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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.

TEXT OF STORY

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.

UNIVERSITY OF PHOENIX AD: And I am a 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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I enrolled in the UOP, the person who enrolled me called me 20 times, more than other universities for sure. However, I was happy that somebody was encouraging me to study and advance my carrier, consequently I continued, enrolled, I am learning every day more than ever, and will be soon finished.

This story seems extremely biased. I graduated with an MSC recently and worked extremely hard for my degree. My program is fully accredited by the council for accreditation of counseling and related educational programs (CACREP)and all classes were held on campus. In the MSC program the professors are PhD's and always have time for their students. All universities have flaws but ultimately the students must take responsibility for their learning and the teachers should have passion for their subject. My program had both.

"Biased and inaccurate media reporting". Is a quote from one of the University of Phoenix employees and or supporters. He's just mad that the public at large, knows the truth. I commend Marketplace for reporting the Allegations Against U of P in the first place. Maybe this will put some light on to all these subprime student loans that the school is handing out to their current students and future financial victims of the school. Purhaps the mainsteam media will investigate also. Or, Maybe these victims could pick up a video cam and air their stories on YouTube.......

I am reading this article during a break in my Critical Thinking course I am teaching at UOP. I use that same desert island scenario in my course. Learned it getting my MBA at the Un. of South Carolina. It is a sound tool used to teach the benefit of team versus individual behavior. In my CT course, I try to teach my students to identify biased and inaccurate media reporting. I may use this article.

Interesting to note that these supporters of UoP are invested in the reputation of the "diploma mill" that sold them a overpriced degree. Employers don't like to hire UoP grads, so they end up working at UoP, and that speaks volumes.

From UoP response: "The university is regionally accredited by the Higher Learning Commission and is a member of the North Central Association, one of six regional accrediting bodies considered to be the gold standard of accreditation."

That's where the shoddy education they provide needs to be addressed. Too bad the accrediting body isn't doing their job.
There is a place and a need for this service but the programs aren't rigorous enough and the selling practices are disgusting, institutionally approved, encouraged, and, indeed, demanded.
Say what you want, but what they do better than the traditional system is innovate, market, and sell. Everything else is mediocre at best.

Wonderful report, Market Place!

It is no secret that when education institutions become “for profit,” all the problems start. Pressuring students to get in is the common problematic practice at all “for profit” private ones.

Don’t confuse with "Non profit" private institutions,mentioned in one person's response, such as Harvard or Yale, where tuition only counts small portion of the total budget. They spend more money on students from their endowment. Unlike the “for profit” ones, such as UOP and ITT and many many others local ones, they earn money from students’ tuition and they have to do all they can to squeeze profit out of students!-it is just a hard factor! No one can deny or hide it.

University of Phoenix's response to article: University of Phoenix Responds to Marketplace’s “Allegations Against University of Phoenix Persist,” November 3, 2009

Marketplace yesterday aired an uncharacteristic piece of journalism for the highly regarded American Public Media – a wholly imbalanced, subjective, salacious story about University of Phoenix. This type of hit-and-run journalism ordinarily would not air on the likes of Marketplace, so why did it? In an unusual move, Marketplace outsourced its investigative reporting to ProPublica, a partisan and experimental investigative newsroom known for “muckraking tactics” and “hatchet jobs.” For more on what others are saying about ProPublica, click here and for a Capital Research Center report critical of ProPublica, click here.

Evidently in the eyes of ProPublica, University of Phoenix’s for-profit – as in free market – model negates our social agenda to increase access to higher education and is cause to categorically reject every positive piece of factual information provided by University of Phoenix. Refusing to be deterred by the facts, which are provided below, ProPublica produced – and Marketplace aired – a two-part series founded on nothing more than a series of anecdotes from five of our 17,000 employees (.03 percent of our employee population) and from 12 of our 443,000 students (.0027 percent of our student population).

We referred ProPublica to thousands of positive stories from University of Phoenix students; they were ignored. We shared the results of our most recent student satisfaction surveys, which range from the 90 to 96th percentile; they were discarded. We offered a tour of any of our enrollment facilities across the country in order to observe our enrollment counselors at work; it was snubbed. We suggested ProPublica anonymously call any of our thousands of enrollment counselors to test the enrollment-related allegations of students to be featured in their story; if calls were made, they did not support ProPublica’s story and were cast aside. University of Phoenix requested that ProPublica obtain Family Educational Rights and Privacy Act (FERPA) releases for any students to be featured in its story so that we could research and respond to specific student situations; they refused to do so, legally prohibiting us from providing our side of the story.

ProPublica has tarnished the degrees of nontraditional students served by University of Phoenix – those students who need to work full-time and/or raise a family while attending school, many of whom are minorities, first generation college students, single parents and active duty military personnel. University of Phoenix is providing options and opportunities, which otherwise would not exist for our students, and at a time when our conventional public system of higher education is proving increasingly untenable and inaccessible. Marketplace should be ashamed.

The Facts

ProPublica: Phoenix isn’t the only school that profits from the stream of federal student aid. But it’s the single biggest recipient.

Fact: Financial aid is awarded to students, not institutions, who may take their financial aid to any institution of their choosing should they be admitted. Given the size of University of Phoenix’s student population – more than 440,000 students today, dispersed across hundreds of campuses and learning centers across the country as well as online – as a group, they are the largest recipient of federal financial aid in the country. Our students are the most honest arbiters of our academic quality and they will always be the final arbiters of where they wish to spend their tuition dollars.

ProPublica: It turns out the enrollment counselors at the University of Phoenix get paid in part based on how many students they recruit.

Fact: Just as academic institutions are entitled to pay teachers based upon how well they teach, grade students based upon how well they perform, and pay executives based upon the school’s success, so too is it entirely appropriate and lawful for schools to pay recruiters in part based upon how well they perform their job – i.e., recruit students. Indeed, this is a basic premise of American industry, and was recently confirmed by the Ninth Circuit Court of Appeals. As the Court noted, if academic institutions could not pay recruiters based upon their ability to recruit students, “you could never have any performance criteria for that particular job” and it would be the “one job where they can’t consider how well you’re doing your job.” Any other view would be antithetical to American industry.

ProPublica: 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.

Fact: University of Phoenix’s graduation rates are comparable to national averages: 27 percent of our students graduate at the associate degree level, which is the same as the national rate; 38 percent of our students graduate at the bachelor’s level, compared to 43 percent nationally; and 60 percent of our students graduate at the graduate level versus 61 percent nationally. But the real story that should have been told is that in a comparison of students who enter college with “risk factors” that often contribute to their dropping out, University of Phoenix’s rates of completion for a bachelor’s degree are substantially higher than for institutions overall.

ProPublica: But whether students drop out or graduate, they still leave school burdened with debt. And it’s debt they can’t escape.

Fact: Our student debt loads are within national averages compared to both public and private, non-profit four-year colleges and universities, with our students averaging between $14,200-25,221 in loans compared to the national average of $13,266-26,208 as reported by the Institute for College Access and Success’ October 2008 report, Student Debt and the Class of 2007. Our default rate has consistently remained below the national average for comparable schools. University of Phoenix’s official FY 2007 cohort default rate of 9.3 percent, as published by the U.S. Department of Education, remains below the national average of 9.8 percent for comparable schools (4+ years) and below the national average of 11.0 percent for all proprietary schools combined. While this is a 29 percent increase over our previous year rate of 7.2 percent, default rates increased for all types of schools – public, private, and proprietary, as well as 4-year and 2-year alike. The FY 2007 national student loan cohort default rate increased to 6.7 percent, up from 5.2 percent, also a 29 percent increase over the 2006 rate.

ProPublica: 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.

Fact: University of Phoenix graduates earn significant increases in their personal income as a result of their degrees. In 2008, graduates of our associate degree programs earned an average increase of 19 percent in their personal income; graduates of our bachelor’s degree programs earned an average increase of 28 percent in their personal income; and our master’s degree program graduates earned an average increase of 25 percent in their personal income[1].

ProPublica: 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.

Fact: University of Phoenix made the deliberate decision not to engage in private lending because we believed it was not in the best interests of our students. For Fiscal Year 2009, private loans accounted for less than 1 percent of parent Apollo Group’s net revenue.

ProPublica: 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.

Fact: University of Phoenix is committed to transparency in our educational operations and welcomes regulatory examination. In fact, we are one of, if not the most, examined institution in the country. Since our inception, University of Phoenix has participated in 30 accreditation
visits by regional accrediting bodies, 35 evaluations by state education agencies, and undergone 10 administrative reviews by U.S. Department of Education. At our last Higher Learning Commission accreditation visit, University of Phoenix was awarded a 10-year grant of accreditation – the longest period of time for which an institution can receive approval without an interim review visit. University of Phoenix is committed to academic excellence. We are required to meet the same standards for academic quality as conventional four-year colleges and universities and, as a for-profit institution, meet the highest of regulatory requirements. The university is regionally accredited by the Higher Learning Commission and is a member of the North Central Association, one of six regional accrediting bodies considered to be the gold standard of accreditation. Regional accreditation is every bit as rigorous for University of Phoenix as it is for the other colleges and universities accredited by the North Central Association, which include Northwestern University, University of Notre Dame, University of Michigan, Ohio State University and University of Arizona, to name a few.

I personally have attended the University of Phoenix and I, too, believe this article to be one sided and that the journalist has a preconceived notion of for-profit.

1. Take a look at any University. For-profit or non-profit; they're all out to earn money. Period. The difference between these Universities is that the for-profit institutions do not partake in government grants.

2. Each student that enrolls at the University of Phoenix has the opportunity to understand what Financial Aid is and what it consists of. This person interviewed obviously didn't read what she had signed or partake in any of the services offered by the University. If you purchase a car, you read the find print - there is no difference when financing a degree.

The greatest misnomer is the use of the term "federal aid." To the author's the term means "free money," as it seems to mean to many entering school. Qouting from Student Aid on the Web "If you're interested in financial aid for college or a career school, you've come to the right place. These programs provide more than $100 billion a year in grants, loans, and work-study assistance." Federal Student Aid includes loans, grants, and work-study programs. Anyone applying for Federal Student Aid must complete the Free Application for Federal Student Aid and on the application is asked questions regarding and states at the tope of page one of the paper form "Use this form to apply free for federal and state student grants, work-study and loans." Loans are part of the deal, and anyone applying for money to go to school knows they are not just getting free money, but they are also getting loans.

Schools like University of Phoenix serve a purpose in that because they do not rely on ACT or SAT scores for entrance, but are open enrollment, many who would not otherwise get the opportunity to advance their learning now do. And yes, they pay for it. Education is not free, even at state colleges and universities. There is a price to pay, and Federal Student Aid is the avenue. That colleges and universities that are private have found a way to deliver quality education and make a profit is what the real issue is. Hooray for capitalism, and shame on NPR for denegrating a system of education that works for hundreds of thousands of working adults who would otherwise go uneducated.

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