The parent company of the University of Phoenix expects to spend no more than $80.5-million to settle a contentious six-year-old whistle-blower lawsuit filed by two former admissions counselors, the company announced on Tuesday.
While the amount could be a record settlement for an institution of higher education, the sum is far smaller than the $1.5-billion that the parties had hoped to collect for themselves and the federal government after accusing Phoenix of obtaining federal student-aid funds under false pretenses.
The whistle-blowers filed the lawsuit under the federal False Claims Act on the government's behalf. In such cases, the parties bringing the suit usually receive about 15 percent of any damages awarded or negotiated in a settlement.
The case against Phoenix, which gained new life in 2006 after an appeals court reinstated it, has not been formally settled, but parties announced last month that a settlement could be imminent.
Throughout the years of litigation, which has included a failed effort by the University of Phoenix to involve the U.S. Supreme Court and the still-unexplained release of confidential documents to the university's lawyers three years ago by officials of the U.S. Department of Education, Phoenix executives have insisted that the institution did not act improperly.
The $80.5-million figure—disclosed as the university's parent company, the Apollo Group Inc., issued its annual earnings report—is the company's "best estimate of the loss to be incurred in connection with this matter," including all legal expenses, it said in a news release.
Nancy G. Krop, a lawyer for the two former employees, Mary Hendow and Julie Albertson, said she could not comment because the parties had agreed not to discuss the case during settlement talks.
Apollo officials, in their announcement of financial results, also revealed little more about any pending settlement. The company did report annual revenue of $4-billion for the year ending August 31 and a 22-percent increase in enrollment at the University of Phoenix, bringing its total enrollment of degree-seeking students to 443,000.
On higher-education matters, Apollo officials announced that they had instituted new programs at the University of Phoenix designed to ensure that students who enroll are adequately prepared to handle the academic work. Company officials said this was a response to national concerns about unprepared students dropping out of college but still carrying student-loan debt, and its own calculations that students who persist are ultimately more profitable for the company.
The programs might result in slower enrollment growth, said Greg Cappelli, Apollo's co-chief executive officer, but "we would gladly make the trade-off for higher retention." A company spokeswoman said details about the new retention programs would be described in the university's second annual academic report, to be released in November.
The company also reported that it would be exploring the sale of an online high school, Insight Schools, which it acquired a few years ago, and focus more of its attention on "the opportunities in international postsecondary education."
Apollo, through its Apollo Global joint venture with the Carlyle Group, recently paid $602-million to acquire the company that runs BPP Professional Education, which in 2007 became the first for-profit higher-education organization to offer degrees in Britain. Mr. Cappelli said the company plans to use BPP as a "platform" for expansion in Europe.
Of particular interest to investors, Apollo also reported that the U.S. Securities and Exchange Commission had begun an "informal inquiry" into how it reports its revenues to investors.
Comments
1. jesor - October 28, 2009 at 12:55 pm
I sincerely hope the Dept. of Ed. comes down a lot harder on them. When every other school plays by the rules for fear of loss of access to federal financial aid funds, it feels a bit like watching a Tobacco company lose a couple days of revenue when you hear about the relatively small penalty they believe they'll be asked to pay.
2. gmoney1 - October 28, 2009 at 02:34 pm
Please. You might want to take a closer look at your responsible institutions that you claim "play by the rules". I don't know how $80.5 million could be considered as a insufficient in your eyes? Considering that fighting the law suit would take a tremendous amount of time and money to gather all the correct individuals it is in the best interest of the University to just pay for it and be finished with the nonsense of a few unethical individuals. Who now will be millionaires thanks to our wonderful legal system! Great job!
3. princeton67 - October 28, 2009 at 02:35 pm
As afr as admitting inadequately prepared students, Phoenix would fit right into an NCAA athletic conference. Three examples:
Officials at both Clemson and South Carolina said that they were aware of peer colleges -- they declined to name names -- where meeting the NCAA's freshman eligibility standards, even as they have been weakened in recent years, was good enough to ensure admission for athletes,
In a controversial comment, Georgia President Michael Adams admitted that the school would continue to accept unqualified student-athletes to the university because ???we still have to compete in the (Southeastern Conference).???
Just Google "Unqualified Athletes Admitted" : 116000 hits
Change "Athletes" to "Students": 700,000 hits.
4. jesor - October 28, 2009 at 03:56 pm
80 million is a pittance given that U of Phoenix makes that in about 9 days. As someone who has conducted admissions outreach and while at college fairs watched U of Phoenix recruiters use tactics borrowed from salesmen for siding and used cars, I have a hard time viewing the whistleblowers as the "unethical" ones.
This lawsuit wasn't about admitting unqualfied applicants, this was about paying admissions counselors per head based on their recruitment goals which is a violation of federal law. DOE could revoke their access to all federal funds for it, so given the billions of federally managed dollars that they receive through loans to students, 80M is an absolute pittance.
From my perspective, it's a shame that a company with such an innovative model is being corrupted this way. Had they operated in a more honest manner, they could have posed a legitimate threat to the low quality factory-style education utilized by schools that believe a TA and a powerpoint in front of a 300 person lecture hall is an educational opportunity.
5. gmoney1 - October 28, 2009 at 08:00 pm
You do realize that those poor counselors were the ones doing those "sales pitches" you speak of right? Being that you competed with UPX I understand now why your opinion was so jaded! By the way the per head approach is actually a way to encourage counselors to talk to prospective students who have shown interest in the program. UPX can only hope the counselors use their ethical judgment when talking about coming to the University. How many businesses have incentive programs to do well and reward those employees when they do it?? Believe me UPX is more scrutenized then any other University out there when it comes to the DOE!!! And I also work on the finance side of education so I have also heard some of the competing Universities pitches to encourage students to go to their schools.
6. 11182472 - October 29, 2009 at 11:44 am
Admissions counselors, actually trying to convince students to come to a school? Possibly even painting a rosy picture of the school? Feeling that their professional success is at least partly dependent on recruitment success? Shocking!
7. dr_popejoy - October 29, 2009 at 11:59 am
UPX may be considered a forerunner, and certainly the largest of the universities, that adopted the marketing model for their development as a public corporation (equity capital financing) offering the opportunity of an education as its primary service creating its revenue stream. It is unique in many ways since professors are called facilitators and courses are called workshops and make no mistake, the students are customers in every sense of the word--they do carry a strong sense of entitlement sometimes all the way to their grade expectations. There are no GRE or GMAT requirements for admission; however, some schools seem to be dropping that requirement anyway so maybe that issue is not in play. But, as universities, even the traditional schools, adopt the marketing model to allow them to compete for "asses in classes", then it would be hypocritical to accuse UPX admissions personnel of strong sales approaches since all businesses are in business to expand their market and create ever increasing sales levels. If the marketing model is somehow distasteful then we should reconsider whether we have done the right thing in applying that particular model to something so important as education. UPX is also unique in the fact that most workshop student deliverables are derived from group work rather than individual work which often means that a free rider (someone underqualified to be in grad school) can ride the wave under the radar and get an MBA without proving themselves individually--there are no exams and few individual contributions in terms of deliverables. I have seen in almost every study group--one or two very capable students followed by lesser abled students who clearly are free riding--it is usually clear in the individual deliverables and especially evident when they have to make a group presentation--usually one or two students in each group are clueless as to the work being presented because someone else in the group did the work. Yet, they pass the same way as we pass secondary students in public junior high and high schools; and of course some athletes benefit from this pass them on to others mentality--a lowered bar. One key point at UPX is this--any student can learn from the extensive material provided in each course--it is up to how much the student wants to learn because there is a huge amount of learning material provided in every course. I have had some very bright students at UPX and some others, well not so bright. UPX is an inclusive school not an exclusive school so almost anyone can get in and what they bring out of the experience is up to each student. The crucible will be when they must apply that graduate degree at work--do they know their stuff--that is the key reflecting back on the reputation of any university--how well are the graduates doing in the work world. I believe that university prestige is focused on the faculty while university reputation if focused on the graduates. While I worked at UPX, however, I found the campus administration and the faculty (mostly adjuncts) to be caring and collegial and supportive and generally very interested in the success of the students; but like any business, numbers count in this very competitive market. Everyone may not like the model, but it is here to stay since this model is what the customers demand and suppliers will do what is necessary to meet that demand and do it for a profit for its stockholders. When enrollments exceed 440,000 students, that is a lot of demand for the model that UPX has pioneered. Add to that the similar models of the other for profit universities and add also their thousands of students enrolled and the evidence is overwhelming. Even the traditional schools are now forced to join the ranks by offering nontraditional educational formats and mainly they do so to compete for any of the students left in the market. I do believe that the issue discussed here is not the correct one--we should be engaged in intensive program review and evaluation studies to ascertain if the nontraditional methods of education delivery are producing graduates of the quality that our complex society of the 21st century demands.
8. amnirov - October 30, 2009 at 09:55 am
Why would anyone take UPX even remotely seriously?
9. jesor - October 30, 2009 at 01:43 pm
My opinion isn't jaded because of competition. Admissions counselors are actually supposed to be bound by an ethics code (check out the NACAC website). This includes always putting the needs of the student ahead of the needs of the institution. If I were to have violated that, I would have been reported and fired. High School and community college counselors keep a close eye on these things. Keep in mind, I've always worked at public institutions, but that doesn't mean that there hasn't been pressure to increase enrollments, it just means that I have never had my job put on the line because I refused to recruit someone who would not have benefitied from my insitution.