A Subprime Education

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Martin Smith


Marcela Gaviria


MARTIN SMITH, Correspondent: [voice-over] In the spring of 2012, Hollie Harsh and Brian French were both homeless and looking for ways to improve their lives.

HOLLIE HARSH: We were addicted to methamphetamine for a while, and we ended up in a bad place, going homeless in a tent. And it was like that for four years. We just one day said, “We’re done.” We had enough.

BRIAN FRENCH: I had started getting on line, doing some research about government grants, and I put in my email address, phone number, all the information that they asked for.

MARTIN SMITH: Brian had stumbled on a lead-generating web site that collects information from visitors. Within 24 hours, they got a sales call from Corinthian Colleges, one of the largest for-profit schools in the country.

BRIAN FRENCH: He has a deep accent, and he tells me that they will grant me a decent amount— amount of money. And I thought we owe this to the kids to move forward in our lives.

MARTIN SMITH: The recruiter offered Hollie and Brian money if they toured a few branches of Corinthian, including Heald College in Concord, California, which was near their encampment.

HOLLIE HARSH: I felt that, like, we almost didn’t have a chance to say, “No, let’s think about it.” And I do— if I remember correctly, it was only three or four days that we started school after that.

MARCELA GAVIRIA, Producer: And you said to them, “I’m homeless”?

HOLLIE HARSH: Yes. And she was, like, “Oh, that’s fine. A lot of our students are homeless in the same situation.”

MARTIN SMITH: In order to enroll, Hollie and Brian signed up for federal student loans totaling $30,000, all to be paid after they graduated.

But they had no money for housing. So they simply moved their tent and belongings to a vacant lot next to campus and began going to class.

TELEVISION COMMERCIAL: Welcome to my school!

MARTIN SMITH: Around 1.8 million students are enrolled in for-profit colleges across the country in mega-schools like Argosy, DeVry and Grand Canyon University.

MARTIN SMITH: I started reporting on this sector back in 2009 during the Great Recession.

[on camera] How big can you go?

[voice-over] With unemployment up, Americans were choosing to go back to school in record numbers.

TRACE URDAN, Managing Dir., Credit Suisse: Well, the irony is, Dylan, is when the economy is tough is when people actually look to go back to school and either upgrade their skills or maybe complete their B.A. so—

MARTIN SMITH: Back then, I had looked at the University of Phoenix, one of the largest universities in the world. At its peak, Phoenix had enrolled over 600,000 students. I spoke to a former high-ranking executive.

MARK DeFUSCO, Dir., University of Phoenix, 1994-2002: For the first 15 quarters, we broke records and earnings every quarter. And instead of starting classes in September and January, we started classes in January, February, March, sometimes two in April. If we had more students than we could handle, we’ll build another site and handle some more.

We built campuses by a freeway because we figured that’s where the people were. So if you went by any major freeway in the Southwest, you’re going to find a University of Phoenix campus. We put schools 20 minutes apart because that’s about as far as somebody could drive at rush hour.

MARTIN SMITH: [on camera] How much could a college administrator for University of Phoenix make?

MARK DeFUSCO: The sky was the limit. I shouldn’t say this. I shouldn’t say this. [laughs]

MARTIN SMITH: It’s a free country.

MARK DeFUSCO: I understand. I understand. But it’s boasting, and I won’t say it.

MARTIN SMITH: Well, in terms of what you made, you did very well.

MARK DeFUSCO: We did very well. I did better than I ever imagined.

NEWSCASTER: Education stocks rallied today, including Corinthian Colleges—

MARTIN SMITH: [voice-over] In an otherwise flat market, for-profits had taken off.

NEWSCASTER: Education stocks are moving to the head of the class today and—

NEWSCASTER: —$24 billion dollars. That’s how much the biggest for-profit colleges took in last year in federally funded student aid money.

TELEVISION COMMERCIAL: Not just a job search, a journey. Not just an interview—

MARTIN SMITH: For-profits were spending big money enticing students to sign up for loans.

TELEVISION COMMERCIAL: Whatever your business card says, you’re in the business of you.

MARTIN SMITH: At the time, ad costs rivaled those of multi-national brands.

TELEVISION COMMERCIAL: Which university revolutionized education in America to reach the working learner?

SALESPERSON: You thinking about going back to school? Excellent! What are you thinking about going for?

MARTIN SMITH: The industry also employed an army of salesmen and recruiters.

JEFFREY SILBER, Analyst, BMO Capital Markets: The for-profits need to continually add students. When you think about it, for the University of Phoenix, for example, in order to grow, on top of the folks that are leaving, you’ve got to add the equivalent of, you know, one to one-and-a-half Ohio States per year.

Sen. DICK DURBIN (D), Illinois: To satisfy their shareholders on a quarterly basis, they’ve got to increase their enrollment. They have to aggressively recruit marginal students.

ACTOR: [“Glengarry Glen Ross”] Because only one thing counts in this life— get them to sign on the line which is dotted!

BARMAK NASSIRIAN, Assn. of State Colleges and Universities: Glengarry Glen Ross— it’s that— that sort of a heavy commercial environment in which you say whatever you need to say to close the deal.

MARTIN SMITH: The pressure to grow encouraged dubious enrollment practices. Tami Barker was an enrollment adviser at Ashford University.

TAMI BARKER: They used to tell us, you know, “Dig deep. Get to their pain. Get to what’s bothering them, so that that way, you can convince them that a college degree is going to solve all their problems.”

ELIZABETH BAYLOR, Center for American Progress: The problem is, is that for many of these students, they think they’re talking to an admissions adviser. They think they’re talking to someone with some sort of ethical standards. And they don’t realize that they’re talking to a person who is selling them something and that they might be better off to just walk away.

MARTIN SMITH: Many students assumed they were getting a quality education and a useful degree.

HALEY, Grand Canyon University: I love Grand Canyon and the community that it represents, and also the Christian background.

VASTI, InterAmerican College: This school is just perfect. It’s night classes.

ASHLEY, Fashion Inst. of Design and Merchandising: I’m studying merchandise product development, and it is the coolest thing I’ve ever done in my life. I love it.

MARTIN SMITH: In 2010, the top Washington lobbyist for the sector told me it was all about providing new opportunities.

HARRIS MILLER, Pres., Career College Assn., 2007-11: We educate the students that traditional higher education has given up on. Traditional higher education has become a very socio-demographically elite group of people. So the only options lower-income students and working adults have is either to go to a community college, some of them can go to minority-serving institutions, and our option is the third option.

MARTIN SMITH: But for years, for-profits had charged students nearly five times as much as community colleges and gotten the bulk of their revenue, up to 90 percent, from student loans and grants.

Sen. DICK DURBIN: This is the most heavily subsidized private business sector in America. No one compares. Defense industry, agriculture don’t hold a candle to these boys.

TELEVISION COMMERCIAL: Hey, Ladies! You hold the household down, right? Why can’t you get an education for yourselves? You can still work. You can still take care of your kids. I did it! You can do it, too!

MARTIN SMITH: But not all the promises were paying off.

TELEVISION COMMERCIAL: The whole world opens up for you. But you got to do something right now. You can’t wait.

MARTIN SMITH: Back in 2010, I met three students who had enrolled at Everest, part of the for-profit giant, Corinthian. They were hoping to become nurses, but it wasn’t going according to plan.

MARTHA, Graduate, Everest College, 2007-08: They said that we were going to be making $25 an hour and—

SUSAN, Graduate, Everest College, 2007-08: $25 to $35, they told me. So I was, like, “OK.” And they’re going to find us a job. They’re going to-

NORA, Graduate, Everest College, 2007-08: They’re going to find us a—

SUSAN: They’re going to place us.

MARTHA: I got my license in December of ‘09. And I’ve been on countless interviews. And they all ask if I’ve ever been in a hospital, and I would have to tell them we never set foot in a hospital, ever. We went to a museum of Scientology for our psychiatric rotation.

NORA: Our pediatrics rotation, we went to a day care.

SUSAN: Oh, yeah, that was our PEDs. We went to a day care.

MARTIN SMITH: After our report aired, John Oliver picked up the story.

[“Last Week Tonight with John Oliver”]

JOHN OLIVER, Host: Job hunting might be a little difficult, as students from a Corinthian College nursing program found.

MARTHA: We went to a museum of Scientology for our psychiatric rotation.

JOHN OLIVER: What? Scientologists do not believe in psychiatry!



Rep. MAXINE WATERS (D), California: This is the next big scandal in America!

MARTIN SMITH: Washington also started paying attention.

Rep. GEORGE MILLER (D), California, 1975-2015: Reminds me of where we were two years ago with liar loans and no-doc loans in the housing market, where people started accepting people who couldn’t prove their income, couldn’t prove employment, but we sold them a $450,000 house.

MARTIN SMITH: And in a handful of hearings, some for-profits were accused of employing false or misleading advertising and using illegal recruitment efforts.

Sen. TOM HARKIN (D), Iowa: Fifteen of the fifteen schools the GAO investigated found instances of fraud, deceptive practices, or made misleading statements to prospective students.

MARTIN SMITH: In this hearing, they unveiled hard evidence.

ADMISSIONS REPRESENTATIVE: And then sign and date there for me.

STUDENT: OK. Now, I’m not signing up for the school right now.

ADMISSIONS REPRESENTATIVE: Yeah, you’re actually [unintelligible]

STUDENT: Oh. I was hoping I could talk to the financial people first.

ADMISSIONS REPRESENTATIVE: No, they won’t even let you back there.

STUDENT: Am I on the hook for the $38,000 or—

ELIZABETH BAYLOR, Aide to Sen. Harkin, 2010-12: The thing about those tapes is that it was really hard in the— in the face of this evidence to deny that there was a problem there.

ADMISSIONS REPRESENTATIVE: You should be ready to make the investment of time and money necessary to get you to where you should be at this point. But you’re not. What are you really afraid of?

MARTIN SMITH: Congressional investigators also found that for-profit schools were failing to prepare students for the workforce.

Rep. KEITH ELLISON (D), Minnesota: Too many of the students who go to these schools are coming out with nothing other than big debt and no education, no gainful employment at all.

MARTIN SMITH: In 2010, the Department of Education attempted to regulate the industry by implementing some new rules. But the department ran into intense resistance.

JOHN KING, Jr., Secretary of Education: The lobbyists for the for-profit industry, and unfortunately, many members of Congress, challenged those regulations, critiqued those regulations.

Rep. TODD ROKITA, (R) Indiana: This so-called, quote, “gainful employment,” unquote, regulation is another example of this big federal government run amok.

Sen. DICK DURBIN: They were overwhelmed, ran into this withering artillery fire of lawyers coming after the administration and beat them back.

Rep. TODD ROKITA: Well, they’re doing everything they can to screw up education. We finally get an institution—

BARMAK NASSIRIAN, Assn. of State Colleges and Universities: The fact that the sector has declared an existential emergency around this, the sector has every lobbyist in town, former members of Congress on its payroll, to defeat this really kind of speaks volumes about the level of corruption and the kind of feeding frenzy we’re talking about.

NEWSCASTER: Last week, the House of Representatives voted to prevent the Department of Education from implementing tough new rules that could deprive certain schools from federal funding—

NEWSCASTER: Trump University— it’s been the subject of increased scrutiny—

MARTIN SMITH: Today, allegations of predatory behavior and negative press continue to dog the industry.

NEWSCASTER: Well, the Clintons got filthy rich off a for-profit university that took advantage of many poor people—

MARTIN SMITH: But since I last reported on these schools, a lot has changed.

NEWSCASTER: Are the for profit-schools value stocks or value traps?

NEWSCASTER: One of the big losers, though— that was Apollo Group that operates the University of Phoenix—

MARTIN SMITH: For-profits are no longer the darlings of Wall Street, and enrollment is way down. In San Francisco, I talked with Trace Urdan, a banker who kept “buy” ratings on several for-profits for much of the last decade.

[on camera] They’re into decline. Why?

TRACE URDAN, Managing Dir., Credit Suisse: Mostly market conditions. The economy recovers and everybody finds a job. And then, all of a sudden, you know, that— that tradeoff that said, “Well, hey, wait a minute. Why should I borrow all this money so that I can earn the same amount of money that I can earn at Jamba Juice? That doesn’t make any sense.”

MARTIN SMITH: You have termed these students that are signing up for these courses as “sub-prime borrowers.”

TRACE URDAN: I knew that was going to come out. [laughs] Yeah. I— they were sub-prime borrowers. I mean, that’s— that’s— that’s a fair characterization of the types of students that are being served, right? These are unsophisticated students that have a great deal of risk. Now, that’s not true across the board with for-profit education, but certainly, when we’re talking in the context of Corinthian.

MARTIN SMITH: Corinthian— that’s the for-profit chain that included Everest College. It’s the school those three nursing students had attended.

We looked one of them up, Martha Salmon, and found her living in southern California. Martha had paid back the $28,000 she owed in student loans, but at a cost.

MARTHA SALMON: That was money that could have gone towards my house or for my kids. It could have gone a lot of different ways. But I just wanted to get rid of it.

MARTIN SMITH: Her degree from Everest never resulted in nursing work. So she was forced to start over.

MARTHA SALMON: I got my R.N. from Citrus College. It’s a community college in Glendora. And from day one, the start of that school was totally different from Everest. There’s really no comparison. For our psych rotation at Citrus, the R.N. program, we went to a psych hospital. And we were there for four weeks and we were able to interact with the patients. We followed the nurses while they gave medication. It was at an actual psych hospital. It wasn’t a museum.

MARCELA GAVIRIA, Producer: And how much did it cost you to get a degree from a community college?

MARTHA SALMON: My R.N. cost $3,000. But it’s the education that you receive, the money that you save is— there’s no— there’s no comparison.

MARTIN SMITH: Stories like Martha’s got the attention of California’s attorney general. In 2011, Kamala Harris, started investigating.

KAMALA HARRIS, Attorney General, CA: As we started diving into it, it became clear that Corinthian was engaged in extremely predatory behavior and conduct. And so we sued.

[October 13, 2013] This morning, my office filed suit against Corinthian Colleges, and in what can only be described as a for-profit college predatory scheme—

MARTIN SMITH: [on camera] A lot of what you charged was that there was a misrepresentation of job placement rates.

KAMALA HARRIS: Absolutely— convincing students that if you sign up to receive an education, we will ensure you will also get a job. That was all— I’m going to say it polite. That was wrong and inaccurate.


KAMALA HARRIS: It was B.S. It absolutely was.

MARTIN SMITH: [voice-over] Harris based her complaint on interviews with over a hundred employees and students, including Hollie Harsh and Brian French, the homeless students at Corinthian’s Heald College. Hollie and Brian had dropped out of Heald in their third semester, but the bills kept on coming.

HOLLIE HARSH: And I was just, like, “How am I going to pay this?”

BRIAN FRENCH: Yeah, we still got bills coming out. They still want their— what is it, $288 a month that they want to get from us.


BRIAN FRENCH: Oh, for me alone.

MARCELA GAVIRIA, Producer: Can you afford that?

BRIAN FRENCH: No, not really. We’re living paycheck to paycheck as it is. I don’t want to— I say what I got from Heald was a $16,000 T-shirt. That— that’s what we got.

MARTIN SMITH: [on camera] Holly Harsh, Brian French, homeless, recruited to sign up for government loans to go to school. Is that an extreme case? Are they outliers?

KAMALA HARRIS: Anyone is a target. They were targeting the most vulnerable and desperate people, people who felt that they were without resources. This was by their own marketing materials.

MARTIN SMITH: And how do you understand that there are people that would want to take advantage of people like that?

KAMALA HARRIS: It’s greed.

PARODY VIDEO: Everest College is accredited by the West Coast Commission of Non-accredited Schools. You can learn anything—

MARTIN SMITH: [voice-over] Corinthian would fast become the poster child of predatory for-profits. Videos lampooning Corinthian flooded onto YouTube.

PARODY VIDEO: You’re probably sitting home watching Maury. I like Maury. I want to know who the daddy is, too. Make a decision. Make a choice. You got to call Everest. You still here?

MARTIN SMITH: By 2013, California’s attorney general would share her findings with the Department of Education. Soon after, officials in Washington decided to cut off the flow of federal funds until Corinthian could back up their claims of job placement.

Prof. KEVIN KINSER, Penn State University: The way financial aid typically works, it’s almost like they give the— the institution a credit card. And they can— in anticipation of getting that bill paid by the Department of Education, they can spend the money in advance. What the Department of Education said is— basically, it took away the credit card and said, “No, no. We need to verify your expenses before we can reimburse.”

TRACE URDAN: We’re in the peak of the highest amount of worry right now—

MARTIN SMITH: Urdan was monitoring the company. And he told me that for most of the previous year, the CEO of Corinthian, Jack Massimino, was downplaying his problems.

TRACE URDAN: He would say, “It’s going to be fine. We’re— you know, we— we’ve put these things in place, and it’s all going to be good. And you know, the— the students are coming, trust me.” They’re always extremely optimistic, right? So it’s the job of people like me to try to filter that a little bit.

MARTIN SMITH: [on camera] Did you ask that question—

TRACE URDAN: Yeah, I think so.

MARTIN SMITH: —“Are you defrauding students?”

TRACE URDAN: Well, no, I— I probably wouldn’t have phrased it that way.

MARTIN SMITH: Maybe you should have.

TRACE URDAN: I probably would have— maybe I should have. Maybe I should have.

MARTIN SMITH: [voice-over] I then asked him about the Department of Education withholding funds from Corinthian.

TRACE URDAN: I knew something the department didn’t know, which was that withholding that much cash from them would precipitate a crisis, right? So I knew that part. What I didn’t see coming was that the department would actually do that to them.

MARTIN SMITH: Without the influx of federal funds, top executives at Corinthian saw the writing on the wall and prepared to file for bankruptcy.

NEWSCASTER: For-profit college provider abruptly closes its campuses—

MARTIN SMITH: On the morning of April 26th, 2015, thousands of students woke up to hear the news.

NEWSCASTER: As of today, school’s out for good at Corinthian Colleges.

MARTIN SMITH: It was the largest college shutdown in history.

NEWSCASTER: —are displaced after the sudden closure of 28 Corinthian Colleges campuses—

NEWSCASTER: School is over for thousands of southern California students. They’ve just learned their—

MARTIN SMITH: Students were left wondering what would happen next.

BARMAK NASSIRIAN, Assn. of State Colleges and Universities: Corinthian Colleges goes under, leaving $1.2 billion— with a B— in federal student loan dollars in play, and the people who did it are on their estates, are on their yachts enjoying the fruits of their labor.

NEWSCASTER: These are federal loans these students have. So as a taxpayer, why shouldn’t I be concerned about this?

MARTIN SMITH: Officials at the Department of Education were trying to determine who should absorb the loss.

NEWSCASTER: —all those students who had gone to Corinthian Colleges—

NEWSCASTER: Well, exactly, some of whom may be carrying quite a bit of debt, and as we now know, probably have very poor job prospects relative to what they were promised.

Prof. KEVIN KINSER, Penn State University: There were so many students, so many campuses. There was no policy that could really handle that sort of scale. Again, remember the— the times when campuses had closed before, we’re talking— you know, a few hundred students, right, a couple of campuses. And the Department of Education would be on the hook for the billions of dollars that those students might have outstanding in loans. And they were not particularly enthusiastic about taking on that— that sort of burden.

MARTIN SMITH: Instead of refunding the students, the department midwifed a sale of 53 Corinthian campuses.

Sen. DICK DURBIN: What they told me at the time was, “We were afraid to turn loose on the economy, or into community colleges and other universities, so many students at one time.”

MARTIN SMITH: [on camera] Too big to fail?

Sen. DICK DURBIN: Sadly, that’s what it sounded like. I never bought it from the start, just didn’t make any sense.

MARTIN SMITH: [voice-over] The buyer was a non-profit specializing not in education, but in student debt collection.

[on camera] Well, I— I don’t get it. I don’t get it. So this debt collector that collects bad debt for the Department of Education buys a whole slew of Corinthian Colleges?

BARMAK NASSIRIAN, Assn. of State Colleges and Universities: Yes, with the Department of Education, which is the regulator and the enforcer and the sheriff in town, actually stepping in to broker the deal.

TELEVISION COMMERCIAL: We are Everest. We are Wyotech. We are Zenith Education Group, a non-profit that’s putting students’ success first.

MARTIN SMITH: [voice-over] The CEO of Zenith and the general counsel of the parent company, ECMC, agreed to sit down for an interview.

[on camera] You raised a lot of eyebrows when you made this deal. You’re a debt-collecting company, but you’re going into the business of education in a sector that is rife with high debt load.

PETER TAYLOR, CEO, Zenith Education Group: Well, the ultimate proof will be in the pudding. Our goal is to make sure that we can provide an affordable education of high quality, so that when a student comes out of one of our programs, they have no more than $4,000, $4,500 in debt. We think that’s affordable for a job that pays 20, 25 bucks an hour. So are we there yet? Not quite, but we’ve made a lot of progress.

MARTIN SMITH: But your experience was in debt collection. What experience did you have in running a school?

DAN FISHER, General Counsel, ECMC: In— in the particulars of running a school, we brought folks in from the outside that had that experience.

MARTIN SMITH: So ECMC had no experience in running a school, let alone a set of colleges.

DAN FISHER: That’s correct.

MARTIN SMITH: [voice-over] I then asked them about a report Zenith had commissioned that detailed all the problems at Corinthian.

[on camera] I quote, talking about Corinthian, “Students were misguided, resources misdirected, questionable loans issued, and admissions departments pushed to recruit anyone with a pulse.” So I want to talk about these abuses and what you’ve done to change things.

PETER TAYLOR: We commissioned the IDEO report because we want to be different than the previous owners. You know, from the point that we acquired these schools in February of 2015, fully 60 percent of those employees are no longer with us, the senior management completely redone, as I mentioned before, completely new marketing team.

MARTIN SMITH: You say that you— your entire marketing team has been replaced. What about the compliance department?

PETER TAYLOR: So our senior leadership, all but one, never drew a dime of pay from Corinthian, and that includes the person who runs compliance. So we’re in the process really of reinventing the leadership of Zenith Education.

MARTIN SMITH: [voice-over] While it’s true that the top manager for compliance was replaced, nearly one third of the staff in that department remains in place. Zenith also kept most school administrators and teachers.

[on camera] Does it concern you that Zenith is operating Corinthian with the same personnel that were there?

JOHN KING, Jr., Secretary of Education: Well, the key thing is that schools that Zenith runs have to serve students well. There’s a monitor in place to help ensure that that occurs, and we’re going to do all we can to make sure that they’re serving students well.

MARTIN SMITH: How would you grade the department on monitoring and investigating the abuses that we all know have gone on at these for-profit schools?

JOHN KING, Jr.: I would say an incomplete. I think we’re making progress, certainly, compared to where we were when the administration began. But more to do.

NEWSCASTER: Brand-new regulations will hold these schools accountable for the value of their degrees—

MARTIN SMITH: [voice-over] In 2015, after five years of legal battles, the Obama administration finally implemented a “gainful employment” rule. Under this new rule, schools have three years to prove that they place students in jobs which pay enough for them to afford their student loans.

BARMAK NASSIRIAN: It’ll take years for the final judgment to come in.

MARTIN SMITH: [on camera] So we’re— we’re going to regulate through the rearview mirror.

BARMAK NASSIRIAN: Absolutely. This was one of my main objections to what they did. The American public are not supposed to be lab rats on whom we experiment and then pass judgment on providers post facto.

You wouldn’t do that with food. You wouldn’t do that with drug safety. The assumption is that the burden always ought to be on the provider to put enough evidence on the table that what they’re selling to the public, what they’re financing with public dollars, is wholesome and— and— and at the very least not damaging.

MARTIN SMITH: [voice-over] The Department of Education has also launched a new enforcement unit promising to more closely monitor for-profit schools. And this past month, the department sanctioned another school.

NEWSCASTER: Students at ITT Technical Institute fear that school may not be around much longer.

NEWSCASTER: —that ITT Technical Institute can no longer enroll new students who use federal loans.

MARTIN SMITH: I spoke to one ITT student who told me he had already borrowed $20,000 to train as an architectural designer.

JAMES H. JONES: I had to get in debt. You know, I don’t have no rich uncle who got— you know, give it to me with a silver spoon. Even though it might cost me a little money, in the long run, it’ll still be worth it, you know? I won’t have to be dependent upon welfare or anything like that as I get older. I’ll have a trade under my belt.

MARTIN SMITH: [on camera] Well, you haven’t heard that the school’s having any troubles or might close, or might be closed down by the government?

JAMES H. JONES: Well, I hope I’ll be able to learn the program before they do that because I really need to learn it.

MARTIN SMITH: [voice-over] Just last week, ITT closed, leaving 35,000 students in the cold, including James Jones.

NEWSCASTER: ITT Technical Institute is shutting down for good—

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