Tyrone Jacobs has been trying to get ahead. After years of working menial jobs at Red Lobster and Toys 'R' Us, the 28-year-old has struck out on his own. He travels around Little Rock, Arkansas, peddling ballerina jewelry boxes, Ladybug watches and the like at local flea markets.

Jacobs, though, wants more. He's recently married, and his wife has "one in the oven." He's running a website, selling the jewelry and knickknacks he picks out of wholesale catalogues. He wants to learn more about running a business. He wants an education.

"It will help me better organize and prepare myself with the accounting classes, keep up with the money and keep it organized, keep everything in order, so the business will live instead of failing," Jacobs said.

Lately, though, he's been getting lessons in frustration. First, he had trouble getting papers together for an audit of his financial aid, his second this year. Then, in the midst of that confusion, he had to move. He wanted to postpone his classes. His enrollment counselor said no, and Jacobs's troubles began.

Jacobs has been attending the all-online Axia College, a spinoff of the ubiquitous University of Phoenix, a for-profit 311,000-student mega-college run by the Arizona-based Apollo Group. In little more than a year Axia College has experienced explosive growth, quietly enrolling as many students as Penn State--about 40,000--into its associate-degree programs.

Axia represents Apollo's fastest earnings growth, tapping into a market the company has traditionally avoided: people like Tyrone Jacobs, with no degree and little, if any, college experience. If current trends continue, 5 million students like Jacobs could be attending college online a decade from now, and Apollo wants them all.

But legislation stood in the way, capping the growth of online classes. To qualify for financial aid, the federal "50 percent" rule requires colleges to conduct half of all classes in an actual classroom, with a physically present teacher, or half of all students to be physically enrolled. Apollo, leveraging the influence of patrons in Congress and the Education Department, including House majority leader John Boehner, has seen that legislation erased. It's the latest move toward deregulation in the education market, which has mainly benefited for-profit companies like Apollo.

Apollo took in more than $2.2 billion last year, almost all of it through federal aid programs, and spent $1.5 billion. The difference went to Apollo's shareholders and came from the pockets of taxpayers and students. Jacobs' associate's degree would have cost about $15,000 at Axia, but only about $4,000 at a bricks-and-mortar community college. At a traditional school, tuition and other costs more or less reflect the value of the education received. But at Apollo, something else is going on.

The company spent $935 million on instruction last year, and $485 million to lure and enroll students. It claims to be the nation's largest university, selling education much the same way Jacobs sells Sphinx boxes and beard-trimmers at the flea market--as a product.

Selling Education

Today, the University of Phoenix employs 3,600 enrollment counselors selling education products nationwide. The bulk of them work out of the sprawling 7,000-employee office complex near Interstate 10 and the Broadway curve in Phoenix.

The complex once housed a special selling area known as the Red Room-- part corporate stockade and part boiler room. The Red Room served as a detention area of sorts for Phoenix's underperforming enrollment counselors.

In an investigation of Phoenix's recruiting practices in 2003, investigators in the Education Department's financial aid division heard that recruiters who failed to meet goals were sent to labor behind glass walls, "counseling" students to enroll from a room barren except for folding tables and banks of telephones. No breaks. No vacations. And if they continued to fail, no job.

A recruiter could earn $750 for each student enrolled. Management pressured employees to enroll as many students as possible, and to do "whatever it takes." If a prospective student could find a better or cheaper option at a local community college, recruiters kept it to themselves.

Employees told investigators they learned that only one thing mattered at Phoenix: getting "asses in classes." Federal law, however, mandates that college enrollment counselors not be paid a bounty per student, to insure that counselors do what is best for the student, rather than for themselves or the company.

As a result of the investigation into Phoenix's Red Room recruiting tactics, the Apollo Group paid $9.8 million in fines in 2004--the largest fine ever levied by the Education Department. Late last year, the Education Department Inspector General found Phoenix owed students $10 million in unreturned tuition payments. The company was also fined $6 million in 2000 for improperly calculating student aid and for not offering enough study and instruction hours to meet federal requirements. This came a year after paying a $650,000 fine for failing to refund loans.

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