Enrollment Abuse Allegations Plague University of Phoenix
"We would get a lot of calls for CSI," said Burke, referring to the popular television show about forensic sleuths who solve crimes. "Sometimes we were told to go ahead and enroll them in the criminal justice program," he said.
The university confirmed that its criminal justice program might qualify a graduate to work as a prison guard, but not in forensic investigations.
Three women in different states say they were befriended by counselors but later came to see those friendships as a sales ploy.
Kat Clark of California and Teresa Barron, then living in Georgia, said Phoenix advisers invited them to meals. Clark went to a BBQ at her recruiter's house, and they exchanged text messages and e-mails during the work week.
Barron went to watch "Bruce Almighty" with her recruiter, who also talked to Barron about their shared religious beliefs. And Jewel Calderon, who then lived in Fayetteville, N.C., said her recruiter chatted with her grandmother.
"Every time he called, I was never home, so he would speak to my grandmother and he basically found out that we were Christian and deeply religious," she said. The recruiter prayed with Calderon's grandmother, in what Calderon described as "church over the phone."
"I just mainly felt like I could trust him since he said that he was so deeply religious," she said. "That's why I decided on that college as opposed to others."
In all three cases, when the students started having problems with the university, their new friendships evaporated.
"I don't think it was a genuine thing," said Clark. "I think it was more of a, 'This is my job and I'll do anything to make sure I get paid.'"
Pepicello, the Phoenix president, said the school does not encourage recruiters to use friendship as a sales technique. "Certainly that would not be a practice that we would condone," he said. "We try our best to instill a very professional demeanor in all our employees."
Asked why students would be steered to courses that didn't suit their needs, Phoenix spokeswoman Sara Jones said company policy is to "advise students of the educational options that would best meet their needs." Enrollment advisers undergo annual training on "ethics and misadvisement," she said.
Defenders of the University of Phoenix and other for-profit schools say a few anecdotes don't accurately represent practices in the entire sector.
"When you have a system that's this complex, with over 2 million students, with close to 3,000 institutions, once in a while you're going to have a rogue employee," said Harris Miller, president and CEO of the Career College Association, an industry lobby group.
"Any admissions officer who is misleading students should be fired," Miller said, "and if his or her supervisor told them to do so, that person should be fired."
The University of Phoenix is not the only for-profit school accused of misleading prospective students about credits. Class-action lawsuits against Phoenix's competitors -- including some of the biggest providers, such as Career Education Corporation and DeVry University -- make similar allegations.
The New Subprime?
In September, the Government Accountability Office published a report showing that some proprietary schools were enrolling students who did not meet the minimum requirements for college -- a high school education or its equivalent.
The GAO did not name any particular schools, but said that the instances had been referred to the Education Department's inspector general.
If prospective students don't have a high school degree or other academic credential, schools can admit them by administering an "ability to benefit" test, which is designed to ensure a candidate has sufficient skills for college.
The GAO sent two undercover inspectors to deliberately flunk the exam at one for-profit school. The contractors administering the test read the answers aloud to the applicants, and the inspectors later found that the school had crossed out their incorrect answers, and filled them in correctly.
At a congressional hearing about the report, Rep. George Miller, D-Calif., chairman of the House Education and Labor Committee, said he worried about an influx of unqualified students, many of whom take out government loans to pay tuition.
"We're developing a process here that looks a lot like subprime student loans," Miller said. "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."
Students at for-profit schools have higher than average loan default rates, according to the GAO report. The average rate at for-profits is 11 percent, compared with 6 percent across higher education, and just under 4 percent for nonprofit private colleges.
The University of Phoenix's rate, at 9.3 percent, is actually below the average at for-profit schools.
All of these numbers are low because, as earlier government reports have shown, the Department of Education tracks defaults only for the first two years after a student graduates. Defaults increase over time, exceeding 23 percent after four years at for-profit schools, according to the GAO.
Unlike other forms of debt, student loans cannot be erased in bankruptcy.
"Students who default on their student loans have their Social Security benefits intercepted, have their tax returns intercepted, have their wages garnished" and "are ineligible for any other federal benefit program until they arrive at a repayment solution," said Nassirian, of the association that represents college admission officers. "They are ruined for life."
Taxpayers don't suffer because, although the public underwrites the system by providing the loans, the program makes money overall, according to Department of Education estimates.
Some former students said they have had to postpone plans to go on to another college after dropping out of the University of Phoenix because they were saddled with debt.
Dropouts are an issue at Phoenix and other for-profits.
The Department of Education says 5 percent of students enrolled in the University of Phoenix's online program graduate. The university says the rate is closer to 37 percent for an associate degree.
That is low for for-profit schools, according to the Career College Association's Miller, who said the average is about 60 percent -- the same as at four-year public universities, according to Department of Education data. Miller said the for-profit rate is higher than comparable two-year degrees at community colleges.
Nassirian said the combination of debt and low graduation means these colleges are hurting the people they're meant to help.
"When you see a pattern of consistent failure to deliver value," said Nassirian, "you are beginning to see, in my judgment anyway, a very high probability of institutional culpability."
Tougher Rules on Incentive Pay
Now, it looks like regulators may step up oversight of the sector.
This winter, the Department of Education will review the regulations governing for-profit schools, and compensation of enrollment officers is likely to be a key focus, said Jeff Silber, a financial analyst at BMO Capital who follows stocks of for-profit school.
Silber is bullish on the for-profit industry even as short-sellers crowd into the market, betting that shares of Phoenix's parent, the Apollo Group, and some other schools will plunge if regulators act.
Silber said regulators are looking seriously at tightening the rules on recruiter pay. Congress in 1992 passed a law banning enrollment-based compensation for schools that participate in the federal aid programs. But under the Bush administration, the Education Department introduced a dozen exceptions. Under those rules, Phoenix continues to use enrollment as one of several factors in recruiter pay; the department's 2004 investigation faulted the school for using enrollment solely as the basis for recruiter pay.
Critics say the exceptions create pressure to cut corners. The National Association for College Admission Counseling, a group that represents high school and college admissions officers, said the exceptions, along with a "de-emphasis of oversight" during the Bush administration, "gutted" enforcement. The association wants the exceptions scrapped.
Industry backers say for-profit schools are being unfairly singled out by the Obama administration for political reasons. "It's no secret in Washington that for-profits are tremendous contributors to campaigns for Republicans," said Jones, the former Bush education appointee.
Education advocates say some fundamental changes are needed to protect students from abusive enrollment techniques.
"Too much of the federal funding that is pumped into the system in the name of increasing access to education is in fact being siphoned off by business men and women, and by Wall Street," said Nassirian. These companies "do not necessarily, in all instances, do a particularly spectacular job of delivering value."