Allegations against U of Phoenix persist

A University of Phoenix sign.

Katherine Clark with her boyfriend Daniel Ray and their dog Cadence.

Michele Rambo, 23, of Grand Prairie, Texas.


Kai Ryssdal: While most businesses are still trying to find their way out of the recession, for-profit higher education is doing quite fine, thanks very much. Enrollments are up 20 percent, profits are up as well. But that doesn't mean there aren't any problems.

The biggest for-profit schools get most of their revenue from federal student loans. The billions of dollars their customers borrow to pay tuition. The University of Phoenix is the biggest for-profit school out there, probably the best known as well.

A few years ago, it paid the government $10 million over accusations about its high-pressure recruiting tactics. Now it's put aside another $80 million to settle a lawsuit about the same thing.

And a joint Marketplace ProPublica investigation shows some for-profit schools are still abusing the system. Sharona Coutts and Amy Scott reported our two-part series. Here's Amy:

AMY SCOTT: You've seen the ads on mass transit, Facebook and TV, promising job retraining, online classes, flexible schedules.

UNIVERSITY OF PHOENIX AD: I was the first in my family to graduate from college. But I won't be the last.

Hundreds of thousands of Americans have been drawn to for-profit colleges like the University of Phoenix.


Phoenix isn't the only school that profits from the stream of federal student aid. But it's the single biggest recipient. Last fiscal year, 86 percent of its revenue came from the federal government. That's more than $3 billion. But who's benefiting from all that money?

MICHELE RAMBO: My name is Michele Rambo, and I live in Grand Prairie, Texas.

Rambo signed up at the University of Phoenix in Dallas a few years ago.

RAMBO: I did tell them that I was pregnant and they were like, oh, well that just solves everything, you know, you qualify for a grant, you're covered. And I'm like, so I don't have to pay anything? And they told me no.

Classes went well. She got good grades. She was almost finished with her associate degree when a school counselor called about moving her on to a bachelor's program.

RAMBO: And one of the questions that she asked me completely stopped the whole conversation. She had asked me, so what kind of loan do you have?

Rambo thought she didn't have a loan. But when she enrolled, she signed what she thought was a form inquiring about federal aid.

Turns out it was an application for loans that'll cost her $18,000 when she graduates.

RAMBO: It was scary. It still is scary. I'm still scared. I still don't even know what I'm going to do yet.

So how could this happen?

It turns out the enrollment counselors at the University of Phoenix get paid in part based on how many students they recruit. The university's negotiating the settlement of a lawsuit that claims employees were pressured to sign people up.

Bill Pepicello is president of the University of Phoenix. He says his school goes out of its way to ensure counselors don't mislead students.

BILL PEPICELLO: We train our financial counselors very carefully to provide an array of options for students, and to try to be as specific as they can as to what the implications of each of those are.

One financial aid expert told us it's not uncommon for students to sign a bunch of paperwork without really understanding the terms of their loans.

Sound familiar?

At a recent hearing, Congressman George Miller of California likened problems in student lending to another recent crisis.

GEORGE MILLER: I'm a little worried that we're developing a process here that looks a lot like sort of subprime student loans. And knowing that these people don't have the capacity to pay it back, knowing that they may not have the ability to benefit from this education, we go ahead and extend them the credit...

What he means by not benefiting, is that many students saddled with debt don't finish their degrees. The for-profit industry says about 60 percent of its students graduate from two-year programs. The University of Phoenix says its rate is less than half that. But whether students drop out or graduate, they still leave school burdened with debt. And it's debt they can't escape.

BARMAK NASSIRIAN: It is very important to understand, student loans are the most collectible obligation in the United States.

Barmak Nassirian is with the American Association of Collegiate Registrars and Admissions Officers.

NASSIRIAN: Students who default on their student loans have their Social Security benefits intercepted, have their tax returns intercepted, have their wages garnished. They are ruined for life.

The Department of Education says more and more students are falling behind on their loans. For-profit schools have a higher default rate than the average.

Harris Miller represents many for-profit schools as CEO of the Career College Association, a lobby group in Washington, D.C. He says defaults are higher at his schools not because they're for-profit, but because they sign up poor people. People who might not otherwise have a shot at college.

HARRIS MILLER: The simple fact is if your institution is willing to accept lower income students, which our institutions are, which community colleges are, which minority serving institutions are, they have higher default rates.

The taxpayer actually makes money from the interest on these loans. But critics of the system say students often lose out. Not only are they deep in debt, they don't always have much to show for it.

I went to see Katherine Clark at her home in Seal Beach, Calif. She signed up for a business management degree at the University of Phoenix. She says the program included courses like "Skills for Lifelong Learning."

KATHERINE CLARK: Like they had worksheets where it was like if you're deserted on an island, and you have a list of things, put them in order of how they would be important to you. And I'm just like are you kidding? What am I ever going to use this for?

Clark didn't qualify for federal student aid. So she paid some of the bill with credit cards. The rest she owes to a private lender, Sallie Mae.

CLARK: In total, I've paid out of my pocket, $3521. And I still owe $600.

Scott: And what did you get in return?

Clark: Absolutely nothing.

The Apollo Group, which owns the University of Phoenix, made just shy of half-a-billion dollars in profit last year. But Barmak Nassirian says no one's keeping a close eye on the quality of the education for-profit schools like Phoenix provide.

NASSIRIAN: In too many instances we see keyboarding skills transcribed as Computer Science 101, we have seen working with Microsoft Windows transcribed as a Theoretical Course in Operating Systems, and the like.

Clark was so disappointed she dropped out after a course and a half. University of Phoenix officials say out of more than 420,000 current students, a few anecdotes don't tell the whole story.

But Marketplace and ProPublica have heard other troubling accounts. Tomorrow you'll hear allegations of some abusive tactics for signing students up.

With Sharona Coutts of ProPublica, I'm Amy Scott for Marketplace.

About the author

Amy Scott is Marketplace’s education correspondent covering the K-12 and higher education beats, as well as general business and economic stories.

Katherine Clark with her boyfriend Daniel Ray and their dog Cadence.

Michele Rambo, 23, of Grand Prairie, Texas.

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Two things:
1. That "desert island" exercise is an exercie in how to think and how to prioritize. I did this and similar problems in honors collquia as an undergraduate at John Carroll University
near Cleveland OH in the 1970's. (a very good, nonprofit, Jesuit Catholic college BTW). That "what am I going to use this for?" is not unlike the all too typical undergraduate question of "Is this going to be on the final?"
(ie. if it's not, I don't care)
2.I currently work for Everest Institute
in Pittsburgh, PA which is part of Corinthian Colleges Inc. of CA (to UOP, the "competition"). For-profit schools are closely regulated by the PA education authorities as to what we can offer, promise, or promote to prospective students in terms of courses and of financial aid. If we have problems with student retention and defaults, IMHO it's as Harris Miller
said, we get a lot of poor people who if they don't make good choices are going to have trouble academically and financially. We do have many students however who have struggled to get where they are, who work hard and succeed often against huge personal odds, and it is an honor to be part of that success.

This is nothing more than a scheme aimed at bilking millions from the poor who cannot afford it. These degrees, if they happen to actually get one, are WORTHLESS. Employers know exactly the kind of "education" you receive from these diploma mills. Save your money, if you must do an online program, do it with a NOT FOR PROFIT state school.

What about other for profit colleges like ITT TECH, Capella, and so many out there. If they are really bad, let's put stop on them. But I also see for some people this is the only way out in Education terms. May be state colleges are too crowded and less interest from professors.

[I am a regular listener to Marketplace on WPLN in Nashville and a regular reader of Pro-Publica and I find the reporting of both to be thought provoking and thoroughly worthwhile.] I think I understand why you have chosen to report this story as you have, emphasizing the possible exploitation of students recruited for enrollment at schools like the University of Phoenix, and I agree that schools have a duty to represent their offerings honestly and to disclose obligations in a clear and forthright manner. By way of disclosure I am currently a student at University of Phoenix (online). I am a retired physician enrolled as a Masters degree student in Healthcare Administration and Medical Informatics. I also have a student loan which will amount to about $35,000 by the time I graduate.

I had reservations at first about choosing this particular route for my additional education (meant to prepare me for a second career in furthering the goals of healthcare reform), but I did so because of the flexibility that online education provides. I have been very pleasantly surprised to find that the entire experience has been excellent so far. The teachers have been committed to the students' education, the syllabi and infrastructure have been first rate, the reading materials have been well chosen and extremely thorough, and my classmates highly motivated and active in the online environment. I have every expectation that my goals will be well met by the program.

I am at a loss to understand how anyone can think that a college education, be it at the Associates, Bachelors or higher degree level would not require a financial outlay in the order of what the University of Phoenix charges. More surprising to me is the attitude that one can form a valid opinion about the value of an education after "one and a half courses". For those of you unfamiliar with the curriculum, that is only 7-8 weeks of class! Incidentally, exercises like the desert island one described above are intended to make you THINK and are standard fare in leadership courses and I'll bet even in the basic courses at Harvard Business School.

Higher education represents a serious investment. Many of the beginning students at University of Phoenix and related institutions would have never had a chance to embark on the path were it not for schools like this. The school offers extensive and excellent support services such as workshops, tutorials, and actual tutors for students having difficulties. The students are expected, though, to have the maturity to do their work as assigned and to seek help when needed, just like at any other school.

I will be proud to tell colleagues where I got my degree, and I would hire a University of Phoenix graduate in a heartbeat if they were otherwise suitable.

I have always thought that the for-profit colleges should not be allowed federal student aid money. It goes against the spirit of education.

This is all quite interesting. How about the not-for-profit schools?
In our state (California) we saw traditional college enrollments capped because of a statewide budget crisis.
In what other business would the answer to not having enough money be "turn away more customers?" It's because of the huge subsidies
Are taxpayers (paying subsidies), students (burdened by student loan debt) or society (with over-trained but unemployable workers) benefited by these massive expenditures? Remember, even those who are included in the huge number of dropouts annually must still pay back their loans.
I'd love to see Marketplace to a cost/benefit analysis on all of this to find the answer.

Disclosure. I work for Apollo Group and completed my Masters at University of Phoenix.

I also completed my undergrad at a small, private, Catholic University, St. Norbert College.

A student gets out of an education what they put in. I had plenty of classes at my liberal arts college that I deemed "useless" and thought "what am I going to get out of this"

I thought the same about classes for my Masters.

In the end you realize, you were taught those things for a reason, even if they were not evident at the time.

The difference I've seen is that because it's for profit, students seem to have an attitude that if they don't see the point, they should get a refund. If they don't feel like doing the work, they should get a refund.

If you sign up for University of Phoenix, and treat it serious, you will get a serious education. If you sign up and put in little effort, yeah, you may end up with a degree and little education, but guess what, I know plenty of people from St. Norbert like that too.

and guess what? I still have more of a loan from St. Norbert than I do UOP. A higher ed degree costs money, and incurs debt. And if you flunk out, shame on you. Is that news?

I only hope that I show I love and listen to daily, Marketplace, has enough sense to report on the other side of the story and realize this is about supply and demand.

If community and state colleges had the capacity and flexibility to enroll the people who are going to places like Phoenix, they would. The problem is they are all bankrupted by state governments.

Sadly, there are a lot of for profit and not for profit schools who are out for themselves and not the students. Beyond total disclosure in costs and financing, schools should have to disclose the NPV of their degrees. Too many people are paying too much for educations which they will never be able to pay for, whether its a liberal arts degree from a prestigious college or a culinary degree..

The number of companies that reimburse or accept education from these schools is rapidly shrinking. The ROI is low.

I can't believe that some of these places can claim to offer PhD programs. A doctorate should represent a level of mastery, justified by research, study and publication.

Interesting... those most vehement in defense of UofPhoenix would seem by their comments to be current or former employees of same. They stopped just short of using "we" in their defense. As far as current or former students posting defenses of the company, well, I guess they didn't major in English or anything promoting their writing/language skills, skills inestimably important in securing and retaining a decent job. I truly see the value of online educational opportunities, but the issue is, what is actually offered compared to what is promised, and at what cost. If you can receive a "degree" from one of these institutions, but nobody accepts it in the job market, what have you spent your time and money for? Ultimately, it's about not promising a life of filet mignon and serving up a greasy burger at the filet price (while laughing your way to the bank).


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