, at least at harvard, that the allocation of iq points of our society, to wall street financial instruments was higher than it needed to be, and that some of those i.q. points should go into other fields. >> if you say what portion of the society's iq goes into studying great teachers,, and document and what those great teachers do, and how you would spread those practices? what is effectively the research and development component in education?

it is about as close to nil, as you can imagine, and yet, what is the most important thing in terms of having a society that has both an equality of opportunity, and is competitive with other countries? it is education. so, it is this mind-blowing misallocation. my favorite vingette is that guy -- that hedge fund got making lots of money, and he quit to do these little web videos. we moved about 160 i.q. points from the hedge fund category into the teaching many many people in a leveraged way category. that was a good day, the day that his wife let him quit his job. we need something like that in a very broad, and dramatic way to learn about the money we spend on education. when you go to a state and say

you'll understand your books are flawed, first you meet with a politician, and then they will say meet with a career bureaucrat. if they did not know the numbers. there'll be a 22-year-old who is being paid $40,000, and he is sitting there trying to figure route the state budget. he has been told we have to cut $500 million in the next month. he says what about this charity. the iq that is devoted to these complex trade-offs is ridiculous. [applause] >> if you gave me three years to cut the california budget as much as it needs to be cut, i am not sure how well i would do, but you might trot in people that know what is going on, and

notify people that if they have three years' notice, some category will go down, and you can prepare for that. the closer you get to it, the more you wonder how it has worked so well, for so long, because it has. >> you and some others have been involved in energy technology, and trying to produce carbon, and maybe putting a price on carbon. tell us about that. >> energy is this super important, interesting thing in the economy. if you can bring the cost of energy down, it improves everything -- the cost of food, transport, water -- everything has an energy component. if you look at the progress of civilization, it is all about low-cost energy.

first, you start with coal, then oil, the natural gas. it is another industry. it is not as extreme as education. it is another industry where the investment in research and development is low. we are trying to both reduced the costs, and put a constraint on it which is zero, not 50% less. effectively, we have to get to 0. the fact that we do not encourage market innovation by have been either the carbon -- having either the carbon tax, or the regulation, and we do not have the government research, it feels like on the state, and in this case, it is a global problem, not the u.s. against china or anything like that. no warming problem is global.

-- ago warming problem is global. the irony is the huge negative effect will be in the tropical zone. increased co2 will probably improve. we do not really know. it is within the level of uncertainty of whether it will only be slightly good, to someone that. in the tropical zones, it is going to be bad, it is just a question of how bad. the people who lived there did not cause a problem, yet they will suffer. this is a time when foreign aid is being cut. the fact that we are not working on behalf of the poor to fund cheaper energy development and research is disappointing. john and i and some others said the research should be up by an

$11 billion a year, which would take up to $16 billion, which would be about one and half of the amount spent on energy in the u.s.. we went to washington, d.c., and met with senators and the president. we had a nice binder for our report. i should not be cynical. i do not know if it will have any effect. i think the research and development provisions of the energy bill will probably be much better. the so-called house bill -- the extra money had been scattered off into very specific technologies and other things. hopefully, we will get something better than that. >> a lot of what happens happens in the private sector. tell me about what you are doing with some of these pretty awesome smart people.

>> one thing that has happened is that there has been more capital and i you put into energy innovation in the lap -- and i.q. put into energy innovation in the last seven years than was true before that. john and his group is now focused on that. a lot of so-called silicon valley, and i use that term broadly, that type of risk- taking is looking at neat energy things. there are investors all over the world. this is wonderful. there are regulatory things, and some basic science things that also have to be done. you cannot just count on the innovation. a good example of that is this nuclear company that has a whole

different type of nuclear energy that avoids some of the problems in existing nuclear energy. you need someone who is willing to build a novel reactor. the u.s. is not exactly a place where that decision would be made quickly or in the affirmative. we have this bind, which is brilliant people, and so far, all based in the u.s., going around asking other countries to build one of these things. on paper, this thing is a miracle. it emits zero co2, and the electricity is cheaper than coal-based co2. >> how does it work? >> one we burned iranian today, uranium has two different -- uranium today, uranium has two different isotopes. you have to burn that, and it is

expensive, and you get ugly ways. we take all of the uranium, including the 99.3%, and have the type of reactor that can burn that. we never opened it up. we never move it around. it sits there while the radioactive decay goes away. essentially, the fuel is free. and, you avoid the waste problem. we can even burn the waste of some of the other guys. the problem is that it is new. anything involving nuclear that is new people are appropriately cautious. there are a few signs questions. are there so many new trends -- neutrons flying around that it actually messes it up? i do not think so. it is one of about a thousand ideas. at least five of them would

work. what we need is an environment where you know -- say you have a breakthrough in carbon capture. is the government willing to suffer a million times more with the nuclear waste underground? why should you invest something that helps with that if you do not know if the government is interested in supporting that? what happened with nuclear waste, were they agreed to do something, and change their mind does not set a good precedent pith that kind of waste is miniscule -- president. that kind of waste is minuscule. 1890'she 1870's and the we were very innovative. that happened at the end of the 19th century. you continue to say we are less driving toward an ovation. what can we do?

>> -- toward innovation. what can we do? >> there is a natural cycle. what the u.s. did in the 1940's and 1950's is unbelievable. what japan did for steelmaking, shipbuilding, in the 1970's, and early part of the 1980's was unbelievable. that fervor of taking a risk and moving ahead exist in china today. the world benefits immensely. those chinese advances -- the cheap steel, the ingenuity, that was a wonderful gift to the world. there are industries like biology things and software related things, where the u.s. is by far the leader, by far. even if we do not do things right, it takes a long time for that to be road. if you want to a road it away, -- eroded away, you wouldn't

mess up the migration, where high -- you would mess up immigration, where high-iq people of -- what is the most important import? hi-fi to people all want to come here. you get these bright people, and you're creating jobs around them. it is a great thing. if you want to assist -- stay strong, it is your basic education, you're you're the city system, your basic research, -- your university system, your basic research. the u.s., in the next 20 years will invent a wonderful new medicines. these trendlines, you have to say what is your goal? if the goal is is the u.s. relative to everything else, you

do not care how many people are dying from alzheimer's, than in 1986 -- 1946 is your year. we really dominated everything. heck, we are only 5% of the population. it is amazing. we spend over half of the defense spending in the entire world. is that impressive? maybe. we have huge advantages. i am not trying to paint a negative picture at all. china and india have relative positions -- 5% of the world will not dominate in addition to quite the degree that it does today. that is fine. if someone invests in an alzheimer's spill in china, and one of us gets to say that, --

take that, and it says made in china, are all set i will take that. if someone else makes a way not to overheat the problem, it is ok. we should use that technology even though it was done on an international basis. living standards will get better. the place that will be the best for the foreseeable future will be this country. the intelligence about some of these trade-offs, some people would say it is not, we are more content with the status quo. it means we could end up arguing about things that are not really about the key, long-term future things, and not address some of the things that are. if you get close to that, if you wish some of those things were better, but it is a very positive picture. >> you talk about china been the

next engine of innovation. you were in a discussion last night on the question of whether china's restriction on the free flow of ideas, information, speech, and freedom would constrain china from been as innovative as the united states. >> any of those constraints are bad, but they're not -- anybody who thinks that as holding china backing a significant way in terms of scientific innovation is wrong. in terms of the universities, and how they collaborate, that is not holding them back. they will end of it. they represent 20% of the global population. they are on their way to using 20% of the world's energy, and having 20% of the world's ideas, and having 20% of the world pro-

military budget. it is outrageous, but they are carrying their weight, more and more. in terms of everything good, and everything bad, their energy use and -- usage is still a quarter of what is in the united states. they're not ahead of us if you count the stuff they make for us. we are still the biggest co2 in matter. if you build them for our gadgets, then they pass us in terms of co2 emissions. it is a complex picture. their innovation is full-speed ahead. so much the better, as long as we are also reviewing the things that have kept us so far ahead. you cannot say china will be been the engine of innovation over the next 20 years. u.s. universities were built up over 50 years. they are amazing and quite

unique. i think we do well on may 0 that in the second 10 years of the 20. -- will he wrote that in the second 10 years of the 20. the u.s. will be the engine of innovation, but not completely. >> one question about your world of microsoft. are we moving away, after 30 years, from a desktop and personal computer-based information environment, to one that is mobile, or based on social networks, in which the pc will be left behind. >> determine d.c., if you view it as a static thing, it was left behind when we got portable computers.

it is partly a matter of terminology. what i am browsing the web on my television, and i am using the same software and standards and graphics that were used out of the pc revolution, is that a pc, or not a pc? i do not care so much about the term. the software magic that lets you find information, analyze information -- all of that that came out of the revolution has moved on to the phone, which is the great thing. what is the boundary between the phone and a pc? there will be devices in the middle that defies easy categorization. you can roll out the technology that creates a wonderful new devices. almost every surface will be a screen-type device. almost anywhere you go, you will be interacting with that device. there will still be pends.

-- pens. >> instead of the ipad, you have a pen-based input device. >> we have had it, but it is not mainstream. i will predicted. >> you have predicted before. >> i will either be right, or i'll be dead. [laughter] >> one distinction between the phone and the pc is that the pc tends to be based on the openness of the web, where as mobile devices might be based more on applications that are a little bit more self-contained. applications on the pc are self- contained. you have all sorts of things. you have software that runs on multiple manufacturers hardware

as opposed to software that only rives -- runs on one software platform. you have many different things that are competing. it is a very healthy environment. some people believe in the pen. some believe in voice, some people do not. clearly, a dedicated device, for music, mapping, remote- controlled devices, they will see, over time, to a multiple device. if you can have an lcd that gives you browsing tom-tom movies, color, that will be better. -- browsing, movies, caller, that will be better. in the verizon, in the next six years, we will get devices that will call into question is whether you want specialized the biases at all. if i can take a phone, and roll

out the screen out to be 12 inches, -- the only way that it really stays around is talking about distance. holding it here, having it out here. that, there are some user paradigm things about the difference, and size of things, that even though it can be based on one hardware architecture, you are going to need to have some adaptation for screen size. >> let me end by asking you and explain -- to explain what you call your challenge. >> the philanthropies in the united states is greater than in any other country. the spirit of taken the strength, and pushed it to new heights, warren buffett and i, got together, and had several banners with people of

significant work who were doing fell at the peak, and talked about why did they do it, what did they learn, and what did they like? those dinners were amazing. in the dinners, it came up that maybe other people should hear how we made it fun, and be as fulfilling as whatever activity created the wealth. we decided to create this thing called the giving pledge. we called a few people up. we have had a very good response rate. many have signed up. it is sort of a family decision. it is like your kids realizing at least half of your money is not going to them. that might be good for them. i said that to somebody that was on the phone. he said his son was six-months old. dad did not convince him. we hope it will grow in size.

right now, the largest states in the u.s. get 50% to charity. we think there is -- gives 15% to charity. people know how much fun it was, they would think about it at a younger age, and use their talents for. they would probably be drawn into giving more. that is a wonderful thing. we are going to do the same thing with some people in india, where the expectation for people's high wealth is not as established. we have some people signed up in china to do a giving pledge equivalence there. it is something we're trying. every time we do the defense, i learn something about giving. -- these events, i learn something about giving. i hear unbelievable stories.

for everyone involved, it is kind of a fun thing. calling someone up, and having them said i am not good at it, but i'm getting better. not many have said no. >> bill, thank you very much, and thank you for what you do. [applause] >> tonight on c-span, a senate hearing looks into accusations of a financial aid fraud at 4- profit colleges. treasury secretary timothy geithner discusses social security and medicare. >> tomorrow, on "washington the journal" we will talk about newly confirmed supreme court justice elena kagan -- elena kagan. also, the oregon attorney

general john kroger will discuss the implementation of the new health-care law. washington journal is live beginning at 7:00 a.m. eastern time on c-span3 >> the recent undercover investigation by the government accountability office were requiring a for- profit colleges -- for-profit colleges were requiring students to live. representatives discussed new guidelines proposed in response. this is three hours and 20 minutes. this is the second hearing focusing on for-profit colleges.

this industry has grown at an extraordinary pace. enrollment has increased from over 600,000 students, to over two million students. federal financial aid has ballooned from $4.6 billion of one decade ago, to more than 23 billion a year, today. the question is, what is driving the explosive growth in this industry? as you may know, i also chairs the appropriations subcommittee that funds the pell grant program. the congressional budget office has given the figures are quite startling. for example, in 2006, our obligation on the pell grant was $12,826 million. last year, it was 26 billion.

next year, that will go to $30 billion. $30.6 billion debt our appropriations committee will have to come up with just to fund the pell grant program. so, it is explosive growth at a time when we have huge deficits, we are trying to get our budgets in order. it causes us real concern. the question we have to ask what this explosive growth and with estimates that over the next 10 years we will spend somewhere close to $350 billion just on pell grants, we have to ask the question are the students and the u.s. taxpayers getting a good value for the billions of taxpayer dollars they are investing in these for-profits schools?

in our first hearing, we heard testimony from witnesses about the pressures for for-profits companies to enroll more students, than in the case of publicly traded companies come to meet the expectations of investors. the committee issued a report stating that many publicly traded, for-profit schools, spend huge funds of title four dollars -- taxpayer dollars. they spent a huge amount on advertisements. they have an aggressive sales staff, as we shall see shortly. according to the chairman put the report, an analysis shows that eight publicly traded schools spend 31% on recruiting and marketing.

this is radically apart from other causes. by contrast, community colleges spent 1% or 2% on marketing. however, numbers only tell part of the story. much can be revealed by the experience, perhaps the first in their family to go to college, have one they sit down to talk to a recruiter or admissions officer. that is why i asked the government accountability office to investigate this key encountered during the recruitment process at 4-profit institutions. gao findings make it disturbingly clear that abuses in for-profit recruiting are not limited to a few roke recruiters, or even a few schools with lax oversight. to the contrary, the evidence points to a problem that is

systemic, a problem that is systemic to the for-profit industry -- a recruitment process specifically designed to do whatever it takes to drive up the roman numbers. -- enrollment numbers, more often than not, to the disadvantage of students. there is a cruel irony here that deserves a special focus. one ostensibly at rumble aspect of for-profit -- admirable aspect of for-profit colleges as they seek out and enroll large numbers of minority and low- income students, offering them opportunities they might not otherwise have. in choosing to enroll in these colleges, the students go deeply in debt. they make other sacrifices, all in search of a better life. they need information that is clear, complete, and honest.

instead, too often, they are victims of deceptive and/or abusive marketing tactics. in our first hearing, we learn that for-profits schools are a growing huge numbers of new students, but their total and lawmen numbers show only a small increase, which shows an extremely high dropout rate. when a publicly-traded school had 84,555 students as of march 31 of this year. they enrolled 21,673 new students between april the first and june 30. they ended june 30 with 84,695 students. that was a gain of only 195 students. what happened to the other 21,500? did they all graduate in three

months, or did they drop out? reports of the past year show back-to-school turns over between 23% and 25 -- showed that this school turns over the 23% and 25% of their enrollment every three months. why are so many students turnover, presumably dropping out? are they leaving school with debt and no degree? how can that be happening in such large numbers? the testimony this morning from the government accountability office will begin to answer these questions. our second panel will allow us to hear directly for -- from a former recruiter for a large for-profits school. he will offer us insight into trading -- training and supervision systems that foster a misleading tactics that is all too common at the schools. we will also hear from admissions counseling expert who will contrast recruiting

practices at non-profit schools. finally, we will hear from the executive director of a national accrediting organization, to up the committee better understand the national accrediting process, and the step that accrediting organizations take to make sure that institutions are acting in the best interest of students. i want to assure everyone that congress and is committed to making an increase investment and pell grants. we boosted up by $36 billion over the next 10 years, which will bring us to a 10-year total of somewhere between $300,000,000,000.30 and $50 billion in the next 10 years, just in the paul grant program. its current enrollment trends continue, a huge flow of those dollars will go to students attending for-profits students

-- schools. i think we need to keep to the legal questions front and center -- are the schools serving the best interest of their students? are our new investments, taxpayer investments, in student financial aid sufficiently safeguarded under current law? these, i think, are the fundamental questions that this committee and the appropriations committee that i chair really need the answers to. i will turn to the ranking member. >> thank you, mr. chairman. this morning, we will hear the details of aggressive and in a corporate recruiting practices. we will see examples of stock didn't -- of schools misrepresenting the quality of education students receive, making unrealistic promises of high-paying jobs, and in some cases encouraging outright fraud. if this behavior is unacceptable, and should not be

defended. -- this behavior is unacceptable, and should not be defended. it has no place in education, or any legitimate business. it is truly appalling behavior. the schools that engage in it must be firmly dealt with. i am just as concerned the descriptions of wrongdoing in such as these will unfairly characterized for-profit schools as bad actors. that is not the case. for-profit institutions play a vital role in training young people and adults for jobs. unfortunately, this series of hearings as a mission on the negative, and seems intent on portraying all for-profits eds predatory. my comments should not be seen as defending unscrupulous behavior, nor should we ignore wrongdoing in the for-profit sector. it is crystal clear that some

schools are misleading students and defrauding taxpayers. however, focusing only on for- profits, we're not been objective, and ignoring the bigger picture of what is happening across all higher education. public and nonprofit schools are not amused from inappropriate behavior when it comes from recruiting. one of the most blatant places is in athletic programs. a simple news search pulled up more than the 200 violations. when the university has made hundreds of impermissible calls to student-athlete, giving them improper benefits, and distributing tickets to high school coaches and others. a college basketball coach recently -- situations like

these are unacceptable. on like what we are seeing here, they're not used as evidence of widespread corruption, to suggest that all causes athletic programs engage an unscrupulous behavior. for-profits goals are part of a much larger system of education are part of a much larger system. many of the issues you raised, particularly those regarding student debt and default are problems throughout the entire system, not only at for-profits. also, the rules apply to federal loans apply to all students, regardless of the types of institutions they attend. which should scrutinize all segments of higher education, and asked the same questions you are now asking of for-profit institutions. i did not dispute the need to shed light on for-profits. they have grown at an alarming rate.

there is clearly inappropriate behavior taking place in the recruiting practices of some schools, however, if these hearings are to be meaningful, the for-profit sector must not be examined in a vacuum. it is part of a broader picture. as secretary duncan has explained, they are helping us and meet every increasing demand for skilled at public institutions cannot always meet. they are an essential part of reaching president obama's goal of being first in the world in college graduation by 2020. many, if not most of the same rules and regulations that we are discussing during these hearings apply to all sectors of higher education. i believe that understanding how each sector relates to the other is the best way for us to insure that students are protected, and

that taxpayers are getting the best return on their investment. for that reason, i will be asking the gao to expand upon the request to also include a review of all institutions of higher education. i hope you will join me in that request. i realize it would have to be a few. i would also ask permission to have included in the record an article that was in the "wall street journal" yesterday. thank you. >> thank you, center. now, i want to introduce our first witness. mr. gregory kootz is the managing director. the mission is to evaluate a

security vulnerability another requested investigative services. in 1991, mr. kutz joined the government accountability office. as a senior executive, he guest testified at congressional hearings over 80 times. i have been primarily on times related to fraud, waste, and abuse. he has been responsible for reports issued by gao and testimony related to credit card fraud and abuse. wage cut, tax fraud, hurricane katrina, transit benefit fraud, pay problems for military members, seclusion and restraint of disabled children in schools, and on and on -- i read all of that to make a note of the fact that mr. kutz has provided

invaluable service to the of the american people and as congress in making sure the american taxpayer dollars are well spent, and we have the information we need to oversee the spending of those tax dollars. welcome to the committee. i will start the clock at 25 minutes. if you need a few more than that, we will do it. i know you have a lengthy testimony. you have some video clips to show us. we have a vote at 10:40. whatever to get through your opening testimony, take a break, and then come back. mr. kutz, your written statement will be part of the record in its entirety. welcome, and please proceed perplexed mr. chairman, and members of the committee, thank you for the opportunity to discuss a for-profit colleges. my testimony has two parts.

first, i will discuss what we did, and second i will discuss the result of our undercover testing. first, our prospective students applied for admission to four- profit -- for-profit causes in six states, and here, and in washington, d.c.. yes? i forgot to ask something, and i was supposed to. i would like you to make the identity of the schools you visited public, together with the identity of the schools we will be seen in the video clips. if you would like to provide a list of schools, we would appreciate that, and each member could have that. >> certainly. in our testimony, they are numbers 13-15. there 12 unique colleges, and we went to three of them twice case

one is the university of phoenix in arizona. no. 3 is west tech college in california. no. 3 is kaplan college in california. no. 4 is a common cause in washington, d.c.. number eight is kaplan college, again, this time in florida. number nine is college of office tech, in illinois. no. 11 isnumber 12 is and then e in pennsylvania. number 14 is everest college in texas. number 15 is ati in the texas. >> thank you. >> we used bogus identities and

documents and spoke to represented this. 12 colleges and three were repeats. our students at income low enough to qualify for federal grants and loans. for the second scenario, our student had higher income and $250,000 of savings described as a recent inheritance. we and roll prospective students in to web sites, and i will refer to these as marketing lead generators. we did this to determine the type and frequency of marketing calls we received from these web sites. let me move on to my second point, the results. we found at four colleges they encouraged students to commit fraud. 15 provided questionable information. i will walk you through the key

findings and use video clips to bring each point to life. all colleges prevent it -- provided a fraudulent information, and as the senator mentioned, they were not all bad and some provided good practices. several applicants were told that the transfer of their credit depended on the college they were transferring to. several applicants were told to research credible evidence of an expected salaries, and one representative told our applicant to be cautious about taking out too much debt. these hideous i will show will show good practices. -- these videos i will show now show good practices. >> is my employment guaranteed? >> no.

unfortunately these good practice for harder to identify than the bad ones. i will start by speaking about my favorite topic, fraud. representatives from four colleges encouraged our applicants the falsified their

federal financial aid forms. examples included telling our students not to report that $250,000 savings. when representatives said this money was not any of the government house business. another one told us that to delete the to and $50,000 from the eight forms. told uson't -- others specifically at three of its dependence that our federal aid for. by philosophizing applications, a fictitious students would have qualified for subsidized loans they were not entitled to. although we had enough money to pay for this, they told us to commit fraud so that federal tax payers would pick up the tab. the following video shows you

two of these fraud cases.

representatives from 13 colleges gave our applicants questionable information about graduation rates, guaranteed jobs, or the will -- or they exaggerated are as varied examples include one representative who said people coming out of the barber program can earn $150,000 to $250,000. according to the bureau of labor statistics, 90% of the barbers in this area, washington, d.c., make less than $90,000 a year.

another representative did not offer a job guarantee but said that 90% of the students get jobs. here are the videos that show these types of issues.

as you know federal loan default rates at these for-profit colleges are high. at eight of these colleges, 80% of these students have federal loans. examples of bad advice include a representative saying students had $85,000 of loans that they would not pay.

as in the tax payers pick up the tab for all these the fault with federal loans. and students face consequences when the default on a loan. here are videos showing these points. let's move on the cost. our analysis found that for-

profit colleges generally substantially cost ire that public and private nonprofits. the primary deception for this was bachelor programs where nonprofits are more expensive. examples of deceptive information on costs include one representative said $15,000 computer drafting program was a great value. the same certificate at a local community college was $520. another representative in texas said their bachelor's program cost $75,000 a year, which is far less than traditional programs. that same program at the university of texas at austin was $36,000. there are a few video clips.

the two websites i mentioned appeared to be lead generators for numerous for-profit colleges.

individuals expressed interest in the culinary arts should have it at website a and b. within five minutes, our phone began to ring. the two individuals interested in business degrees received about 180 calls each in one month. the culinary arts students received far less interest. in total, power for a fictitious stearns received 436 calls in one month. all but six of these calls were from 4-profit colleges. the following video will give you a part -- perspective of what your voice mail would sound like if you registered with one of these lead generators.

as you can tell our cover was blown. we identified a number of sales and marketing practices. examples include at six colleges applicants were told they could not speak to someone from financial aid until they paid an application fee and signed enrollment forms. at one college park applicant was scolded and ridiculed for refusing to enroll before speaking to financial aid. at another college our applicant was assured that it was not a legally binding document. these colleges do not appear to have any enrollment standards

and cost appears to be irrelevant because the federal government is paying for the vast majority of this. the aggressive marketing of anybody walking in the door should not be a surprise. here are two examples of these aggressive marketing practices.

in conclusion it was not hard to

find deceptive marketing practices. these practices are not unique to this industry. reported on deceptive practices in several other industries recently. the big difference is the best majority of money finding these activities is coming from american taxpayers. you have been generous with my time and i appreciated, but i want to finish the story about the last since. the sales representative was pressuring them to enroll without speaking to financial aid. they said they were going to get someone from financial aid. in the final video, when they came back they passed the person on to the admissions director. here is the unhappy endin

that ends by statement. i look forward to your questions. >> mr. kutz, thank you very much for your testimony. thank you for your diligence and following through with our request. is that a vote? a roll-call vote has just started. rather than interrupt our questioning, that's recess here for 10 minutes or so and will go over and vote. -- wee to those who've have two votes?

i only got one vote. [no audio] the committee will stand in recess for 15 minutes, and that will give us time to vote. we will be back here in 20 minutes. we will be back at that time.

the committee will resume. i will go ahead with my first round of questioning. i apologize, but that is the way of the senate here. mr. kutz, thank you for your testimony and thank you and all the great work you do in keeping us advised and inform. the gang up on the deceptive recruiting -- taking up on deceptive recruiting practices, i have heard these are just a few people. perhaps a school has lax recruiter oversight. the vast majority of the for- profit schools would never engage in fraudulent or overly aggressive marketing. based not just on this

investigation, but on your experience, would you say that misleading and deceptive practices, overly aggressive marketing are the exception or are these more widespread throughout all of the ford schools? >> there were none that we say were completely clean. this is not a statistical sample, but it is important to say that we did not have any specific leads that led us to those 15 locations. we did not know what we were going to find. it gives you an indication that this is more widespread. >> mr. kutz, the first to clips were good practices. did you identify those schools?

were they on this list? >> yes, the first three, to the practices, or the college of office technology, argus university, and potomac college. there were three clips of good practices. >> in your opinion, what is the likelihood a typical student considering a for-profit school could actually get an accurate understanding of the cost of the program, the total cost? >> it is highly unlikely. not only did you have a problem speaking to a financial aid representative, they kept saying no. there were a lot of things, and there were other things that the sky's the cost, whether telling you that that program was nine

months and give the 12 months of cost. it is the cult to said to the cost. in most cases, it was difficult to determine the cost. you're talking about your low- income people. these are people that are being targeted here. >> these schools are required to provide students with actual graduation rates for the college. your testimony discusses the difficulty he had obtaining these rates. could you go into detail about that and you believe the average student is given any accurate understanding of the graduation rates at these schools? >> 9 of the 15 meter provided graduation rates or orally or provide them on websites. others gave us conflicting information. some said they had not been around very long, they did not

have one. it was difficult to sift from fact from fiction here. >> white t believe there are so many schools that we saw depicted were not even let you speak with a representative ningre paying a fee and sighin an enrollment at two -- enrollment at? -- packet? >> they were consistently trained, and some of those videos when on for 40 minutes where we tried to keep speaking. carstensz got frustrated. the real people would get very frustrated. we wanted to know what cost was and we had a hard time getting to financial aid. i think it was a marketing

script. >> your visit lasted for several hours for it would use a the practices in those videos have not been fully able to capture and everything? >> we just gave you 12 minutes of clips of -- we probably had up to 100 hours of video from our undercover visits. there is dead time in there. there is also other things. there were other fraud cases we did not show you. there were people inflating the cost or providing deceptive information. there is a lot more than what you saw. >> because we had this break and everything, i will just do five. we can have set rounds. -- second rounds. >> thank you, mr. chairman.

it is liable to find out what people are doing, and i suspect what has been done with your secret shopper is making a difference in colleges out ready -- already. i think they will clean up their act a bit. i did one of those scenarios, it recalled when my oldest daughter was applying to college, and it was a private nonprofit college, and we had filled out the forms and they were looking it over and they said we may all our kids save money to go to college to work. this person said you really ought to take some of that money and buy a car and redo your form because that will not count. which of the situations in your

investigation that were revealed would refer to the department of education's inspector general or the department of justice for further review? >> will -- we will refer formally to the department of education inspector general. they came to our office yesterday and met with us. they are aware of the four. all 15 of these cases will be shared with the department of education if they want to have further information. we will share it with them. >> you run into any difficulties with a hidden camera? >> yes, and sometimes you noticed we had a head shot above the nose, so we also went in with two. the arrest a friend and a prospective student.

>> i think they did a pretty good job with their photography. in your testimony you criticize it schools for not allowing access to financial aid and advice and suggested federal law required this. i think they were trying to keep people from getting information that they really deserve and need to know. did the schools run into a problem with getting jammed up on people want things to settle at place without knowing whether a student -- and i am not talking about these colleges, in the college. you run into that problem where the school worries about not having enough financial aid people to provide the information unless they have an indication they are going to sign on the above line for what ever the total amount is? >> there were colleges that let

us speak to representatives without signing a document. some gave us access. the others were very disciplined. they kept saying no, you have to sign. some were more willing to share that information if we signed a document. i do not know why that is. it was a mixed bag. >> did they have a filled out forms already? >> yes, and they were surprised we walked in with one filled out. they said they usually helped the students fill them out, which is scary. >> you did not take a look at any of the public or the private nonprofits when you did this? , no, we did not. >> we did not know if this

practice of not allowing financial advisers is common at the other schools? >> cannot speak to that. >> what disciplinary -- wrong question. i will go ahead and give the rest of my time. i cannot find my question here. thank you, mr. chairman. >> senator franken. >> thank you for this hearing. i think there is a reason to be doing this on for-profit colleges, and i have tremendous respect for the ranking member, but with so much of the defaults been in for-profits and

such a low graduation rate and so much profit been made and so much government money being spent for these for-profit schools with such bad results, this is a low-hanging fruit. of course you are going to have some athletic recruiting problems. we know this exist. that is not what this hearing is about. this is about pell grants going to schools that are recruiting people in an on ethical manner, they are lying to people. this is a very, very different order, and i think we should recognize this.

i am very disturbed by the videos. i just want ask you, to make sure, andrew did not edit these, did he? >> no. >> all the schools, all 15 schools investigated by the gao made deceptive or otherwise questionable statements to the undercover applicants, and most of the deceptive practices that your investigation exposed are already illegal. how are the schools getting away with this? what enforcement mechanisms are missing that allow this, but to take place so readily and openly? >> we have certain remedies with organizations that do not follow the regulations. you have the ig that we will

give the fraud cases to. some combination of these has failed, and i think there are certain things that need be done. these colleges will take a look at this video and straighten up after this, and talk to their people about it is a combination of two things, fraud, and how people feel sitting in these? it is embarrassing. >> it is clearly there and all -- their m.o. this is how they rip people off. i understand people have felt or your people. i want to get into the good actors and the bad actors. at a school in minnesota, it has been impressively low default rates, 1.7%, and i have

been told by the president that part of the reason for this is they work hard to ensure that students they admit are good fits for their program. based on your research, you had all 15 be deceptive, correct? how widespread the you think these deceptive and overly aggressive practices are at 4- profit colleges -- for-profit colleges, and what information do we need to determine how truly widespread this is? >> we did this in june and july, so this is fresh information. it is not a single physical sample, but we are 15 for 15. the department of education could do this kind of thing and maybe they do this, but there

has to be continuous testing and oversight for this. giving this up and heading sales impact it is something that is a consideration for these companies. >> as we do these hearings, i want to make sure that we find a way to separate the good actors from the bad actors and find a mentor to do that by, and then against the bad actors, because i will tell you something, i have said this before in this committee, my wife's father died when she was 18 months old, leaving her mom widowed. five kids, for girls. all of the girls went to college, including my wife. they managed to go to college based on scholarships and pell grants. no bigger defender of tell grants than me because of that. but i cannot conscience this,

and we are studying these for- profit institutions for a reason. there's a reason to be having these hearings and confining them to for-profit institutions because the numbers are so outlandish, and even if we are truly talking about saving money for our -- and cutting the deficit, we ought to be going after the low-hanging fruit, and that is what this appears to be. and i do not quite get this idea of we also have to be studying nonprofits. this seems to be we are 15 out of 15, are giving you deceptive information. i think we have located a place

where there is a high percentage. thank you. >> senator, can i ask you something? >> in your gao highlights, it says the 15 were selected because the department of education reported that they received 89% more of their revenue from federal funds, federal student aid. is that right? >> yes. >> and also when you put the fictitious people on the web sites, you gauged the number of solicitations that came back? >> no, but some of the referrals from the website went to some of the 15. some of the 15 are linked to the website. >> you had some suspicion or

area of interest in these 15 to begin with? >> not really. they got a lot dollars, but we did this in a short period of time. some of the geographic groupings, where we try to get some of them on location, but we had no evidence of fraud on in the location. we did not take any location in particular because of any specific allegation on that occasion. >> did each one of the schools have a ppa agreement with the department of education? >> i do not know that. >> following up on senator , a title for funds are not available unless you enter into a program participation agreement with the department of education. >> we did not look at any of those documents. >> i suggest you check this out

because if they did i believe from what i have read in the department of education materials that there are substantial violations of the participation agreements in title for based on what you have shown here. >> i think the department agrees, so they will have evidence from all 15. >> with their round of enforcement be through department of justice? >> it might be civil. , who will they turn it over to the pursued this? >> for the civil. for the criminal, the investigator side of the inspector general, and they would work for the doj. >> the ig is the you are working with? >> on the contractual side.

>> the reason for going along that line, we went through a lot of this on compensation for recruiting students. 1992 was one of the higher education act was permitted to address the admission incentive. that is a violation. there are only certain safe harbors where your compensation can be retained for recruiting. i cannot think there is any state harbor for fraud. arbor is not in the state' for this type of thing. effective thing that government can do is they have a violation of a ppa agreement they should pursue whatever legal remedy it is or pursue those individuals to cease and desist or remove their ability to receive the money. >> we will make our information available to the department of education on the and management

side and the investigative side. >> my point ships should fall where they make, but i did not want to leave a hearing with a generic -- we ought to be pursuing. the best way to get people to pay attention to a lot is to enforce it, whether a regulation, agreement, or statutory law. i would like to know what the department of education is doing to pursue these violations of the agreements with the institutions in mind, because that would be important for us to know. we leave here with an indictment of the industry without going out for people we have discovered with information that is questionable and at the most is against the law. we ought to see to it that it is in force. >> the accountability should be

with the schools and not the individuals, about what is going happen is the individuals will be held out as roping employer rogue employees. anybody trained in a certain way and marketing will follow a certain script. the organizations say that was a rogue employee, but i suspect that was not true. >> i think your intuition is probably correct, but my point is that if the concern over what has happened in these instances needs to be corrected, not just as an indictment. people are going to be under a cloud unless we separate the we

from the chaff, and the only way we can do that is enforcement in the program occurred as a patient agreement, and then everybody will know it means something. then you will have compliance because of the ramifications of noncompliance. >> i have heard from my friend in georgia that the -- it was the nunn commission who had it that in 1992, where they put a ban on all incentive compensation. the second panel will talk about that and point out how that was changed in the 2001 or 2002. with all the safe harbors that are there, that basically negated what was done in 1992. the second panel will get into this. senator casey?

>> that you for your testimony. it was an lightning to see the video as well as to have read the report. i have to say in the interest of full disclosure i was the auditor general in pennsylvania, so i know what it is to issue reports like this and then being criticized for not being popular. i have a high degree of skepticism when a report like this gets attacks. i will put that on the table. i was struck by the scope of what you found. i was looking through by way of summary at pages 9 through 13, and when you break it down into the categories of deceptive or questionable statements, whether accreditation intermission, graduation rate, employment,

program duration, cost, financial aid, 15 colleges, 13 colleges involved, nine, 11, six. you've had no predicate necessarily, so you are looking at this fresh and still we see all kinds of problems. tuesday is the excuse of th -- to say it is inexcusable does not describe the outrage to this. you have done a service in pointing out these problems and making true that we are focusing on two groups people -- students and taxpayers. i know sometimes when you issue reports like this the result is a series of recommendations or suggestions. i want ask you about that, what a lot of people are waiting for in the wake of a report like

this is the accountability. certainly at the individual level. these individuals have to be held accountable. for some, that might mean firing them, and the institutions that act quickly if the have not already to deal with that individually, and they have to work that in terms of the employment laws and statutes. there also has to be institutional industry accountability. that needs to happen real fast if anyone is going to -- if taxpayers and students and the families that come from our front have confidence that results from your report are in fact being taken seriously. that is commentary, and i know you are not here to evaluate comments like that, but i want ask you, in light of the results you found, and the out rates

that we all feel about what was on the video, do you have any recommendations in terms of what federal government should do -- and i should say the industry -- in terms of strategies, tools, policies, statutory change, the whole range of possible actions that could flow from a report like this? you have suggestions about how eager the industry can right the ship, so to speak, and whether or not the federal government can take specific actions to prevent these kinds of practices from taking place again? >> certainly. i think consistent oversight is necessary, and one of the benefits of oversight with press coverage is public awareness. hopefully we will -- and that is a prevention tool. as the public becomes aware, some of the people targeted by

this could believe some of the stuff that you saw and -- it is ridiculous, but somebody might believe something like that. prevention is the most important thing and the ways the government can do, monitoring by the the part of education, and consequences with respect for the bad actors. if you don't make examples which can have a preventive effect, then you have a system where people think there are no consequences. if there are no consequences, who will be back here a year from now with the same discussion. >> you have a sense that the department of education has the resources to do the kind of oversight that is needed here ? >> i cannot speak to that specifically. >> based upon your experience in

doing reports like this in the past, what is the most successful posed report strategy report you have seen where you see either the federal government taking action to correct these problems will prevent them from happening, or follow up that is done particularly helpful? what do we have to try to avoid in the aftermath of a report like this? a hearing like this is part of the accountability, but what do we have to avoid, what do we have to be concerned about six months, one year from now in terms of what did not happen by way of follow-up? >> in some cases, we need more legislation. i do not think that is true. perhaps on some of these issues, it could be tightened up. it appears these regulations in place address of most of what you saw in the video.

it seems that they are not being effectively over seemed. unless you believe there are holes in the regulations, it is a responsibility, then you need to put the -- less than the administration have responsibility to make the dollars work efficiently and they are not predatory lending practices with low-income individuals. >> thank you very much. >> thank you, mr. chairman. mr. kutz, thank you very much for what i think is a thorough investigation on your part. bad practices, fraud, what ever we want to call it. s acceptable, and let me ask you, with an out some

enforcement, will this go away? >> no, you're talking about money, profits, and you look at sales, and i ask people, the people who sat in the chairs, it was like the experience of buying an automobile. it will stay the same unless something is done. >> in that investigation, did you ever follow up to see if there was some type of cash incentive that was provided by the institution to the individual that was processing the application for admission? >> that is a great question. we saw certain things like that boards would close sales, so clearly these were sales people. there were sales targets and places. whether they were compensated like that, it felt like that, but there was no way to know. >> i would like for the

department of education to look at within the contract will agreements we have with institutions. that would be a way of eliminating concerns of incentives clean air role in 1's willingness to break the law. as troubling as this sounds, i have to say i am more concerned with the graduation rates in this country than i am with whether it happened in for- profit or not for profit. we need to stay focused on how many kids get across the goal line. in north carolina we have 584- year institutions by my count. of those institution, nine institutions had a greater than 50% graduation rate after four years. 22 had a greater than 50% cut duration rate after six years. 24 had a greater than 50 percent

sign graduation rate after peak years cricket -- after eight years. in two-year institutions we had 120. 26 of those had a graduation rate of over 50% in the third year. of those 26 institutions, 20 word for profit. of the '94 that did not make the 50% threshold after eight years, 88 were public institutions and six work for profit. i share this to let them that the label of for-profit or the label for non-profit has no specific impact on graduation rates. i think ultimately that is something we have did stay focused on from a policy standpoint and would conclude, mr. chairman, with this observation -- we are talking about the federal

government house partnership in this particular case with institutions and flow through what institutions from students. when i look at a full-time student for eight years, still receiving financial aid, and a graduation rate at eight years of under 50%, i have to ask, where does the federal obligation to aid with graduation stop? i am not talking about students that are on part-time schedules, i am not talking about students that have to drop out because of family matters. i am talking about the student that is a full-time student throughout that whole process because they have not figured out what their manager is going to be, they like school, and we have to ask a policy question at some point. if that crowd out somebody that wants to enter as a freshman and does not provide them equal

opportunity at this federal resources, then we have to rethink where our priorities are. i did not have the answer, but i am here to say to my colleagues, it is a question that needs to be asked. more importantly, we need to focus more on graduation rates than how a school is constructed, but we need to hold for-profit and not-for- profit to the standards of the contractual agreements they have for the federal partnership to in said about, and i hope the chairman of will ask you, mr. kutz, if we have not already, to take a similar review of the not-for-profit institutions that we have to find out if our problem is as great at those institutions as you found in the for-profit institutions. i thank you, mr. chairman.

>> >> thank you, mr. chairman. i would like to follow up on senator franken's question . supposedly, the number of schools included. you have a significant amount of experience handling investigations just like that. my question would be, given the scope of this industry, nationwide, what sort of conclusions can you draw from the fact that 15 schools engaged in what looks like pretty egregious conduct? what are the conclusions you control that four schools in this industry committed conduct like that who what sort of principles and a committee extrapolate from that? >> four out of 15 for fraud is very disturbing. that tak