ConsumerAffairs.com has downgraded University of Phoenix to 1 out of 5 stars calling the profit generating machine to put it mildly, a scam. In just the last year, the University has been investigated by the federal government for misrepresentations in its recruiting practices; sued in more than one class action lawsuit; and then saw its enrollment drop more than 25 percent.
Last year, the U.S. Education Department began a regularly scheduled review of the Apollo Education Group, the publicly traded company that owns and operates the University of Phoenix. Federal authorities began examining how Apollo distributed federal student-aid dollars, whether it returned funds associated with students no longer enrolled, and how it reported on-campus crimes during the 2012-13 and 2013-14 school years.
Last month, under pressure from the federal investigation, Apollo Education Group sold the University. While the review is a standard practice—the agency conducted more than 300 similar reviews last year—it comes at a time of increased scrutiny and regulatory activity directed at the for-profit college sector. The volume of financial aid collected by Apollo and the role that financial-aid funds play in the company’s balance sheet also significantly raise the stakes of this review.
Public interest in the for-profit industry has grown as more Americans have pursued nontraditional paths to a college education. As enrollment has grown, state and federal investigators have examined recruiting and marketing practices as well as academic activities at a number of for-profit schools. In 2012, a U.S. Senate investigation found widespread evidence that for-profit schools often appear to prioritize business concerns over educational quality or student progress, with most producing low graduation rates but double-digit profit margins for publicly traded companies.
The corporations behind for-profit colleges together reaped 86 percent of their revenue from federal student-aid programs, the Senate investigation found, but they have not faced congressional regulation or consistent oversight that might protect the interests of students and taxpayers. In fact, during the 2008-09 school year, half the students attending for-profit colleges left school without a degree, according to the Senate report. Many of these students were drawn to the schools by multimillion-dollar ad campaigns and high-stakes recruiting practices and then left school with life-altering amounts of debt, the Senate report found.
The industry has often countered criticisms with claims that for-profit colleges provide educational services to working adults and low-income and minority students—populations they say traditional nonprofit colleges and universities have long neglected or underserved. And officials at Apollo describe their schools as institutions that bolster the country and its most important economic goals.
In 2009, the company did agree to pay a $67.5 million settlement to the federal government and another $11 million in legal fees after former employees filed a suit alleging that the company tied recruiter pay to the number of students recruited or enrolled, a violation of federal law. Under the terms of the settlement the company admitted no wrongdoing. “Apollo Group is committed to rigorous regulatory and compliance systems to serve and protect the academic innovations for which we are known,” Gregory Cappelli, then co-chief executive officer of Apollo Group, said in a statement issued by the company. Cappelli, who is now the company’s sole CEO, made more than $25 million in 2011.
Attorneys general in Massachusetts and Florida continue to investigate the company, according to Apollo’s most recent quarterly report to the Securities and Exchange Commission. And in March, the company received a subpoena from the Education Department’s Office of the Inspector General related to a range of activities including “marketing, recruitment, enrollment, financial aid processing, fraud prevention, student retention, personnel training, attendance, academic grading and other matters,” according to the same quarterly report.
The University of Phoenix faces additional scrutiny from its academic accrediting agency, the Higher Learning Commission of the North Central Association of Colleges and Schools. In 2013, the organization re-accredited the college network for 10 years but placed it on a two-year notice plan due to concerns “regarding governance, student assessment and faculty scholarship/research for doctoral programs,” according to Apollo’s most recent annual report. A school is put on notice status when it appears that without changes the institution will fall out of compliance with the accrediting agency’s standards.
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