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University of Phoenix strikes $191 million deal to settle false advertising claims

Money stack. piles of cash

A Phoenix-based national university known for promoting its programs has agreed to pay a record $191 million to settle claims it used deceptive advertising to attract prospective students.

The deal with the Federal Trade Commission announced Tuesday requires the University of Phoenix to forgive $141 million in debt by former students who enrolled between Oct. 1, 2012 and Dec. 31, 2016, the period the federal agency says they were likely exposed to the school’s advertising campaigns where it claimed it had special arrangements with major national and international companies to create jobs for students. Those ads, the FTC says, also led students to believe that the school tailored its curriculum for those jobs.

The other $50 million will go to the FTC to process refund demands from students.

A spokesman for the university said there was no admission of wrongdoing.

“We continue to believe the university acted appropriately,” according to an official statement. But it said that settling the case will help “avoid any further distraction from serving students that could have resulted from protracted litigation.”

It also pointed out that the campaign occurred “under prior ownership and concluded before the FTC’s inquiry began.”

The FTC had its own take on the agreement.

“This is the largest settlement the commission has obtained in a case against a for-profit school,” said Andrew Smith, director of the agency’s Bureau of Consumer Protection in a prepared statement. “Students making important decisions about their education need the facts, not fantasy job opportunities that do not exist.”

Rohit Chopra

Rohit Chopra

Two commission members were less reserved in their words.

Rohit Chopra said the University of Phoenix “scammed its students by luring them in with false job placement promises.”

And Commissioner Rebecca Kelly Slaughter said students make decisions to devote limited time and income into pursuing educational goals, many with the hope of landing a better job.

“The deceptive claims set out in the commission’s complaint are particularly galling to me because they sold false hope – robbing consumers of their time and money for the prospect of a job that did not exist.”

The settlement approved by a 4-0 vote of the commission – one member recused herself – follows what has been a sharp decline in enrollment at the university which has multiple campuses across the nation and is a major operator of online degree programs. University officials confirm that current enrollment is less than 100,000, down from close to 470,000 a decade ago.

Rebecca Kelly Slaughter

Rebecca Kelly Slaughter

It also comes three years after shareholders of parent company Apollo Education Group approved the sale of the firm for $1.14 billion to private investors, a price that translated out to $10 a share. By contrast, it traded as high as $89 in 2009.

According to the FTC’s allegations, first filed in 2015, the school relied heavily on advertising to attract students, including specific ads targeting military and Hispanic consumers.

One TV ad said the university was “working with a growing list of almost 2,000 corporate partners,” specifically citing Microsoft, American Red Cross and Adobe “to create options for you.”

“Not only that, we’re using what we learn from these partners to shape our curriculum so when you find the job you want you’ll be a perfect fit,” the commercial says.

“In reality, these companies did not partner with University of Phoenix to provide special opportunities for UOP students or develop curriculum,” the FTC complain says. Instead, the federal agency says, the university “selected these companies for their advertisements as part of a marketing strategy to drive prospective student interest.”

According to the FTC, the settlement will not affect the obligations of students who borrowed from the federal government or private lenders. These students, however, are eligible to apply to the U.S. Department of Education for income-driven repayment plans and, in some cases, loan forgiveness.

But Slaughter, in her own statement, had some sharp words for that agency.

“We watch what appears to be a complete abdication by the Department of Education, which has oversight of for-profit institutions and controls their access to federal financial aid,” she said.

That remark comes five months after Education Secretary Betsy DeVos rescinded a rule, imposed during the Obama administration, which sought to hold private colleges and career education program accountable by forcing them to prove that graduates were able to repay the money they borrowed. That “gainful employment regulation” required schools to disclose debt and earnings data to prospective and current students.

Slaughter said the Trump administration is engaged in “what appears to be its systemic betrayal of consumers.”

Chopra, in his own comments, said the FTC found evidence that a “senior manager” at the University of Phoenix “sounded the alarm that this marketing was misleading,” a complaint he said the company’s top executives ignored.

 

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