On May 4, PBS’s Frontline show interviewed a former recruiter for Ashford University, the online college that is part of San Diego’s newest corporate darling, Bridgepoint Education. She complained about the pressure to enroll students. “They used to tell us, you know, ‘Dig deep. Get to their pain. Get to what’s bothering them. So, that way, you can convince them that a college degree is going to solve all their problems,’” said the ex-recruiter.

On December 30 of last year, Bloomberg Businessweek magazine revealed how for-profit universities shamelessly take advantage of military personnel. The first example was U.S. Marine Corporal James Long, who has a brain injury. He knew he was enrolled at Ashford but couldn’t recall what class he was taking. A winsome female Ashford recruiter had allegedly broken camp rules by recruiting students at a barracks for wounded Marines. Eight to ten of them had signed up, including Long, who flunked his first test ten times.

The Bloomberg Businessweek story contained errors, says Bridgepoint, and its rules ban the high-pressure sales techniques its former employee described on TV. The company insists it does not recruit students just to suck in federal loan and grant money.

The online educator has convinced the San Diego establishment. Bridgepoint will be the new sponsor of the Holiday Bowl. Its ads are all over Petco Park. A new, widely touted study (financed by Bridgepoint) says the company is a big contributor to the San Diego economy. The firm is a media love kitten. The Union-Tribune has editorially puffed up Bridgepoint, which is also a sponsor of Voice of San Diego.

The new local cheer is “Sis boom bah, Bridgepoint!”

Emphasize that word “bah”! Few realize that the U.S. Department of Education’s Office of Inspector General probed Ashford between 2005 and mid-2009. In its reports to the Securities and Exchange Commission, Bridgepoint admits that the government has found that the company may have been seriously out of compliance with Higher Education Act regulations and the penalties could be quite severe — even threatening the company’s major source of funding, the federal government.

Wall Street’s Warburg Pincus owns 63.4 percent of the company. Chief executive Andrew Clark, who founded Bridgepoint in 2004, owns 5.8 percent. Last year, Clark’s total compensation was $20.5 million, most of which consisted of stock option awards.

For-profit schools are gaining students as public and private universities and colleges cut back in the tough economic environment. Stocks of these schools, such as DeVry, Capella, ITT, Corinthian, and Apollo Group (University of Phoenix), have collectively done well over the past year, although they took a hit when word leaked out before the PBS broadcast and Corinthian reported Department of Education problems. Also, the general market took a monumental plunge late in the week, although it bounced back Monday.

The best stock of the bunch has probably been Bridgepoint’s. On April 15 of last year, the company went public, closing that day at $11.10. The stock has risen steadily and this Monday afternoon was trading above $24. But on May 4, Bridgepoint’s stock was belted, along with others in the industry, even though the company had just announced that first-quarter revenue had zoomed 85 percent as a result of a horde of students enrolling.

The for-profit education stocks get walloped from time to time for other reasons. Often, it’s after Robert Shireman, deputy undersecretary of the U.S. Department of Education, gives a speech. Late last month, he scolded the for-profit schools for the huge and rapidly burgeoning sums of federal aid money they are sucking up.

Shireman is particularly worried about the amount of debt that low-income students are amassing. For-profit educational firms bear much of that responsibility. A report by the Department of Education indicates that in the 2007–2008 period, a whopping 53 percent of those who got bachelor’s degrees from for-profit institutions had more than $30,500 of debt, versus 17 percent at nonprofit public and private schools. Frontline pointed out that while for-profit schools have 10 percent of U.S. students, they account for 44 percent of debt defaults.

Actually, since the late 1980s, the Department of Education’s Office of Inspector General has been probing for-profit schools, looking for such frauds and abuses as misleading recruitment practices, falsification of admission and financial aid records, untrue statements to prospective students, and the providing of aid to ineligible students. To keep their revenues and profits soaring, and their stocks climbing, the for-profit education companies cut corners to achieve growth.

Few companies of any kind have experienced the hyper-rapid growth enjoyed by Bridgepoint. In 2005, the company had revenues of $7.95 million. By 2009, they had soared to $454.3 million. Over the same period, the bottom line went from a loss of $6.53 cents a share to a profit of 74 cents.

The company has come a long way in a few short years. In 2005, it bought tiny Franciscan University of the Prairies in Clinton, Iowa, a former teachers’ college, and changed its name to Ashford University. In 2007, the parent acquired a tinier school and renamed it University of the Rockies. However, 99 percent of Bridgepoint’s 53,688 students attend online; 17.1 percent are in the military. There are 2495 faculty members, and all but 65 are part-time.

The company boasts that it is very liberal in accepting class credits from elsewhere. Indeed, it will honor up to 99 transfer credits, or potentially more than three years’ worth — something only six schools do.

The federal government is the cash register. Bridgepoint students get grants and loans under Title IV of the Higher Education Act. Both Ashford and University of the Rockies get 85 percent of their revenue from the Title IV programs.

And that’s why it is important for an investor — or a San Diego Bridgepoint cheerleader — to read the company’s March 2 annual report and May 3 quarterly report to the Securities and Exchange Commission.

Critically, the company mentions the possibility of “loss of access to federal loans and grants on which we are substantially dependent.” The annual report spells out how the Department of Education’s Office of Inspector General (OIG) looked closely into Ashford for four years. “We expect that the OIG’s draft report will assert findings of noncompliance, and if such findings are included in the OIG’s final report, such final report could result in recommendations that the U.S. Department of Education Office of Federal Student Aid impose fines, liabilities, and/or adverse action on Ashford University,” says the report.

Ashford could be required to modify Title IV administration procedures such as compensation of enrollment advisors. There could be a demand for “return of Title IV funds or the commencement of an administrative action to impose potentially significant fines or to limit, suspend, or terminate Ashford University’s Title IV participation,” Bridgepoint confesses. (Italics mine.) Potentially, 85 percent of the company’s business could be in trouble.

Any penalty may not be so severe, but the language used by Bridgepoint suggests the company is worried. And the language used by Shireman and other regulators in Washington suggests that student debt is a looming disaster, for-profit institutions such as Bridgepoint are inordinately to blame, and reform is urgently necessary.